Online Rummy Games Played Are Not Taxable As ‘Betting’ And ‘Gambling: Karnataka High Court Quashes GST Intimation Notice Demanding Rs. 21,000 Crores Against Gameskraft

The Karnataka High Court has quashed the GST Intimation Notice to the tune of Rs 21,000 crore and held 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 observed that online, electronic, and digital games, which are also substantially and preponderantly games of skill and not of chance, are also not gambling.

The issue raised was whether offline or online games such as Rummy, which are mainly based on skill and not on chance, whether played with or without stakes, are tantamount to "gambling or betting," as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017.

The petitioner, Gameskraft Technologies Pvt. Ltd. (GTPL), is an online intermediary company incorporated in June 2017 that runs technology platforms that allow users to play skill-based online games against each other. The petitioner has over 10 lakh users from across India, is headquartered in Bangalore, and is registered under the GST Act.

The department has issued a Show Cause Notice under Section 74(1) of the CGST Act to the petitioner as well as its founders.

The department issued an Intimation Notice under Section 74(5) of the CGST Act, calling upon GTPL to deposit a sum of Rs. 2,09,89,31,31,501 along with interest and penalty.

The petitioner contended that the monies contributed by players to the prize pool are merely held in trust and the companies have no right, lien, or interest over them as the entities merely charge a service fee for the service provided (on which GST is paid). There is no supply of goods or actionable claim by the entities involved. As of date, the revenue of the entire industry itself is not INR 21,000 crore. Therefore, to tax just one entity over INR 21,000 crore by way of the SCN is absurd.

The court held that the terms "betting" and "gambling" under Entry 6 of Schedule III of the CGST Act must be given the same interpretation given to them by the courts, in the context of Entry 34 of List II of the Seventh Schedule to the Constitution and the Public Gambling Act, 1867. Therefore, the terms "betting" and "gambling" appearing in Entry 6 of Schedule III of the CGST Act do not and cannot include games of skill within their ambit.

Case Title: Gameskraft Technologies Private Limited Versus Directorate General Of Goods

Case No.: Writ Petition No. 19570 Of 2022

Citation: 2023 LiveLaw (Kar) 175

Date: 11/05/2023

Counsel For Petitioner: Abhishek Manu Singvi

Counsel For Respondent: N.Venkataraman

Click Here To Read The Order