The Karnataka High Court on Thursday overturned the imposition of Goods and Services Tax (GST) worth Rs 21,000 crore on Gameskraft Technologies Pvt. Ltd. (GTPL).
The Karnataka High Court’s ruling is expected to bring much-need clarity on the tax liabilities of online gaming platforms and establish a precedent that could influence similar cases in the future.
In his judgment, Justice S.R. Krishna Kumar established a distinction between ‘games of skill’ and ‘games of chance’, adding that the former was outside the purview of ‘betting and gambling’, and therefore exempt from GST.
In November 2021, officials from the Directorate General of Goods and Services Tax Intelligence had conducted a search and seizure operation at GTPL’s premises. Consequently, GST authorities froze GTPL’s bank accounts, alleging that the gaming company had suppressed taxable value by claiming discounts.
The authorities had also argued that the amounts staked by participating players on the GTPL platforms constituted taxable “betting and gambling”.
Gameskraft Technologies challenged the order before the Karnataka High Court, which allowed the company to operate its bank accounts for specific purposes.
While the hearing concluded in September 2022 and the judgment was reserved, GST authorities issued an Intimation Notice demanding a staggering Rs 21,000 crore.
They claimed that GTPL had misclassified its supply as services and engaged in the supply of ‘actionable claims’, which are classified as goods, thus requiring GST payment under the Central Goods and Services Tax Rules. The company promptly challenged the Intimation Notice in the Karnataka High Court, which stayed its operation.
Recognising the significant impact this case had on the online gaming industry, the All India Gaming Federation and E-Gaming Federation intervened in support of Gameskraft Technologies in the Karnataka High Court.