An interim stay was granted on a ₹780 crore GST demand against an online gaming company.
The Supreme Court has granted an interim stay on all further proceedings related to a show-cause notice (SCN) demanding approximately ₹780 crores from Nirdesa Networks Pvt. Ltd., an online gaming intermediary.
Issue
Can the GST department proceed with the adjudication of a massive show-cause notice against an online gaming company when the fundamental legal question—whether online skill-based gaming is considered “betting” for GST purposes—is already pending a final judgment from the Supreme Court in a lead case?
Facts
- The Directorate General of GST Intelligence (DGGI) issued a show-cause notice (SCN) to Nirdesa Networks, demanding about ₹780 crores.
- The department’s case relied on Rule 31A(3) of the CGST Rules, which prescribes the valuation method for supplies in casinos, horse racing, and online gaming, treating the entire bet value as the taxable amount.
- The assessee, Nirdesa, challenged this in a writ petition, arguing that:
- They offer skill-based games, not “betting” or “gambling.” Therefore, Rule 31A(3) is not applicable to them.
- The SCN suffers from a jurisdictional error by misclassifying their service.
- The provision that allows for such a valuation rule might be unconstitutional.
- Crucially, this exact legal issue has already been argued extensively before the Supreme Court in the lead case of Gameskraft and other connected matters, and the judgment in that batch has been reserved.
Decision
The Supreme Court ruled in favour of the assessee.
- It granted an interim stay on any further proceedings based on the SCN.
- Recognizing that the core legal issues were identical, the court tagged Nirdesa’s petition with the main Gameskraft batch.
- The court reasoned that it would be premature for the department to adjudicate the SCN when the Supreme Court itself is about to deliver a final and binding judgment on the very same legal question.
Key Takeways
- No Adjudication on a Sub-Judice Matter: When a fundamental legal issue is pending for a final decision before the Supreme Court, lower authorities and even High Courts will typically stay their own proceedings on the same issue to await the final verdict. This prevents conflicting orders and ensures judicial consistency.
- The Power of “Tagging”: “Tagging” is a common and efficient judicial practice where cases that involve identical legal questions are grouped together. This ensures that all similar cases are heard together and decided by the same consistent principle.
- An Interim Stay Provides Immediate Protection: The grant of an interim stay is a crucial relief for the taxpayer. It provides immediate protection from any further departmental action or coercive recovery while the main legal question is being settled by the apex court.
- The Core of the GST Online Gaming Dispute: This case is part of a larger, industry-defining legal battle. The central question is whether GST should be levied on the full face value of the bet (the entire amount pooled by players) or only on the platform fee or commission earned by the gaming company (the Gross Gaming Revenue). The Supreme Court’s final judgment in the Gameskraft case is expected to settle this for the entire industry.