GST Council to Appeal in Division Bench of Karnataka High Court Against GamesKraft Technology

GST Council to Appeal in Division Bench of Karnataka High Court Against GamesKraft Technology

The Goods and Services Tax (GST) council is set to file an appeal before the Division Bench of the Karnataka High Court, after the single judge Justice SR Krishna Kumar had quashed a GST notice issued against an online gaming platform Gameskraft Technology for alleged evasion of Rs. 21,000 crores, an order which will have a bearing on India’s skill-gaming sector that is awaiting GST clarity.

Previously, a Rs. 21,000 crores notice was to Gameskraft which had been stayed by the High Court in September 2022. It has been reported to be the biggest claim in the history of indirect taxation. The notice was issued for the period between 2017 and 30 June, 2022.

Indirect Tax Partner Sudipta Bhattacharjee from Khaitan & Co. who had appeared for Gameskraft in this long-drawn legal battle from the time the investigation started in November 2021, said, “This is historic for the entire online gaming sector in India. After the clarity on the regulatory front from MEITY recently, 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. The judgment is in line with more than 60 years of settled law as laid down and repeatedly affirmed by the Supreme Court and various High Courts.”

According to Bhattacharjee 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.’

According to Gameskraft, the majority of these games are rummy, which they argued had been previously held to be a game of skill.

The GST Department on the other hand contended that it amounted to a platform for games of chance, and hence liable to taxation at 28 per cent as they would come under “supply of actionable claim”.

The GST department asserted that this would be applicable to the entire buy-in amount being staked by the players, as opposed to the payment that Gameskraft was making, which was 18 per cent calculated on the platform fees that was charged to both players.

In November 2021, a raid had been conducted by the Directorate General of GST at Gamekrafts premises. Gamekraft’s bank accounts were also attached under CGST Act.

An Intimation notice was issued under CGST Act, with a tax demand of Rs. 21,000 crores in September 2022, after which Gameskraft obtained a stay order.

Gameskraft vociferously asserted that the show cause notice based on the stayed intimation notice was also received on the same day that the stay order was obtained, September 23. They further argued that Gameskraft could not be taxed as a “supplier of actionable claim” since they had no rights over the pooled money between the players, while also reiterating the position that rummy would have to be considered only as a “game of skill.”

The same notice was then quashed by order of the High Court.