Karnataka High Court on Thursday quashed the show cause notice filed against the gaming platform Gameskraft Technology issued by the Directorate General of GST Intelligence (DGGI) demanding Rs 20,989 crore in taxes for the period August 2017 to June 2022.
It was the biggest tax demand notice issued in the history of indirect taxes in India.
In the show cause notice issued in September 2022, the authorities said that Gameskraft was promoting online betting through card, casual and fantasy games like Rummy Culture, Gamezy and Rummy Time. They alleged that GTPL has allowed its clients to place bets in the form of money on the games played online.
The firm, it said, was pushing customers to continue betting because there is no way of going back once the money has been added to the wallet. The notice said that the GST department believed that the services provided by Gameskraft come under betting and gambling and are subject to 28 per cent GST as per Rule 31A of the CGST Rules, 2017.
It added that the company was issuing back-dated invoices to the customers, which directly violates Section 15(3) of the CGST Act, 2017.
The company had said that the issue of taxability of online gaming has been pending before the GST council for over three years. It alleged that the authorities had erred and put the gameplay under the tax bracket of 28 per cent.
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The issue first came to light when the GST authorities raided the office of Gamekraft 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.
"This is truly a momentous occasion 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, while historic in its import, is completely in line with more than 60 years of settled law as laid down and repeatedly affirmed by the Hon'ble Supreme Court and various High Courts," said Sudipta Bhattacharjee, indirect tax partner at the law firm Khaitan & Co. who was representing Gameskraft in the case.
Sameer Chugh, chief legal officer at Games24x7, said, "The verdict of the Hon'ble High Court of Karnataka upholding the law by allowing the petitions is a reinforcement of the stand of the industry in following the existing GST framework under which it has been operating."
"The pronouncement today, along with the recent progressive regulations in the online gaming sector, including the notification of rules for online gaming by the Ministry of Electronics and Information Technology (MeitY) and the amendments to the Income Tax Act made through the Finance Bill 2023, helps to reinstate the demarcation between online gaming from games of chance involving betting and gambling...We are hopeful that the legal precedence set in this case will guide future discussions on economic and taxation policies pertaining to the skill gaming industry," he added.
"This landmark decision by the Hon’ble Karnataka High Court which reiterates six decades of jurisprudence, will greatly aid gaming start-ups across India to work towards building the industry and ensure its healthy growth," said Roland Lander, CEO, All India Gaming Federation (AIGF).
"The sector awaits GST clarity which stands as the biggest survival threat for the entire sector. We are looking to have this development also feed into the ongoing GST conversation with the Group of Ministers. The sector has over 1,000 companies which are less than 24 months old and in the early revenue stages. We are hoping that the government will continue to encourage companies to invest in technology and IP creation and consider the survival of the sector by retaining 18 per cent GST on the commission, which we consider as being the only sustainable tax model," said Saumya Singh Rathore, co-founder at WinZO games.
