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2023 RMG litigation round-up: Flurry of GST notices and laws banning online money games keep gaming lawyers busy

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2023 is a hectic year for litigating lawyers specialising in real money gaming matters. Issues around the legality of the skill games offered by online portals and taxation ended up before the courts this year. In matters that were disposed of this year, the arguments lasted for several days while the pending cases are expected to be heard in 2024.

  1. GamesKraft GST matter

Back in September 2022, the GST Intelligence unit issued a show-cause notice to Bengaluru-based Gameskraft demanding Rs 20,989 crore in taxes for the period August 2017 to June 2022.

Also read: 2023 policy and regulatory look back for RMG sector

The Company soon challenged the show cause notice before the Karnataka High Court and was able to obtain an interim stay in 2022 but the final decision was pronounced only in May 2023. In a landmark decision, the Karnataka High Court quashed the show-cause notice issued to Gameskraft by the Directorate General of GST Intelligence (DGGI).

Soon, the tax department in August filed an appeal before the Supreme Court which heard the matter in September and granted a stay on the decision of the Karnataka High Court. This stay resulted in a flurry of GST notices to online gaming and casino operators in recent months.

2. Goa Bench of Bombay HC on casino license fee

The Goa bench of the Bombay High Court in April directed the casino operators to pay pending fees of Rs 321 crore for 2020 and 2021 when they were closed due to the COVID-19 pandemic.

The State Government initially deferred the annual recurring fee (ARF) payments for periods affected by partial or even complete closure of casino operations but insisted on payments in October 2022. Aggrieved by the demand of the State Government to pay ARF, the casino operators have filed writ petitions before the Goa bench of the Bombay High Court.

The Court observed that the State Government has only parted with its exclusive privilege and permitted the petitioners to undertake casino operations, which are otherwise not even the legitimate objects of any trade, occupation or business. The license fee is the price or the consideration for parting with such privilege, which is exclusively owned and controlled by the State Government and refused to grant any relief to the casino operators.

3. Andhra Pradesh HC on online gaming ban law

The Andhra Pradesh High Court in March 2023 had directed the State Government to form a committee to examine how online rummy is played to determine whether it is a game of skill or a game of chance.

In an order in January 2023, the High Court while holding that rummy played physically is a “game of skill,” held that no material is available to hold that Online Rummy is also a “game of skill”/or “game of chance”. The Court opined that the two recent judgments of the Karnataka High Court and Tamil Nadu High Court have not dealt with how online rummy is played.

Aggrieved by the decision, the State Government approached the Supreme Court which in August directed the Andhra Pradesh HC to consider afresh the issues relating to online rummy in light of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 notified by the Central Government.

4. SC appeals by Karnataka and Tamil Nadu governments on quashing online gaming ban laws

A 3-judge bench of the Supreme Court continued to hear the appeals by the governments of Karnataka and Tamil Nadu concerning the quashing of online gaming ban laws by the respective High Courts without any outcome this year. Even as the appeals were pending, the Tamil Nadu government went ahead with enacting another law. As these cases were pending, the Telangana government filed a transfer petition to the Supreme Court seeking the transfer of a similar petition pending before the Telangana High Court. The matters are currently pending and 2024 may have something in the store for these matters.

5. Madras HC on Online Gaming Ban Law

The Madras High Court in November upheld the validity of the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act 2022. The Court, however, added that the enactment would not apply to games like rummy and poker, which were games of skill and would be applicable only against games of chance and accordingly quashed certain provisions dealing with the prohibition of online poker and rummy. This is the second time in around two years that the State Government failed to defend the law on banning online rummy and poker.

6. GST cases across various HCs

As online gaming companies and casino operators received a flurry of GST notices, several of them approached various High Courts seeking relief on the grounds that the notices were arbitrary and unconstitutional. The High Courts in a majority of these cases have granted interim reliefs.

In November, ASG Venkataraman appearing before Calcutta High Court informed the High Court that the government will soon approach the Supreme Court for clubbing similar tax matters pending at various High Courts.

7. EGF and A23 approach the Supreme Court

Even as the GamesKraft matter and other GST matters are pending, industry body EGF and money gaming platform A23 approached the Supreme Court earlier this month challenging the constitutional validity of the provisions of the CGST Act, 2017.

EGF which is one of the respondents in the GamesKraft matter said a fresh cause of action has arisen since show-cause notices have been issued to its members and new issues have been raised in the present petition including the constitutional validity of the provisions of the CGST Act. The demand for A23 is close to Rs. 6,500 crores.

EGF claimed that the show-cause notices are based on the allegation that the games played are gambling and betting. In the petition, EGF said unenforceable gambling debts can never be tantamount to gambling and betting.

Hearing the matter on December 15, a three-judge bench headed by CJI said a similar matter was pending before the Court in a similar manner and no interim relief can be granted to the online gaming companies at this stage. The matter is now expected to be heard on 8th January 2024, after the winter vacations of the apex court.

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