The Central Government through Director General of Goods and Services Tax Intelligence (DGGI)  has filed a Special Leave Petition (SLP) in the Supreme Court challenging the Karnataka High Court decision quashing INR 21,000 crore tax notice against GamesKraft.

The GST department had initiated the action against skill gaming operator GamesKraft last year and the gaming company soon filed a plea with the Karnataka High Court seeking to quash the notice in which the decision was delivered in May 2023.

The revenue department in its pleadings has argued that wagering/betting/gambling is not dependent on the underlying nature of the game. The revenue argued that a game of skill with stakes cannot escape from being declared as betting or gambling as the outcome of the event is still uncertain and unforeseen and not in control of the participants. The petition also sought to distinguish contests with entry fees and prize money, where the entire proceeds of the entry fee collected from participants is used towards the prize pool and organisational expenses, without profit or gain of the organiser or platform, from online rummy for stakes offered by Gameskraft. 

The revenue department has also stated that the show cause notice dealt with ineligible deductions in the form of bonus, incentives, and instant cash which the Karnataka High Court did not pass any findings or observations on while quashing the show cause notice in toto. The tax involved on ineligible discounts and bonuses is around Rs. 450 crores read the appeal petition filed through advocate Mukesh Kumar Maroria. The petition has been settled and reviewed by Additional Solicitor General of India N. Venkatraman, who appeared for the department and vehemently defended the show cause notice in the Karnataka High Court as well. 

Through the appeal, the revenue also sought deletion of certain parts of Karnataka High Court decision permanently from the record. The Karnataka High Court in the decision opined that the case is an outcome of a vain and futile attempt to cherry pick stray sentences from decisions of Courts and build a non existent case. The revenue submitted that such a stricture is uncalled for and sought permanent deletion from the records.

The appeal has currently been allocated a diary number with the revenue required to rectify certain defects within 90 days for it to be allotted Special Leave Petition (SLP) number and a subsequent listing.

The GST Council in two successive meetings held on 11 July and 2 August has clarified the tax rate for online gaming as 28% on deposit amount and Finance Minister Nirmala Sitharaman hoped that necessary legal amendments can be passed to make the levy effective from 1 October, 2023.

However, the department has on numerous occasions informed that this is only a clarification of existing provision and it will continue to pursue tax matters before judicial authorities and claim retrospective dues from online gaming companies from 2017 onwards.