First Games to file writ on GST notice, joining other gaming companies before Supreme Court amid industry-wide dispute

On Monday, Paytm (One97 Communications Limited, "OCL") informed that its subsidiary, First Games Technology Private Limited ("First Games"), has received a Show Cause Notice ("SCN") from the Directorate General of GST Intelligence (DGGI).

It said "This is to inform you that our subsidiary company, First Games Technology Private Limited ("First Games"), has notified us today at 6:07 p.m. IST that in relation to an ongoing GST matter in the online gaming industry for over 18 months, they have received a Show Cause notice ("SCN")"

The DGGI has taken the position that GST should be levied at 28 per cent on the total entry amount, instead of the 18 per cent GST currently paid on the platform fee or revenue earned by gaming companies.

Paytm emphasised that this is an industry-wide issue and that several other online gaming operators have received similar notices in the past.

This matter is currently pending before the Honourable Supreme Court, which has granted interim relief by staying further proceedings on previously issued notices after hearing writ petitions filed by multiple gaming companies.

"In line with the industry," Paytm stated in its filing, "First Games will also be filing a writ petition challenging the SCN on legal grounds, including the retrospective application of the GST amendment dated October 1, 2023, and/or the interpretation of GST regulations prior to the amendment."

The petition will seek interim relief in line with what has been granted to other gaming operators.

The SCN issued to First Games proposes a GST liability of Rs5,712 crore, along with applicable interest and penalties, for the period from January 2018 to March 2023.

Paytm has clarified that this development does not impact its operations or other activities.

"First Games is considered as a "JV" for Group consolidation perspective as per Accounting standards, hence its revenues are not consolidated, and our share of its profit/ loss as per Equity method, is less than 1% of OCL's Consolidated Profit / Loss for the financial year ended March 31, 2024.," the company said.

It stated that First Games contributed less than 1 per cent of its consolidated profit/loss for the financial year ended March 31, 2024.

The filing also noted that the carrying value of Paytm's investment in First Games is already nil as of March 31, 2024. OCL's financial exposure to First Games stands at approximately Rs 225 crore, primarily in the form of a shareholder loan (including applicable interest) as of December 31, 2024.