GST Show Cause Notice Update: First Games Technology vs Supreme Court

GST Show Cause Notice proceedings involving a significant Rs 5,712 crore have been temporarily halted by the Supreme Court of India for First Games Technology Private Limited, which is affiliated with One 97 Communications Ltd (Paytm).

This update was disclosed by Paytm through a regulatory filing on May 24, following an interim order from the Supreme Court issued on May 23. The order stemmed from a petition put forward by First Games challenging a GST notice from the Directorate General of GST Intelligence (DGGI) pertaining to the timeframe from January 2018 to March 2023.

Details of the Supreme Court’s Order

The apex court’s decision stated, “Further proceedings of all the impugned show cause notices shall remain stayed till the final disposal of the main matter along with all the matters which are tagged.” This stay provides temporary legal relief to Paytm’s gaming segment, allowing them extra time to prepare their defence without the pressure of immediate fines.

Context of the GST Notice

Previous statements from Paytm indicated that this GST notice is linked to broader issues currently affecting the online gaming industry. The primary contention revolves around the application of GST at a rate of 28% on the complete entry amount; gaming companies argue that it should only be 18% on their actual earnings derived from platform fees.

Industry-Wide Implications

The Show Cause Notice forms part of a wider investigation led by the GST department, which has issued similar notices to multiple gaming enterprises. The situation is being carefully monitored by various stakeholders within the online gaming sector.

Financial Impact on Paytm

In terms of finances, Paytm’s operating revenue saw a decrease of 16% year-on-year, falling to Rs 1,911 crore in the fourth quarter of FY25, down from Rs 2,267 crore in the corresponding quarter of FY24. Conversely, the company based in Noida managed to reduce its losses to Rs 23 crore in Q4 FY25, achieving a significant 96% decrease from losses of Rs 536 crore in Q4 FY24.