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Facts of the Case

Gameskraft Technologies Private Limited, an online skill-gaming platform operator offering games including Rummy, was issued a show-cause notice dated 23.09.2022 by the Directorate General of GST Intelligence (DGGI) demanding GST of approximately Rs. 21,000 crores, alleging that the company was liable to pay GST on the entire face value of stakes (an actionable claim in the nature of betting/gambling under Entry 6 of Schedule III to the CGST Act) rather than merely on its platform fee. Gameskraft, along with its CFO and connected petitioners, challenged the show-cause notice, related provisional bank-account attachment orders, and an intimation notice, in a batch of six writ petitions before the Karnataka High Court.

Issues Involved

  1. Whether online Rummy, whether played with or without stakes, is a game of skill or a game of chance amounting to "betting" or "gambling" within the meaning of Entry 6 of Schedule III to the CGST Act.
  2. Whether the actionable-claim exclusion in Schedule III applies to games of skill, or only to games of chance such as lottery, betting and gambling.
  3. Whether the impugned show-cause notice, premised on treating the entire stake value as taxable actionable claims in the nature of betting/gambling, was legally sustainable.

Petitioner's Arguments

  • Gameskraft argued, relying on the binding precedent of the Division Bench in All India Gaming Federation's case and a long line of Supreme Court authority, that games such as Rummy are substantially and preponderantly games of skill, whether played online or physically, and with or without stakes.
  • It was submitted that Entry 6 of Schedule III excludes "actionable claims" other than lottery, betting and gambling from the scope of "supply," and that games of skill do not fall within "betting" or "gambling" as those terms have acquired settled legal meaning (nomen juris).
  • It was contended that taxing a single entity over Rs. 21,000 crores when the entire online skill-gaming industry's disputed revenue was far less demonstrated the show-cause notice was arbitrary, disproportionate and without jurisdiction.

Respondent's Arguments

  • The Additional Solicitor General for the respondents argued that the stakes placed by players constitute actionable claims in the nature of betting or gambling, taxable in full under Entry 6 of Schedule III, regardless of whether skill predominates in the underlying game.
  • It was submitted that Section 2(17) of the CGST Act, which recognises wagering contracts as "business," supported treating the platform's facilitation of staked games as a taxable supply of actionable claims.

Court Order / Findings

  • The Court held that there is a settled and distinct difference between games of skill and games of chance, and Rummy — whether played online or physically, with or without stakes — is substantially and preponderantly a game of skill and therefore not "gambling" or "betting."
  • It was held that the terms "betting" and "gambling" in Entry 6 of Schedule III, having acquired a settled legal meaning (nomen juris) through consistent judicial pronouncements, do not extend to games of skill such as Online/Electronic/Digital Rummy, and taxation of games of skill falls outside the scope of "supply" under Section 7(2) read with Schedule III.
  • The impugned Show Cause Notice dated 23.09.2022 was quashed as illegal, arbitrary and without jurisdiction, with the writ petitions challenging it allowed, while the connected petitions concerning bank-attachment orders and the intimation notice were held not to survive for separate consideration and were disposed of accordingly.

Important Clarification

  • A game that is substantially and preponderantly a game of skill (applying the predominance test) does not become "betting" or "gambling" merely because it is played with monetary stakes or is played online rather than physically — the character of the game, not the presence of stakes, determines its GST treatment.
  • Since "betting" and "gambling" have acquired a settled legal meaning through consistent judicial interpretation across multiple statutes, that meaning applies equally when construing Entry 6 of Schedule III to the CGST Act, and cannot be expanded by the tax department to capture games of skill.

Sections Involved

  • Entry 6, Schedule III, CGST Act, 2017 – excludes actionable claims, other than lottery, betting and gambling, from the scope of "supply."
  • Section 7(2), CGST Act, 2017 – excludes activities specified in Schedule III from the definition of "supply."
  • Section 2(17), CGST Act, 2017 – defines "business" to include wagering contracts.

Decision – In Favour of

The decision is in favour of the assessee, Gameskraft. The show-cause notice demanding roughly Rs. 21,000 crores in GST was quashed as illegal, arbitrary and without jurisdiction, on the finding that online Rummy is a game of skill and not taxable as betting or gambling.

Case Details

Court: High Court of Karnataka, Bengaluru
Case No.: WP No. 19570/2022 with connected WPs 22010/2021, 18304/2022, 19561/2022, 20119/2022 and 20120/2022
CNR / Citation: Not available in judgment text
Coram: Hon'ble Mr. Justice S.R. Krishna Kumar
Date of Order: 11 May 2023

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