Karnataka HC quashed SCN of Rs. 21,000 crores issued to Gameskraft’s online gaming activities.
This case argued by who’s who of the legal and constitutional law advocates/sr. advocates.
The main issue was the difference between “game of skill and game of chance” and valuation/tax rate on both or each. Tax arbitrage is huge and it can be 28% on the betting amount or 18% on user charges only.
Show Cause Notice (SCN) of Rs. 21,000 crores issued by the Revenue department on Gameskraft’s online gaming activities, considering the entire amount of bet placed instead of the tax on user fees/entry fees etc. which is the revenue for the company.
• Games like rummy, whether played online or physical, with or without stakes, are considered games of skill. The test of predominance is applied to determine the classification.
• Wagering contracts are recognized as part of the business under Section 2(17) of the CGST Act. However, this does not mean that lottery, betting, and gambling are synonymous with games of skill.
• The terms “lottery, betting, and gambling” in Entry 6 of Schedule III of the CGST Act should be interpreted based on judicial decisions, which exclude games of skill.
• Games of skill are not considered taxable under Entry 6 of Schedule III, which applies to games of chance such as lottery, betting, and gambling.
• Taxation of games of skill falls outside the scope of the term “supply” according to Section 7(2) of the CGST Act, read with Schedule III.
• A game of chance, whether played with stakes or not, is considered gambling.
• A game of skill, whether played with stakes or not, is not considered gambling.
• A game that combines elements of chance and skill is gambling if it is predominantly a game of chance.
• Rummy is predominantly a game of skill, not chance, whether played with stakes or not.
• There is no distinction between offline/physical rummy and online/electronic/digital rummy. Both are considered games of skill.
• Other online/electronic/digital games that are predominantly skill-based are also not considered gambling.
• The terms “betting” and “gambling” are applicable for GST purposes, and they do not apply to online/electronic/digital rummy or other predominantly skill-based games.
• The show cause notice issued by the respondents to the petitioners is deemed illegal, arbitrary, and without jurisdiction or authority of law and is subject to be quashed.
The order is worth reading.
This matter is pending with GST Council for many years and yet to arrive at the decision. The GoM constituted twice.