First Games Faces Rs 5,712 Cr GST Demand, Plans Legal Challenge Amid Industry-Wide Tax Row

First Games Technology, a subsidiary of One97 Communications Ltd (OCL), which operates under the Paytm brand, has received a show cause notice from the Directorate General of GST Intelligence (DGGI) proposing a tax liability of Rs 5,712 crore. This demand includes applicable interest and penalties for the period spanning January 2018 to March 2023.

The notice alleges that the company should have paid 28 per cent GST on the total entry amount collected, as opposed to the 18 per cent it paid on platform fees or the revenue earned. In a statement, the Noida-headquartered firm highlighted that the issue is not unique to them and affects the broader online gaming industry. Several gaming platforms have received similar notices from tax authorities. The matter is currently pending before the Supreme Court, which has granted interim relief by staying further proceedings.

First Games announced that it intends to file a writ petition to contest the show cause notice. The legal challenge will also dispute the retrospective application of the GST amendment implemented on October 1, 2023, and seek parity in interim relief with other players in the industry.

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The company clarified that the ongoing tax issue does not affect the operations of its parent company, One97 Communications Ltd.

Separately, in March, the Enforcement Directorate (ED) issued another show cause notice to OCL over alleged violations of the Foreign Exchange Management Act (FEMA). The case involves transactions worth over Rs 611 crore related to the acquisition of subsidiaries Little Internet Private Ltd (LIPL) and Nearbuy India Private Ltd (NIPL), formerly known as Groupon. Of the total amount, approximately Rs 345 crore is linked to LIPL and Rs 21 crore to NIPL, while the remaining sum is attributed to OCL itself. The alleged violations also extend to certain directors and officials associated with the transactions.