Will GST Council decide on gaming?

In Perspective

Oscar Wilde once said, “One should always play fairly when one has the winning cards.”

Gameskraft Technology — a Bengaluru-based gaming company — stated that it has played fairly regarding the payment of its GST liabilities. This was in response to a notice it received from the Director General of Goods and Service Tax Intelligence (DGGI) demanding a GST of Rs 21,000 crore — an amount so staggering it is almost 15 per cent of the average monthly GST collections.

This amount appears to have been arrived at by taxing their gaming services at 28 per cent (game of chance) as against the 18 per cent (game of skill) that Gameskraft has discharged their GST obligations at. The DGGI says the company is promoting online betting through card, casual and fantasy games like Rummy Culture, Gamezy and Rummy Time. The notice has been served on the gaming firm for transactions that happened between July 2017 and June 2022.

There are legal precedents that concur with the view taken by Gameskraft. Distinguishing between the terms ‘games of skill’ and ‘games of chance’, the Supreme Court, in the K R Lakshmanan vs State of Tamil Nadu & Anr, stated: “In a game of skill, although the element of chance necessarily cannot be entirely eliminated, is one in which success depends principally upon the superior knowledge, training, attention, experience and adroitness of the player.”

In this case, the court was considering whether horse racing was a game of skill or chance. It is observed that the outcome in a horse race depends on several factors like form, fitness and inherent capacity of the animal, the ability of the jockey, the weight carried and the distance of the race, which are all objective facts capable of being assessed by persons placing the bets. Thus, unlike the lottery, the prediction of the result of the race is an outcome of knowledge, study and observation.

More specific to rummy, the Andhra Pradesh High Court, in the case of D Krishna Kumar vs State of Andhra Pradesh, held that games of skill like rummy, even when being played for stakes, are outside the ambit of the Andhra Pradesh Gaming Act, 1974.

The next meeting of the GST Council is scheduled to take place in October. Previous meetings have set a precedent in taking up issues that are of high value and are a matter of litigation. It is expected that GST on online gaming, horse racing and casinos would be taken up at the October meeting. A Group of Ministers that was constituted is expected to submit its report before the meeting.

Another issue that needs to be addressed is the method by which some GST assessments are being done. Of late, some taxpayers have been receiving bizarre notices from the GST department. Some of these notices have asked for e-way bill information from a non-banking financial company; notices to attach bank accounts have been issued liberally; GST has been demanded on items such as impairment and depreciation; and in some cases, a penalty of Rs 20,000 has been levied on taxable values of Rs 72.

GST departments in some states have released a GST Audit Manual which serves as a ready reckoner on how to conduct GST assessments. It is critical that these are followed completely.

The concerns of the taxpayers are further increased by the fact that GST tribunals are yet to be up and running as originally envisaged. The setting up of GST tribunals is expected to be another agenda at the GST Council meeting. Today, taxpayers have to live with pro-department adjudication officers, inconsistent opinions of the Authority for Advance Rulings (AAR) or approach the high courts on matters of law. The delay in constituting GST tribunals can be attributed to the fact that an objection has been raised on the number of technical members vis-à-vis the number of judicial members. GST tribunals play a very important role in meting out justice to taxpayers and hence, the GST Council should get them up and running at the earliest.

In a recent case that came up before it, the Supreme Court has also asked the government to hasten the setting up of the tribunals.

Monthly GST revenues have reached comfortable levels; rates of taxes are more or less okay, save for the odd exceptions; the GST portal is no longer moody; and the concept of e-invoicing has mitigated the menace of fake invoices.

If GST assessments are streamlined and the artificial restrictions on input tax credit are removed, there would be very few who would be extremely critical of GST laws. There will always be scope for improvement in a pan-India law such as the GST — the key thing for
the GST Council is to keep on at it.