GST on Online Gaming: Karnataka HC quashes SCN of Rs. 21000 Crores against Gameskraft [Read Order]

The SIngle Bench of Justice S R Krishna Kumar quashed the impugned Goods and Services Tax (GST) Show-Cause Notice (SCN) against the petitioner Gameskraft which had imposed Rs. 21,000 Crore at 28% GST on online gaming services provided to gamers. The decision will provide clarity on whether the government's stance on imposing a 28% GST on the entry fees of online real money skill games is correct. This judgment is of significant importance to the entire online gaming industry. Khaitan & Co. appeared for Gamescraft in the case. According to Sudipta Bhattacharjee, (Indirect Tax partner at Khaitan & Co.), "The GST authorities sought to levy GST against Gameskraft and in the last few months, against the entire online skill-gaming sector in India in a manner that is applicable only for companies indulging in ‘betting and gambling’, thereby obliterating the centuries old legally recognized distinction between ‘games of skill’ and ‘games of chance’. This is a historic judgement for the entire online gaming sector in India and it is heartening to note that a position of law which has been settled for more than 60 years, that games of skill cannot fall under the ambit of ‘betting and gambling’ even if played for stakes, has not been deviated from. The entire revenue of the online gaming industry in India was estimated approximately to be in the range of INR 16 to 18,000 crores last year; the GST demand on Gameskraft (of Rs 21,000 Crores) alone exceeded the entire revenue of the whole sector in India - clearly, an absurdity! This whole dispute was avoidable as the issue of taxability of online gaming is pending before the GST Council for the last 3 years. The minutes of meeting of the GST Council and the comments of the Law Committee itself depict that the Council is cognizant of the complete distinction between ‘game of skill’ and ‘game of chance’. If online skill-based games played for monetary stakes indeed qualified as ‘betting’ for the purposes of GST (as alleged by GST authorities in this case) and were thus leviable to 28% GST on the entire face value of the monies staked on online gaming platforms, there would have been no need for extensive deliberations on the issue of applicable GST on online skill-based games in the GST Council, in the Law Committee and the Group of Ministers for the last 3 years." "After the recent clarity on the regulatory front from MEITY, this judgment will go a long way in achieving certainty of tax position under GST for the sector and should mitigate investor concerns in this regard. One hopes that this will be the end of this avoidable dispute", he added. Last year, in August 2022, the GST Intelligence unit issued a show cause notice to Gameskraft, seeking Rs 20,989 crore in taxes for the period between August 2017 and June 2022. According to the notice, the GST department considered Gameskraft's services as betting and gambling and thus subject to 28% GST under Rule 31A of the CGST Rules, 2017. In addition, the tax department alleged that the company did not issue invoices to its customers, which directly violates Section 15(3) of the CGST Act, 2017. Gameskraft, in its plea to the Karnataka HC, argued that it had already paid over Rs 1,500 crore in GST and the tax department was not differentiating between games of skill and chance. The Karnataka HC then sought input from the Directorate General of GST Intelligence (DGGI), which claimed that Gameskraft had filed their taxes under the wrong head, and the company's services attract a 28% tax rate. In October 2022, the not-for-profit gaming body E-Gaming Federation (EGF) filed an intervention application, stating that the outcome of the Gameskraft case would directly impact the entire online gaming industry, including online rummy operators. EGF referenced the old case of RMC Chamarbaugwala and argued that the Supreme Court (SC) had recognized the difference between skill-based and chance-based games. Both the Madras and Karnataka HCs had previously ruled that gaming and betting apply to games of chance and do not include games of skill. During a hearing on October 27, 2022, the Karnataka High Court bench led by Justice SR Krishna Kumar questioned how the GST department had concluded that Gameskraft's services were games of chance. The bench had emphasized that the nature of the games should be determined by experts, not department officers. It had also imposed an interim stay on the show cause notice till the disposal of the main case. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

GST on Online Gaming: Karnataka HC quashes SCN of Rs. 21000 Crores against Gameskraft [Read Order]

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