Dream 11 challenges Rs 18,000 crore GST notices, but more notices totalling Rs 1 lakh crore
Sources told CNBC-TV18 that pre-show-cause notices have been served by the Directorate General of Goods and Services Tax Intelligence (DGGI) on at least six online gaming companies.
CNBC-TV18 learnt that fantasy gaming company Dream 11 received at least 4 such tax demands so far, mounting to the total of Rs 18,000 crore. Sources said that the notices for Rs 18,000 crore, include a tax demand for Rs 6,000 crores, and approximately Rs 12,000 crore in interest and penalty. They add that independently, Dream11 is engaging with the DGGI to sort out the matter.
What DGGI alleges
According to the sources, the DGGI alleged irregularities on account of wrong classification of the activity of online fantasy sport gaming. It said Dream 11 did not submit requisite documents despite several intimations by the DGGI.
The DGGI Mumbai Zone had initiated enquiry against Dream 11 in September 2018. A detailed inspection by the DGGI was conducted on September 14, 2023. During inspection, Dream 11 informed and submitted documents (Form GST DRC 01 for FYs 2017-18 and 2018-19) issued by the state government of Maharashtra on September 12 2023.
As per information shared by Dream 11, Final Audit Reports was issued by Maharashtra State authorities on January 10, 2022 and January 12, 2023.
Dream 11 files writ petition
Responding to the move, the company filed a writ petition before the Bombay High Court against the show cause notice issued by Maharashtra State GST Audit authorities. The writ petition argued that the company has failed to pay 28 percent GST on the face value of the bets collected by it between July 2017 and March 2022.
It further said that the notices seek to levy and recover differential GST on the premise that the services supplied were those of gambling.
Dream 11 also challenged the fact that the notices and investigations propose to tax the entire Contest Entry Amount. It has called this ‘arbitrary and unreasonable.’ Sources indicate that many more such notices are on the way, with intimation notices already having been sent out to at least six online gaming companies, including digital skill gaming company Games 24X7.
An intimation of tax determined as payable through the DRC-01A form has been issued by authorities to these online gaming companies. Industry sources suggest that the tax demands industry-wide could stand at over Rs 1 lakh crore.
They add that most of these notices will be sent out by the end of September. In cases where intimation notices have already been sent, the DGGI has asked companies to clarify and explain their stand before final notices are prepared and sent out.
It must be noted that this comes after the Supreme Court, earlier this month, stayed a Karnataka High Court order in which the High Court had quashed a show cause notice issued by DGGI which also asked Gameskraft to pay additional GST to the tune of Rs 21,000 crore. Experts suggest that this stay has allowed the GST authorities to send out similar notices to other companies.
The government will apply GST law to other gaming companies in the same way as was done in the case of Gameskraft, and all these gaming companies will have to comply with the law, sources said. Dream 11 has refused to comment on the matter.
