Online Rummy back in Spotlight: Supreme Court stays the Karnataka High Court judgment which held that the Online "Games of Skills" are not subject to Goods and Services Taxation
New Delhi: The Supreme Court has ordered an interim stay on the judgment of Karnataka High Court where it was held that the online “games of skills” such as rummy are not taxable as “betting” or “gambling” under the Goods and Services Act, 2017 quashing the GST Intimation Notice to the tune of Rs 21,000 crore. Acting on the plea filed by the Directorate General of Goods and Service Tax and Service Intelligence, the Chief Justice D.Y. Chandrachud-led bench, directed the online gaming startup, Gameskraft Technologies Pvt. Ltd. to file their reply.
It all began when the tax officials conducted searches at the Gameskraft premises and froze all of their bank accounts, on suspicion that they were involved in gambling/betting and were guilty of evading tax by misclassifying their supplies as the supply of services, whereas in fact, the supplies are in the nature of actionable claims (betting/gambling) that is the supply of goods.
The situation gained momentum when the tax authorities, based on the above suspicion, proceeded to issue a show cause notice treating their entire buy-in amount as consideration for the supply of actionable claims, thereby demanding tax at the rate of 28% instead of 18% on the entire buy-in amount. Aggrieved by the notice, the company decided to challenge it before the Karnataka High Court.
In a significant long judgment, the bench led by Justice S.R. Krishna Kumar observed that in general, the expression “lottery, betting and gambling” which does not include the game of skills, shall similarly be applicable for the purpose of Goods and Service Tax also. The expression “betting and gambling” contained in Entry 6 Schedule III of the CGST Act shall not be applicable to online/electronic/digital rummy or any other game which are substantially and predominantly games of skill, whether played with monetary stakes or not. Therefore, any online game including rummy which is played on the Gameskraft platform is not taxable as “gaming or betting” under the Central Goods and Service Act. Based on the said reasoning, the Court proceeded to quash and held the impugned show cause notice which demanded tax to the tune of INR 21,000 Crore to be illegal, arbitrary and without jurisdiction.
Upon staying on the order of the High Court of Karnataka, the Chief Justice D.Y. Chandrachud-led bench, directed the online gaming startup, Gameskraft Technologies Pvt. Ltd. to file their reply.
