Karnataka HC quashes GST notice against online gaming company

GTPL submitted that it is not involved in the supply of ‘actionable claims’ as alleged by the Director General of GST Intelligence

The Karnataka High Court (HC) has quashed a Rs 21,000 crore show-cause notice issued by the Directorate General of GST Intelligence (DGGI) to Bengaluru-based online gaming company, Gameskraft Technology Private Ltd (GTPL).

The single-judge bench of Justice SR Krishna Kumar ruled on a petition from GTPL challenging the notice.

The notice was issued by the DGGI in September 2022, in what was the biggest show-cause notice in the history of indirect taxation. GamesKraft company was also accused of promoting online betting, and consequently of not paying GST (Goods and Services Tax) to the tune of Rs 21,000 crore. The show cause notice was for the period between 2017 to 2022.
The development comes as a relief not only for Gameskraft but also for other players in the online gaming industry who could have received tax notices from the GST authorities.

“This was an expected judgment as the DGGI’s reading of the law was incorrect. The authorities sought to levy GST against six decades of jurisprudence that legally recognises the distinction between games of skill and games of chance,” said a source close to the matter.

“The HC order upholding the law by allowing the petitions is a reinforcement of the stand of the industry in following the existing GST framework under which it has been operating,” said Sameer Chugh, Chief Legal Officer, Games24x7, an online gaming company. The judicial pronouncement reaffirms the demarcation between online gaming from games of chance involving betting and gambling, he added.

The judgment comes at a time when the online gaming industry is still awaiting clarity on the GST rate for the sector and industry players suggest this will help in achieving certainty of tax position under GST for the sector.

Considering all the development this industry has achieved in a short span of time, and what it can achieve in the future - we hope that the government will take care of the concerns of all stakeholders," Mitesh Gangar, co-founder and director, PlayerzPot, an online gaming platform.

"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," Roland Lander, Chief Executive Officer, All India Gaming Federation added.