In a recent development, the Supreme Court of India has stayed the Karnataka High Court’s verdict that quashed a notice issued by the Goods and Services Tax (GST) department, claiming ₹21,000 crore in dues from the online gaming company Gameskraft Technologies Private Limited. This decision came in response to the appeal filed by the Directorate General of Goods and Services Tax Intelligence and others against the High Court’s ruling.
Awaiting Response from Gameskraft
A Bench comprising Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra has sought a response from Gameskraft and scheduled the matter for further hearing after a period of three weeks. During the proceedings, Chief Justice Chandrachud reassured that there was no immediate cause for concern within this three-week timeframe.
High Court’s Controversial Ruling on Rummy
The Karnataka High Court’s May verdict not only invalidated the GST department’s claim but also made a significant determination regarding the nature of Rummy, stating that it is a game of skill rather than a game of chance, whether played with stakes or without stakes. Consequently, the High Court ruled that online Rummy and other digital games on Gameskraft’s platforms should not be classified as ‘betting’ or ‘gambling,’ thus affecting their taxability.
Pending Karnataka Government’s Challenge
The Karnataka state government has also challenged the High Court’s decision, and its plea is currently pending before the Supreme Court.
Background of the Case
The case against Gameskraft began when the GST authorities issued an intimation notice on September 8 of the previous year, demanding ₹21,000 crore in dues. Gameskraft challenged this notice in the High Court, where a single-judge temporarily stayed the demand on September 23, 2022, citing numerous contentious issues.
However, Gameskraft later alleged that the authorities had, in contempt of the High Court’s order, issued a show-cause notice on the same day as the stay order. The company also pointed out that its Chief Financial Officer, Ramesh Prabhu, faced a personal penalty.
Gameskraft argued that the allegations made in the GST authorities’ show-cause notice were identical to those in the intimation notice that had already been stayed. Furthermore, it stressed that the authorities had incorrectly claimed that the gameplay provided by the company should be taxed at a rate of 28 percent.
In November 2021, the GST authorities conducted a raid on Gameskraft’s office, leading to the attachment of all the company’s bank accounts. Initially, the alleged tax evasion amount was ₹419 crore, but this escalated to ₹5,000 crore and eventually exceeded ₹21,000 crore by July 2022 when the authorities began to suggest that Gameskraft might be involved in betting activities.