Supreme Court stays Karnataka High Court verdict quashing GST department's ₹21,000 crore claim against Gameskraft

The Supreme Court on Wednesday stayed a Karnataka High Court verdict passed in May this year that quashed a notice issued by the Goods and Services Tax (GST) department claiminig ₹21,000 crore in dues from online gaming company Gameskraft. [Directorate General of Goods and Services Tax Intelligence and Ors v. Gameskraft Technologies Private Limited and Ors]

A Bench of Chief Justice of India (CJI) DY Chandrachud and Justices JB Pardiwala and Manoj Misra sought a response from Gameskraft and listed the matter after three weeks.

"Do not worry...nothing is going to happen in three weeks," the CJI orally remarked.

The Bench was hearing the Central government's appeal against the High Court verdict which also held that Rummy, whether played with stakes or without stakes, is not gambling.

Justice SR Krishna Kumar had held that Rummy, whether played online or physically, is substantially a game of skill and not a game of chance.

The High Court thus held that the Online Rummy game and other digital games played on the Gameskraft's platforms were not taxable as 'betting’ and ‘gambling’.

The Karnataka government's plea challenging the said decision is also pending before the top court.

The matter arose after Gameskraft was issued an intimation notice from the GST authorities on September 8 last year, raising a demand of ₹21,000 crore. This notice was challenged before the High Court. A single-judge had on September 23, 2022, stayed this notice, observing that there were several contentious issues in the case.

The online gaming company moved the High Court again, claiming that despite this stay order, the authorities illegally, contemptuously and maliciously issued a show-cause notice on the very same day as the High Court’s order.The petition also highlighted that Chief Financial Officer of the company Ramesh Prabhu was levied with a personal penalty.

It was argued that the allegations in the GST authorities' show-cause notice were exactly the same as those in the intimation notice which had already been stayed.

The authorities had erred in alleging that the gameplay facilitated by the petitioner was taxable at 28 per cent, it was stressed.

A raid conducted by the GST authorities on Gameskraft's office in November 2021 culminated in an order by which all the company's bank accounts were attached.

The amount of tax alleged to have been evaded by Gameskraft was at first marked at ₹419 crore. However, this increased to ₹5,000 crore, and ultimately to over ₹21,000 crore after July 2022, when the authorities changed their narrative and began to allege that Gameskraft might be indulging in betting, the gaming company contended.