GST; Online Rummy Games Played are not Taxable as Betting and Gambling: HC

The Karnataka High Court has rejected the GST Intimation Notice to the amount of Rs.21,000 crore, stating that online/electronic/digital Rummy games and other online/electronic/digital games played on Gameskraft’s platforms are not taxable as “betting” and “gambling.”

The bench of Justice S.R. Krishna Kumar has ruled that online, electronic, and digital games, which are primarily and predominately games of skill rather than chance, are not gambling.

The question was whether offline or online games like Rummy, which are primarily focused on skill rather than chance and can be played with or without stakes, constituted “gambling or betting,” as defined in Entry 6 of Schedule III of the Goods and Services Act, 2017.

Gameskraft Technologies Pvt. Ltd. (GTPL) is an online intermediary firm founded in June 2017 that operates technological platforms that allow players to compete in skill-based online games. The petitioner has over 10 lakh users from all across India, is based in Bangalore, and is GST registered.

The department has issued a Show Cause Notice to the petitioner and its founders in accordance with Section 74(1) of the CGST Act.

The department issued an Intimation Notice under Section 74(5) of the CGST Act, requiring GTPL to deposit Rs. 2,09,89,31,31,501 in addition to interest and penalties.

The petitioner stated that the cash given by participants to the prize pool are simply kept in trust and that the firms have no title, lien, or interest in them because the entities only collect a service fee (on which GST is paid) for the service performed. The entities concerned have made no delivery of goods or made any legal claims. As of now, the total income of the sector is not INR 21,000 crore. As a result, taxing only one business over INR 21,000 crore through the SCN is ludicrous.

The court ruled that the terms “betting” and “gambling” in Entry 6 of Schedule III of the CGST Act must be interpreted in the same way that they have been in the context of Entry 34 of List II of the Seventh Schedule to the Constitution and the Public Gambling Act, 1867. As a result, the phrases “betting” and “gambling” contained in Entry 6 of Schedule III of the CGST Act do not and cannot encompass games of skill.

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