Gaming Cos cannot cite hardships to avoid tax payment: GST Dept before Supreme Court

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Tax authorities in filings before the Supreme Court have claimed that GamesKraft cannot cite hardships to avoid tax payment of Rs 21,000 crores. The authorities have relied on past precedents in tax laws to support this argument.

In a rejoinder response running into several pages, the department said the Varun Gumber case had no connection with the GST and the decision cannot preclude the department from initiating investigation against the online gaming platforms including Dream11.

Relying on 50 year old decision of the Supreme Court in Satyanarayana case 1968 SCR (2) 387, the department said while rummy is a game of skill but if there is evidence of gambling in some other way including player of rummy staking on an unknown outcome would qualify as gambling.

The department said that if stakes are placed on an unknown and uncertain outcome, the underlying nature of the game is insignificant and it would amount to betting and gambling.

The department said the gaming company arguments are contradictory as they rely on in limine decisions of the Supreme Court in Varun Gumber and Gurdeep Singh Sacchar cases while asking the apex court to not consider Kunhaymmad vs. State of Kerala decision because it was not speaking order.

The department further contended that the amount earned by GamesKraft increases based on amounts staked and the same cannot be termed as mere service fee.

The matter is expected to be heard by a bench headed by Supreme Court on 10 October 2023. The online real money gaming industry has been in a state of turmoil with the recent changes recommended by the Goods and Services Tax (GST) Council recommending 28% GST on every deposit, that has been implemented by the central government from 1st October, 2023, despite fervent pleas by the industry to defer or reconsider the levy.

The outcome in the Gameskraft matter will decide whether online games offered for stakes amount to ‘gambling’ or ‘betting’ or not. A decision against Gameskraft and in favour of the revenue department will not just ensure that Gameskraft and all other companies will face tax dues several times more than their turnover. With the Supreme Court staying the order of Karnataka HC in Gameskraft case, the gaming companies have already started receiving notices from the tax department.