 "Gameskraft case: SC stays K'taka HC order quashing Rs 21,000 cr GST notice")
The Supreme Court (SC) on Wednesday stayed the Karnataka High Court’s ruling quashing the GST authorities’ tax demand order of Rs 21,000 crore on Bengaluru-based gaming firm Gameskraft.
“Pending further orders, there shall be an ad interim stay of the impugned judgment and order of the single judge of the High Court of Karnataka,” the apex court said.
The SC stay is another setback to the online gaming industry, after the Goods and Services Tax (GST) Council last month decided to impose a flat 28 per cent tax on the face value of bets placed in online gaming, casinos, and horse racing. Accordingly, amendments were made to GST laws (CGST Act and IGST Act) in the monsoon session. The new rules would be effective from October 1.
The Bench of Chief Justice of India (CJI) D Y Chandrachud, and Justices JB Pardiwala and Manoj Misra said there were several critical points in the Karnataka HC order that needed consideration. “Do not worry. Nothing is going to happen in three weeks,” the CJI orally remarked. However, it refused to restrain the department from initiating recovery proceedings against Gameskraft.
The apex court also issued notices to the gaming firm to file its response following the government’s petition. The court would hear the matter within three weeks.
On behalf of the revenue department, additional solicitor general N Venkatraman argued that Gameskraft’s services come under betting and gambling, which is subject to 28 per cent GST. He said the game is played on the basis of two different transactions -- the game of rummy and the wager on the game outcome.
The revenue department noted that there were 35 similar show cause notices currently on pause, awaiting clarity. It even cited the Supreme Court’s earlier rulings that activities aimed at making a profit or adding stakes were tantamount to gambling, and therefore subject to GST
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Responding to the argument, senior counsel Mukul Rohatgi, on behalf of Gameskraft, said that according to the Supreme Court's earlier judgments, a rummy game with or without a stake is a game of skill.
The Karnataka High Court on May 11 quashed the Rs 20,989 crore show cause notice to Gameskraft over alleged GST evasion. This was the biggest such claim in connection with indirect taxation.
The GST notice alleged that Gameskraft allowed its clients to place money bets on games played online, saying the company was promoting online betting through card, casual, and fantasy games like Rummyculture, Gamezy, and Rummytime.
The authorities had, therefore, slapped a 28 per cent tax — which is applicable on games of chance/betting and gambling — on the firm on a betting amount of about Rs 77,000 crore.
The revenue department moved a special leave petition in the SC against the high court’s order.
Gameskraft, said officials, was pushing customers to continue betting because there was no way of going back once the money was added to its wallet. They alleged that the company was not issuing invoices to its customers. Back-dated invoices, they alleged, were uncovered during forensic examinations of documents, which “directly violate Section 15(3) of the Central Goods and Services Act, 2017”.
The company then said that the issue of the taxability of online gaming was pending before the GST Council for over three years. It alleged that the authorities had erred and placed gameplay under the 28 per cent tax bracket.
The issue first came to light when the GST authorities raided the office of Gameskraft in November 2021. The quantum of alleged evasion was first marked at Rs 419 crore. This rose to Rs 5,000 crore, and ultimately to Rs 21,000 crore in 2022.