13.09.2023: SC ruling on Gameskraft GST case could decide fate of India’s real-money gaming industry

The Supreme Court's final decision in the GST department's alleged Rs 21,000 crore goods and services tax (GST) evasion case against skill gaming firm, Gameskraft, will determine the fate of the retrospective GST liabilities for all real-money gaming companies, according to legal experts.

They said that any unfavourable ruling from the apex court could be the final nail in the coffin for the skill-based gaming industry that is already reeling under the GST Council’s recently announced 28 percent GST regime.

On September 6, the Supreme Court stayed the Karnataka High Court's judgment that had quashed the GST department's show-cause notice to the Bengaluru-based skill gaming company in May 2023.

In the notice, a GST intelligence unit had alleged that the company had failed to pay Rs 21,000 crore in GST, the biggest such claim in the history of indirect taxation. The notice was for the period between 2017 and June 30, 2022. A bench led by Chief Justice of India, D Y Chandrachud, is likely to hear the case for final hearing in three weeks.

What are the allegations?

In September 2022, GST officials had accused Gameskraft of promoting online betting through cards, casual and fantasy games such as Rummy Culture, Gamezy, and Rummy Time. Gameskraft, allegedly, was not issuing invoices to customers, the officials said.

GST officials had therefore slapped a 28 percent tax on the betting amount of nearly Rs 77,000 crore. “GTPL was engaged in betting by allowing its players/gamers to place bets in the form of money stakes on the outcome of card games played online,” the authorities said.

The gaming platform submitted fake/back-dated invoices, which was uncovered during a forensic examination of the documents, they alleged, adding that the company was also inducing its customers to bet as there was no way of returning the money once it was added in the wallet.

At the time, Gameskraft had argued that its offerings qualify as skill-based gaming activities, which attracted only 18 percent GST on the platform fee, which the company deducted from the entry fee paid by players. The fee typically ranged between 5-15 percent of the contest entry amount with the rest of the money channeled towards the players’ prize pool, it said.

In July 2023, the GST Council decided to impose the top GST slab of 28 percent on the full face value, irrespective of whether it is a game of skill or chance. On August 2, it provided partial relief by recommending that GST be levied on deposits instead of every bet placed, in order to avoid repeat taxation.

Revenue Secretary, Sanjay Malhotra, however had mentioned that GST rates on real-money gaming were always 28 percent on full face value and this amendment was only clarificatory in nature.

The council, headed by Finance Minister Nirmala Sitharaman, has asked all states to implement the new tax rates by October 1, 2023. It also agreed to review this decision six months after implementation.

On August 11, the last day of the Monsoon Session, Sitharaman introduced bills to amend the Central and Integrated GST laws and it was passed in both Lok Sabha and Rajya Sabha. President Droupadi Murmu also gave her assent to the amendments on August 19.

Subsequently, states such as Haryana, Goa and Arunachal Pradesh have passed similar amendments to their respective state GST laws.

Real-money gaming segment accounted for 77 percent of India's gaming sector revenues in 2022 which stood at Rs 13,500 crore, as per a recent report. These revenues are set to grow to Rs 16,700 crore in 2023 and Rs 23,100 crore in 2025, it said.

Source: Money Control

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