Supreme Court imposes an ad Interim Stay on the Karnataka High Court Judgment against Gameskraft

To recall, the imposition of GST against Gameskraft has been a hotly contested and talked about topic in the recent past in the online gaming industry. The saga started with a notice being issued by the GST department to Gameskraft demanding payment of GST to the tune of Rs. 21,000 crores in respect of the games played for stakes on Gameskraft’s online platform.

Since 96% of Gameskraft’s revenue was from Rummy, the GST department raised the GST demand treating the online games played on Gameskraft’s platform as betting and gambling and imposed a tax at the rate of 28% on Gameskraft’s total revenue i.e. including the disbursement to winners as well as the platform fees. This notice was challenged by Gameskraft before the Karnataka High Court.

The GST department contended that rummy was a game of chance and thus it falls under the category of betting/gambling. Further, the GST department also argued that despite the fact that an individual stakes money on a game of skill, the outcome of such a game is uncertain and accordingly it amounts to betting/gambling.

The Petitioners argued that rummy is a game of skill (and cannot be equated with betting/gambling). They placed reliance on various judicial precedents on this point in India. They further argued that merely the fact that money was being staked on games of skill doesn’t result in such games being treated as betting/gambling.

Gameskraft had also argued that it was not supplying any actionable claims and that it was merely an online platform that charges platform fees from its users.

The primary issue for consideration by the Karnataka High Court was whether the game of Rummy, whether played with or without stakes, would amount to ‘gambling/betting’ under Entry 6 of Schedule III of the Central Goods and Services Tax Act, 2017. The Karnataka High Court, replying upon various judicial precedents, observed that rummy is a ‘game of skill’ (and does not fall under the category of lotteries, betting, and gambling). The Karnataka High Court also observed that only those actionable claims (which are in the nature of lottery, betting, and gambling) are taxable under Entry 6 of Schedule III of the CGST Act.

This decision of the Karnataka High Court has been challenged before the Supreme Court. While the Supreme Court has imposed an ad interim stay on the judgment of the Karnataka High Court (which has been extensively reported across the media), it virtually doesn’t change much. While it can be argued that the notice by the GST department holds goods at this stage, we should draw our attention to the Supreme Court’s adjudication of this issue (when it starts hearing the case on October 11 with the intent of finally putting this issue to rest).