Karnataka HC quashes Rs 21,000 crore GST notice against Gameskraft

The Karnataka High Court has quashed a Rs 21,000 crore show-cause notice issued by the Directorate General of GST Intelligence (DGGI) to Bengaluru-based online gaming company, Gameskraft Technology Private Ltd (GTPL).

The notice was issued by the DGGI in September 2022 in what was the biggest show cause notice in the history of indirect taxation. GamesKraft was accused of not paying GST (Goods and Services Tax) to the tune of Rs 21,000 crore and the show cause notice is for the period between 2017 to June 30, 2022.

As per Sudipta Bhattacharjee and Onkar Sharma (Indirect Tax partners at the law firm Khaitan & Co), who were at the forefront of this battle from a GST perspective and helped Gameskraft in this long-drawn legal battle from the time the DGGI investigation started in November 2021, this is a heartening development.

“The authorities sought to levy GST against Gameskraft and in the last few months, against the entire online skill-gaming sector in India in a manner that is applicable only for companies indulging in ‘betting and gambling’, thereby obliterating the centuries-old, legally recognised distinction between ‘games of skill’ and ‘games of chance’. This is a historic judgement for the entire online gaming sector in India and it is heartening to note that a position of law which has been settled for more than 60 years, that games of skill cannot fall under the ambit of ‘betting and gambling’ even if played for stakes, has not been deviated from," Bhattacharjee said.

"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," Sameer Chugh, Chief Legal Officer, Games24x7, said.

"The legitimate online skill gaming platforms have been united as an industry in developing strong and ethical self-regulatory mechanisms and have been forthcoming in their commitment to running fully compliant businesses, operating by the laws of the land. 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.

Abhishek A Rastogi, who argued for Witzeal Technologies before the Punjab and Haryana High Court in a similar matter, said “If India has to become an online gaming hub, then it is important to have clear tax provisions and other regulations. Any hanging sword of such a high magnitude, specially on valuation, would only unsettle and discourage the business."

Roland Lander, CEO, All India Gaming Federation (AIGF), said this judgment will greatly aid gaming start-ups across India to work towards building the industry and ensure its healthy growth.

"We believe that a progressive and rational GST policy will boost investments within the sector ... (we) are hopeful that this progressive decision will pave the way towards clarity and certainty from the GST Council in the GST policy for this sunrise sector," he said.

"The online gaming industry of India is the fastest growing sector in the world and the biggest opportunity for India. However, it continues to suffer significantly due to a lack of taxation clarity, and notices worth the valuation of companies that were issued on various interpretations of the law that very clearly differentiates between games of skill and games of change. FDIs that would create many startups in the country are inaccessible on only one accord — the air that has existed for more than 18 months now, that taxation is unclear," said Saumya Singh Rathore, Co-Founder at WinZO games.

When CNBC-TV18 sought comments from the Central Board of IndirectTakes and Customs (CBIC), DGGI, and the Union finance ministry, sources said that the government is waiting for the final copy of the order before deciding on possible legal options. The government, however, is determined that the show cause notice issued was following a detailed investigation and not unjustified, the sources added.

Malay Shukla, Secretary, E-Gaming Federation, said this judgment will have a direct impact on the industry.

“We believe this is a meaningful outcome that will have a direct and material impact on the growth of the online gaming industry and will help the industry operate with clarity," he said.

Saurabh Agarwal, Tax Partner, EY, added that this development is in line with the global position on levying GST on gaming sector on the gross gaming commission. "This is likely to boost investment in this upcoming sector in India," he added.