Relief to gaming industry: Karnataka High Court quashes biggest GST Demand in matter of Gameskraft

The Single Bench of Justice S R Krishna Kumar quashed the impugned GST Show Cause Notice against the Gameskraft, who is petitioner, which alleged the company failed to pay Rs.21000 Crore in GST on online gaming services provided to gamers.

The ruling will make it clear whether or not the government is right to impose a 28% GST on the entry fees for online real money skill games. This judgment is of significant importance to the entire online gaming industry.

Gameskraft Technology Private Limited (GTPL) was also accused of promoting online betting through cards, casual and fantasy games such as Rummy Culture, Gamezy, and Rummy Time. Gameskraft reportedly was not providing bills to clients, the officials stated.

GST officials levied a 28 percent tax on betting amount of approximately Rs 77,000 crore. “GTPL was engaged in the betting by allowing its players/gamers to place bets in the form of money stakes on outcome of card games played online,” the authorities claimed.

They claimed that the gambling platform filed false or backdated invoices, which were found following a forensic review of the records. They also claimed that the business was pressuring its consumers to wager money since there was no way to get their money back once it had been deposited to the wallet.

The whole income of the Indian online gaming market was roughly estimated to be between INR 16 to 18,000 crores last year; the GST demand on Gameskraft (of Rs 21,000 crores) alone surpassed the total revenue of the Indian market, which is obviously ludicrous!

Gameskraft, in its plea to the Karnataka HC, contended that it had already paid over Rs 1,500 crore in GST and the tax authority was not discriminating between games of skill and chance.

The Directorate General of GST Intelligence (DGGI), which was consulted by the Karnataka High Court, asserted that Gameskraft had submitted their taxes under the incorrect heading and that the company’s services are subject to a 28% tax rate.

The non-profit gaming organisation E-Gaming Federation (EGF) submitted an intervention application in October 2022, asserting that the resolution of the Gameskraft case will have a direct impact on all players of online games, including online rummy companies.

EGF claimed that the Supreme Court (SC) had acknowledged the distinction between skill-based and chance-based games by citing the previous case of RMC Chamarbaugwala. Prior decisions by the Madras and Karnataka High Courts had established that gambling and gaming only apply to games of chance and exclude 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 established that Gameskraft’s services were games of chance.

The bench had made it clear that specialists, not department administrators, should choose the games’ content. The show cause notice had also been given a temporary hold until the main matter was resolved.