Dream 11 has followed the example of Gameskraft as it resorted to legal action against a show cause notice issued by tax authorities in response to allegations of evading GST.
The tax department has demanded around $150 million from Dream11 for underpaying taxes during 2017-2019, which the company disputes.
The ongoing dispute
Both parties are arguing over what tax rates should be paid by such gaming platforms.
Dream11 argues it should pay a tax on fees it charges customers, while Indian authorities are asking for 28% tax on total gaming revenue it makes from players.
Indian tax inspectors are “alleging that the service” provided by Dream11 “is that of betting/gambling/wagering”, court papers stated.
However, the company claims its gaming platform is a “games of skill” and attracts a lower tax rate which should be levied on its earnings, known as platform fees, and not the prize pool.
Writ petition challenging accusations
Parent company Dream Sports lodged a writ petition in the Bombay High Court, challenging the show cause notice which accuses it of evading GST and failing to pay the 28% GST on the nominal value of bets.
The report cited sources that the tax allegations are staggering, totaling a massive Rs 40,000 Crores.
If proven right, this would make it the largest-ever claim in the history of indirect taxation in India.
The Gameskraft case
The largest claim thus far was the Rs 21,000 Crores show cause notice issued to Gameskraft, a Bengaluru-based company.
This notice pertained to alleged indirect tax evasion on a betting amount totaling INR 77,000 Crores, covering the period from 2017 to June 2022.
In response, the company went to the Karnataka High Court, which subsequently dismissed the notice.
Other similar platforms to be targeted as well
This decision proved to be a precedent, allowing the GST department to issue similar show-cause notices to approximately 40 gaming companies including Dream11.
Play Games24x7 and its affiliates, including RummyCircle and My11Circle have been served a notice seeking GST dues of Rs 20,000 crore while Head Digital Works has been served with a pre-show cause notice of over Rs 5,000 crore.
The Supreme Court is set to hear the matter again in the coming weeks.
Final nail in the coffin?
Skill gaming executives and legal experts said any unfavourable ruling from the apex court could have a destructive impact on the skill-based gaming industry already suffering from the recently announced 28 percent GST regime.
Back in July, the GST Council decided to impose 28 percent on the full face value, irrespective of whether it is a game of skill or chance.
Currently skill gaming platforms pay 18 percent GST on the platform fees, also known as Gross Gaming revenue (GGR).
Dream11 is at the top of the fantasy sports sector in the country, both in terms of its valuation and the number of users
Its most recent valuation surpassed $8 billion, boasting a user base of over 180 million
In the fiscal year concluding on March 31, 2022, it reported a net profit of INR 142 crores, generated from an operating revenue of INR 3,840.7 crores.