Centre Likely To Move SC Against Karnataka HC Order Quashing GST Notice Against Gameskraft

The Central government might move against the Karnataka High Court order quashing an INR 21,000 Cr tax evasion notice issued to Bengaluru-based online gaming startup Gameskraft Technology.

Before moving to the apex court, the government may discuss this matter with the GST council, CNBC Awaaz reported.

The Directorate General of GST Intelligence (DGGI) issued the INR 21,000 Cr show-cause notice to Gameskraft in September last year alleging tax evasion by the startup on a betting amount of INR 77,000 Cr between 2017 and June 2022.

Last month, the Karnataka HC order was passed by Justice SR Krishna Kuma. The order also dismissed the tax body’s argument that a game of skill should be considered as betting and gambling if it is played for money.

While the Karnataka HC did not recognise skill-based games as gambling, the Centre might challenge this as well. The government is reportedly of the opinion that all online games are a form of gambling and they should all attract 28% GST.

However, earlier it was reported that the finance ministry is considering classifying online games into two categories – games of skill and chance to levy a differential rate of GST.

It must be noted that the Finance Act, 2023 recognised the online gaming industry as a new-age industry, distinguishing it from gambling and betting.

The online gaming industry is still awaiting clarity on GST. Currently, a tax rate of 18% is levied on the commission collected by online gaming platforms for games not involving betting or gambling.

Last December, the group of ministers (GoM) looking at taxation of online gaming, races, and casino, headed by Meghalaya Chief Minister Conrad Sangma-headed panel submitted its second report to Finance Minister Nirmala Sitharaman. The Centre will also discuss the GoM report on online gaming at the GST Council.

According to a report by VC firm Lumikai, India’s gaming market was estimated to be worth $2.6 Bn in FY22. It is estimated to reach a size of $8.6 Bn by FY27. The number of gamers in India stood at 507 Mn in FY22, growing 12% from 450 Mn in FY21.

With the growing popularity of online gaming, a large number of gaming startups have emerged in the country over the last few years, including unicorns such as MPL, Dream11, Games 24×7 among others.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.