Paytm shares in focus as First Games receives Rs 5,712 crore GST notice

Shares of One 97 Communications Ltd (Paytm) are in focus after one of its subsidiary, which Paytm considers joint venture for group consolidation perspective, reported receiving of a Rs 5,712-crore GST show cause notice. 
Paytm said the Directorate General of GST Intelligence (DGGI) has taken a view that the payable GST liability should be computed at 28 per cent on the total entry amount against 18 per cent GST paid on the platform fee (revenue) generated by the gaming companies. 

"This is an industry-wide issue where the GST department has sent notices to several gaming companies previously. This matter is currently pending with the Honourable Supreme Court and they have granted interim relief by staying further proceedings," Paytm informed stock exchanges BSE and NSE.

Paytm shares are up 10 per cent in the past one month but down 10.5 per cent year-to-date. MOFSL last month said it remained watchful on the challenging macro-environment, Paytm's traction in the financial distribution business and near-term UPI market share. It maintained a 'Neutral' rating on Paytm with a revised target of Rs 870. The stock settle at Rs 882 on Monday. 

Paytm insisted that the show cause notice would not have any impact on the operations or other activities of One 97 Communications, saying First Games is considered as a JV for Group consolidation perspective as per accounting standards and, hence, its revenues are not consolidated. Paytm said the share of its profit/ loss is less than 1 per cent of OCL’s consolidated profit/Loss for the financial year ended March 31, 2024. 

"The carrying value of Investment in First Games in the Consolidated Financial Statements of OCL as on March 31, 2024 is already Nil. OCL’s exposure to First Games is limited to approximately Rs 225 crore, primarily on account of shareholder loan (including applicable interest) as on December 31, 2024," Paytm said.

In alignment with industry practices, First Games intends to file a writ petition challenging the SCN on legal grounds, specifically contesting the retrospective application of the GST amendment effective October 1, 2023, and/or the interpretation of GST regulations prior to that amendment. The petition will also seek interim relief similar to that granted to other gaming industry players. Accordingly, First Games will dispute the proposed liability of INR 5,712 crores (as stated in the SCN), along with the associated interest and penalties, for the period spanning January 2018 to March 2023.