Karnataka High Court: In a significant decision that will surely bring lots of cheer for the online gaming industry, the Karnataka High Court on 11-05-2023, quashed levy of Goods and Services Tax of approximately Rs 21000 crores (inclusive of interest and penalty) on Gameskraft Technologies Pvt. Ltd. (GTPL).
Background: GTPL is provider of online platforms facilitating players to play games of skill like ‘Rummy’, online. GTPL charges ‘platform fee‘ for providing a platform to players to play games, GTPL charges on which GST at the rate of 18% is deposited.
The issue originated November 2021 when officials of the Directorate General of Goods and Services Tax Intelligence (DGGSTI) conducted a search and seizure at the GTPL premises. Upon conclusion of the search and seizure, and summons were sent.
On 17-11-2021, the DGGSTI issued a provisional attachment order under Section 83 of the Central Goods and Services Tax Act, 2017 attaching all the bank accounts of GTPL. GTPL filed its objections for the same, but with no success as the provisional attachment order was upheld without stating any reasons.
The GST Authorities alleged that GTPL indulged in suppression of taxable value by claiming of discounts. They were of the view that GTPL indulges in ‘betting and gambling’ and therefore, amounts that are staked in the games by the participating players on the GTPL platforms, are taxable.
Legal Trajectory- The 3 Writ Petitions:
GTPL challenged the afore-stated order before Karnataka High Court in Gameskraft Technologies v. DGGSTI1, wherein the Court granted interim relief to GTPL and permitted it to operate the bank accounts for specific purposes. During the pendency of this case, the GST Authorities again conducted a search and seizure in 2022. The hearing before the High Court concluded in September 2022 and the judgment was reserved.
However, the GST Authorities issued an Intimation Notice under the provisions of CGST Act, for a demand of INR 21,000 crores alleging that GTPL misclassified its supply as services and was involved in the supply of ‘actionable claim‘ which is classified as goods, and that the GST ought to have been paid under Rule 31A of the Central Goods and Services Tax Rules. The Intimation Notice was challenged by GTPL in a second writ petition, Gameskraft Technologies v. DGGSTI2 wherein the Karnataka High Court in its order dated 23-09-2023 stayed the operation of the same.
The third writ petition, Ramesh Prabhu v. DGGSTI3 was filed when the GST Authorities went on to issue a show cause notice to GTPL on 23-09-2022 itself.
Since the case had a huge impact on the online gaming industry, therefore, All India Gaming Federation and E-Gaming Federation, intervened in the third writ petition by GTPL in order to present the perspective of the online gaming industry as a whole.
The arguments were concluded in November 2022 and now, after months of waiting, the Karnataka High Court has delivered a favourable decision for GTPL and online gaming industry in general.
Advocates who appeared in this case :
For GTPL and its Founders- Udaya Holla, Sr. Advocate, Dr. Abhishek Manu Singhvi, Sr. Advocate and assisted by Sudipta Bhattacharjee, Onkar, Harsh Makhija, Arjyadeep Roy & Rishabh Prasad from Khaitan & Co. LLP along with Suhaan Mukherji and Siddhartha HM from PLR Chambers.
For All India Gaming Federation – Mukul Rohatgi, Senior Advocate assisted by Sudipta Bhattacharjee, Onkar, Harsh Makhija, Arjyadeep Roy & Rishabh Prasad from Khaitan & Co. LLP along with Suhaan Mukherji from PLR Chambers.
For E-Gaming Federation- Arvind Datar and Sajjan Poovayya, Senior Advocates assisted by L. Badrinarayanan, Ravi Raghavan, Ashish Philip & Karan Sachdev, Advocates
1. WP No. 22010 of 2021
2. WP 18304/2022
3. WP 19561 of 2022