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HC Sets Aside Rs. 21,000 Cr GST Show Cause Notice Against Gameskraft

In an order dated May 11, 2023, the Karnataka High Court set aside the show cause notice dated September 23, 2022, issued to online gaming company, M/s. Gameskraft Technologies Pvt. Ltd. regarding the imposition of tax to the tune of Rs.21,000 Crore. The court held that online rummy games played on Gamescraft’s platforms are not taxable as ‘Betting’ and ‘Gambling’ since they are “substantially and preponderantly” games of skill and not of chance.

After search and seizure operations were conducted at the premises of Gameskraft in November 2021, certain documents and devices were seized and then its bank accounts were attached vide provisional attachment orders. Subsequently, an attachment confirmation order was also issued by the revenue.

Various writ petitions[1] were filed before the Karnataka High Court challenging the said attachment orders along with the Intimation Notice dated September 8, 2022 (calling upon Gameskraft to make payment of Rs.21,000 Crore by September 16, 2022) and show cause notice dated September 23, 2022, issued by the Directorate General of Goods and Services Tax Intelligence.

Incidentally, a stay order on the operation of the Intimation Notice was issued by the Karnataka High Court on September 23, 2022, after which the impugned show-cause notice was issued (i.e., on the same day).

Relying on several case laws, particularly the decision of the Division Bench of the Karnataka High Court in the case of All India Gaming Federation vs. State of Karnataka & Ors.[2] the court held that games such as rummy are games of skill regardless of whether they’re played online or offline, and with or without stakes. Further, the court opined that Entry 6 of Schedule III of the Central Goods and Services Tax Act, 2017 which removes actionable claims other than “lottery, betting and gambling” from the purview of supply of goods or services would apply to games of skills. Accordingly, the court set aside the impugned show cause notice dated September 23, 2022, deeming it to be “illegal, arbitrary and without jurisdiction or authority of law”.

[1] 1) Gameskraft Technologies Private Limited vs. Directorate General of Goods and Services Tax Intelligence & Ors. (WP No.19570/ 2022)

2) Gameskraft Technologies Private Limited vs. Directorate General of Goods and Services Tax Intelligence & Ors. (WP No.22010/ 2021)

3) Gameskraft Technologies Private Limited vs. Directorate General of Goods and Services Tax Intelligence & Anr. (WP No.18304/ 2022)

4) Ramesh Prabhu vs. Directorate General of Goods and Services Tax Intelligence & Ors.(WP No. 19561/ 2022)

5) Prithvi Raj Singh & Anr. Vs. Directorate General of Goods and Services Tax Intelligence & Ors. (WP No.20119/ 2022)

6) Vikas Tanjea & Anr. Vs. Directorate General of Goods and Services Tax Intelligence & Ors. (WP No. 20120/ 2022)

[2] (2022) SCC OnLine Kar 435 (DB)