A writ petition filed by online gaming company Kamal Mishra and Associates Private Limited challenging the validity of the Central Goods and Service Tax (Amendment) Act, 2023 and CGST Amendment Rules pertaining to the newly imposed 28% GST on deposits for online money gaming websites was listed in Allahabad High Court on Thursday, November 2 before a bench of Justices Saumitra Dayal Singh and Shiv Shanker Prasad.

The petition besides challenging Section 15(5) of the CGST Act which gives the power to the central government to notify special manner of calculating supply has also challenged Rule 31B of the revised CGST Rules, which allows the contest entry amount to be taxed. Additionally, the tax is implied without allowing for any prize money payout deductions.

As per Livelaw, the petitioner operates an online skill-based gaming platform and nets around 5,000 users on average. The platform retains only 10% of the amount, while the rest is distributed among the users.

Prior to the GST changes, an 18% platform fee was levied. However, the changes led to taxation of initial user deposit at 28% on full face value. This is similar to what online chance or gambling games are taxed, which will lead to loss of users, as per the petitioner.

“Games involving skill like chess, cricket, etc. fall within the range of legitimate and desirable activities that are protected by Article 19(1)(g) of the Constitution of India. Thus, activities involving skill, or predominantly skill (in a game of mixed chance and skill) are by their very nature distinct from activities of betting and gambling,” the petition stated.

Furthermore, putting skill and chance games as equal is in violation of Article 14 of the Constitution. The petitioner claimed violation to have happened when both skill and chance games were taxed at 28%. The petitioner also challenged Section 15(5) of the CGST Act, 2017 containing non-obstante clause with respect to other subsections of Section 15 of the CGST Act.

According to Section 15(5), the value of supplies must be reported by the Government in accordance with any prescribed method, irrespective of the suggestions made by the GST Council and the preceding subsections of Section 15.

Matter to be heard again on January 11, 2024

The entire matter was heard by the division bench of the Allahabad High Court comprising  Justices Singh and Prasad who issued notices to Attorney General, Union of India and others. The listed matter is set for its next hearing on January 11, 2024.

Notably, respondents have been granted a six-week time for filing a counter affidavit. Thereafter, petitioner can file a rejoinder affidavit within two weeks.

New norms computing GST for online money gaming and casino companies were notified by the central government with effect from 1st October 2023 and although the industry has expressed its disappointment with the provisions, this is the first time that they have been challenged by any gaming company in court, and hence the outcome of these proceedings will be eagerly tracked by all stakeholders.