First Games Technology Faces GST Show Cause Notice

First Games Technology Private Limited, which operates as a subsidiary of One 97 Communications Limited, has been issued a show cause notice by the Director General of GST Intelligence, Delhi (DGGI).

As detailed in a disclosure made by Paytm to the National Stock Exchange (NSE), the notice suggests a liability of Rs 5,712 crore, including applicable interest and penalties, covering the period from January 2018 to March 2023.

The notice relates to an ongoing dispute within the online gaming sector that has been active for the last 18 months, centring on the calculation of GST liability. Specifically, it has been calculated at a rate of 28% on the total entry amount rather than the 18% on the platform fees (revenue) received by gaming companies.

Legal Action Against Show Cause Notice

According to the disclosure, First Games plans to file a writ petition to contest the show cause notice (SCN), challenging the retrospective application of the GST amendment dated October 1, 2023, along with previous GST interpretations. The company intends to seek interim relief, akin to what has been granted to other entities in the gaming space.

Impact on Paytm’s Operations

Paytm has indicated that the issuance of the SCN is not expected to influence its operations. The company’s investment in First Games has already been marked as having a nil carrying value in Paytm’s consolidated financial statements as of March 2024.

Recent Regulatory Issues

In the previous month, Paytm also received a show cause notice from the Directorate of Enforcement (ED) regarding allegations connected to Little Internet Pvt Limited (LIPL) and NearBuy India Pvt Ltd (NIPL).

This development has emerged just before the announcement of Paytm’s Q4 results. In the third quarter of the last fiscal year (Q3 FY25), the company reported an operational revenue of Rs 1,828 crore, alongside a loss of Rs 208 crore during that same period.