SUMMARY
Justice SR Krishna Kumar dismissed the DGGI’s argument that a game of skill should be considered as betting and gambling if it is played for money
While the DGGI sought to levy 28% GST on the betting amount of Gameskraft’s companies, the gaming company argued that rummy is a skill game and hence invites only 18% GST
The DGGI issued the show-cause notice to Gameskraft in September last year and alleged tax evasion by the startup on a betting amount of INR 77,000 Cr between 2017 and June 2022
The Karnataka High Court on Thursday (May 11) quashed an INR 21,000 Cr tax evasion notice issued to Bengaluru-based online gaming startup Gameskraft Technology by the Directorate General of GST Intelligence (DGGI).
The order was passed by Justice SR Krishna Kumar, who 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 DGGI sought to levy 28% GST on the betting amount of Gameskraft’s companies – Rummy Culture, Gamezy and Rummy Time, the gaming company argued that rummy is a skill game and hence invites only 18% GST.
The DGGI issued the INR 21,000 Cr show-cause notice to Gameskraft in September last year and alleged tax evasion by the startup on a betting amount of INR 77,000 Cr between 2017 and June 2022.
Gameskraft was also asked to share back-dated invoices with the tax authorities. The DGGI also alleged that the RummyCulture parent was not issuing invoices (or sending fake/backdated ones) to its customers on the betting amount.
The development comes as a relief not only for Gameskraft but also for the online gaming industry. Earlier, it was reported that after Gameskraft, other gaming companies could also receive tax notices from the GST authorities.
Commenting on the oder, Roland Landers, CEO of All India Gaming Federation (AIGF), said, “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.”
It must be noted that the AIGF was one of the interveners in the case.
The judgment comes at a time when the online gaming industry is still awaiting clarity on GST rate for the sector. The finance ministry is reportedly considering classifying online games into two categories – games of skill and chance to levy a differential rate of GST.
Under this structure, games that are dependent on a certain outcome or are in the nature of betting or gambling would attract 28% GST. On the other hand, games involving some amount of skill could be taxed at a lower 18%.
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.
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.
