SUMMARY
The issuance of the impugned show cause notice is nothing but an abuse of the process of law: Rajasthan High Court
MyTeam11 had filed a writ petition with the Rajasthan HC over a show cause notice received from the DGGI
The HC ordered the DGGI to file a counter affidavit to the writ petition within a month
The Rajasthan High Court has asked the Directorate General of GST Intelligence (DGGI) to refrain from taking coercive action against Jaipur-based gaming startup MyTeam11 provided it files a response to the show cause notice received from the DGGI.
The two-judge bench consisting of Chief Justice Pankaj Mithal and Justice Shubha Mehta ordered the DGGI to file a counter affidavit to the writ petition within one month.
Inc42 has reviewed a copy of the order dated January 18.
MyTeam11 had filed a writ petition with the Rajasthan High Court over a show cause notice received from the GST intelligence authorities, along with the startup’s liability, interest and total penalty mentioned in the same notice.
The DGGI had submitted in the court that the games being offered by MyTeam11 were games of chance rather than skill and that amounted to miscategorisation and evasion from appropriate taxes.
However, the Rajasthan HC cited a 2019 case against gaming unicorn Dream11, adding, “the issue is no longer res-Integra and as such gaming services are not in the nature of betting/gambling.” Citing another case, the HC added that the games offered by MyTeam11 were of skill rather than chance.
The Supreme Court has ruled rummy and variants of rummy as a game of skill. Yet, major card games have a large component of ‘chance’ and hence the debate rages on.
Putting a stay on the DGGI notice, the court said, “Thus when the matter is so settled by various courts, the issuance of the impugned show cause notice is nothing but an abuse of the process of law.”
The bench stated in context with multiple cases from tax authorities against gaming startups for alleged miscategorisation of their GST status. Gaming companies have been under the lens of various tax and financial authorities for alleged tax evasion.
Last September, gaming startup GamesKraft received a notice from the DGGI of a tax liability worth INR 21,000 Cr. The case is ongoing in the Karnataka HC as the gaming company seeks a stay on the notice.
During the Winter Session in December 2022, the government told the Parliament that the Central Board of Indirect Taxes and Customs (CBIC) is investigating gaming companies for alleged GST evasion of nearly INR 23,000 Cr.
The government has approved a 28% GST on online gaming which includes real money. However, there are certain issues with the implementation of taxes in online gaming which has caused many discrepancies leading to litigation.
The lack of clarity between games of chance and games of skill is also a key reason for the trickiness in imposing taxes on online gaming.
