GST Intelligence issues biggest-ever tax notice to Gameskraft, Karnataka HC grants interim stay

Published on:

The GST Intelligence unit has issued an intimation notice dated 9 September 2022 to Bengaluru-based online gaming startup Gameskraft Technology raising a tax demand of 20,989 crores rupees for the period August 2017 to June 2022.

In the notice, the department said the activities of Gameskraft are in the nature of betting and gambling and 100% face value of the bet will be subjected to tax under Rule 31A of the CGST Rules, 2017 at the rate of 28%.

Gameskraft Technology operates online platforms for card, casual and fantasy games such as Rummy Culture, Gamezy, Rummy Time etc. The notice also said the company was not issuing invoices to the customers violating Section 15(3) of the CGST Act, 2017.

Aggrieved by the intimation notice, Gameskraft approached the Karnataka High Court seeking a writ against the intimation notice. According to the company, it paid more than 1500 crores rupees as GST to date.

In the plea before the High Court, the company said the department failed to appreciate the settled distinction between ‘games of skill’ and ‘games of chance’. To support the argument, Gameskraft relied on the recent Madras High Court decision in the Junglee Games Private Limited vs. State of Tamil Nadu and the February 2022 decision of the Karnataka High Court in All India Gaming Federation vs. State of Karnataka. Both these decisions are currently challenged before the Supreme Court.

The company also relied on the Kerala High Court’s decision in 2021 and decades-old cases on ‘games of skill’ and ‘games of chance’ debate.

Senior advocate Udaya Holla argued for Gameskraft while ASG N.Venkataraman appeared for the department.  After hearing both sides, the Karnataka High Court bench of Justice S.R Krishna Kumar vide order dated 23 September 2022 issued an interim order staying the intimation notice. The matter will now be listed after Dasara vacation.

Last year, the Bengaluru-based company challenged a provisional attachment order issued by GST authorities freezing bank accounts in alleged tax evasion by GamesKraft. In November 2021, the tax department raided the offices of GamesKraft. The company also challenged the 2021 attachment order which is reserved for orders by the same bench of Justice S.R. Krishna Kumar.

Recently, the gaming company bought 5 apartments with an aggregate built-up area of 6,950 sq. ft in Bengaluru for nearly Rs 32 crore in the project Savyasachi Sarayu.

The valuation of supplies in the casino and gaming industry has been a contentious issue ever since the introduction of GST in 2017. In many instances, casino operators are compelled to pay 28% GST on entire bet amounts while commission or processing charges are the only amounts they are finally entitled to. Similarly, online skill games are charged at 18% GST.

To examine the GST issues, a Group of Ministers (GoM) was constituted to examine the GST issues in online gaming, casinos, and horse racing last year which is yet to submit its report to the GST Council.