Dark clouds loom over the post-probe move against online gaming companies by GST Authorities after a ruling by Karnataka High Court in the Gameskraft matter. The government, in a response to a question in Lok Sabha some time back, had given an estimate of tax evasion of around ₹23,000 crore by some gaming companies (including online gaming companies)

businessline had reported that the Central Board of Indirect Taxes and Customs (CBIC) will initiate action against online gaming companies, based on its investigation, after the Karnataka High Court decides on a challenge petition filed by Bengaluru-based Gameskraft. Since the ruling has gone against Tax Department, so initiation of action against other companies is likely to be delayed. There are indications that Government may move to the Supreme Court against the High Court ruling. This mean further action could depend upon apex court ruling.

On May 11, the High Court quashed a show cause notice (SCN) of ₹21,000 crore issued to Gamescraft. The whole issue is about a game of skill vs a game of chance. While the industry says it is a game of skill to the GST rate would be 18 per cent, the government calls it a game of chance and wants GST to be applicable at the rate of 28 per cent.

In its ruling, the High Court said there is a distinct difference between games of skill and games of chance; games, such as rummy, etc., as was discussed in several decisions above and particularised in the Division Bench decision of this Court in All India Gaming Federation’s case whether played online or physical, with or without stakes would be games of skill and test of predominance would apply.

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“Though Section 2(17) of the CGST Act recognises even wagering contracts as included in the term business, but that in itself would not mean that lottery, betting, and gambling are the same as games of skill,” the Court said. Further, it added that a game of chance whether played with stakes is gambling and a game of skill whether played with stakes or without stakes is not gambling. Online/Electronic/Digital Rummy whether played with stakes or without stakes is not gambling. Other Online/Electronic/Digital games that are also substantially and preponderantly games of skill and not of chance are also not gambling, clarified the Court.

“The entire controversy revolves around the disputed fact whether online gaming involves supply of ‘actionable claims’. The online gaming companies facilitate skill-based games, and in any case, the actionable claim, if any, is between the players and actionable claims, are excluded from the purview of GST”, explained Abhishek A Rastogi, founder of Rastogi Chambers, who had argued petitions for online gaming companies even prior to the Karnataka High Court decision.

The Punjab and Haryana High Court had held that no coercive action can be taken against online gaming companies as the matter has not been decided by the GST council. “The appeal will now be filed before the division bench of the Karnataka High Court and the matter is expected to be resolved only at the Supreme Court level as there are several fundamental questions of law, which need to be decided”, added Rastogi.

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