Dark clouds loom over the post-probe move against online gaming companies by GST Authorities after a ruling by Karnataka High Court in the Gameskraft matter. The government, in response to a question in Lok Sabha some time back, had given an estimate of tax evasion of around ₹23,000 crore by some gaming companies (including online gaming companies).
Central Board of Indirect Taxes and Customs (CBIC) will initiate action against online gaming companies, based on its investigation, after the Karnataka High Court decides on a challenge petition filed by Bengaluru-based Gameskraft. Since the ruling has gone against Tax Department, so initiation of action against other companies is likely to be delayed. There are indications that Government may move to the Supreme Court against the High Court ruling. This means further action could depend upon apex court ruling.
On May 11, the High Court quashed a show cause notice (SCN) of ₹21,000 crore issued to Gamescraft. The whole issue is about a game of skill vs a game of chance. While the industry says it is a game of skill to the GST rate would be 18 percent, the government calls it a game of chance and wants GST to be applicable at the rate of 28 percent.
In its ruling, the High Court said there is a distinct difference between games of skill and games of chance; games, such as rummy, etc., as was discussed in several decisions above and particularised in the Division Bench decision of this Court in All India Gaming Federation’s case whether played online or physical, with or without stakes would be games of skill and test of predominance would apply.
"Though Section 2(17) of the CGST Act recognises even wagering contracts as included in the term business, but that in itself would not mean that lottery, betting, and gambling are the same as games of skill," the Court said. Further, it added that a game of chance whether played with stakes is gambling and a game of skill whether played with stakes or without stakes is not gambling. Online/Electronic/Digital Rummy whether played with stakes or without stakes is not gambling. Other Online/Electronic/Digital games that are also substantially and preponderantly games of skill and not of chance are also not gambling, clarified the Court.
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