Many online gaming companies, which have received Goods and Services Tax (GST) notices are preparing to argue in courts that even if a game of skill is played with money, it remains a skill game, contrary to the interpretation of the authorities, two persons familiar with the development said.

The Supreme Court is set to hear a case related to the matter on January 8.

“The GST authority is saying that if a game of skill is played with money, it becomes betting or gambling. But the involvement of money does not change the nature of the game. If one plays chess with money, chess does not become gambling but remains a game of skill. This is the argument the gaming companies will present in courts,” one of the persons told Moneycontrol.

Online gaming companies have been sent 71 show-cause notices for alleged GST evasion worth Rs 1.12 lakh crore in 2022-23, and in the first seven months of 2023-24. The notices are based on the interpretation that any online game played with money is betting, which has always been taxed at 28 percent.

Online gaming firms are in a tussle over the payment of 28 percent GST, instead of 18 percent, for the period up to October 1, 2023. Before October 1, 2023, betting was taxed 28 percent while online gaming was taxed at 18 percent GST rates.

In the case of Gameskraft, the Supreme Court had, on September 6, 2023, stayed the Karnataka High Court's judgment, which quashed a GST notice against the Bengaluru-based online gaming company for alleged evasion of Rs 21,000 crore.

Dream Sports, the parent company of Dream11 (Sporta Technologies Private Limited), had filed a writ petition in the Bombay High Court in September 2023, challenging a GST show-cause notice. They had later withdrawn it on December 6, 2023, to challenge the case at an appropriate forum. Deltatech Gaming had moved the Calcutta High Court challenging GST show-cause notice in November 2023.

Games 24×7 Co-Founder told Moneycontrol that the company has approached the Supreme Court on the GST evasion show cause notice, for which hearing took place on December 15, 2023, and the matter is sub-judice.

Though the apex court had, on December 15, refused to grant interim relief against GST demand notices to online gaming companies Head Digital Works and Games 24/7 at this stage, the matter will be heard next on January 8 after the winter vacations. “The online gaming matter will now be settled in the Supreme Court,” he said.

The GST Council, in August 2023, amended the law to clarify that all online games involving bets, irrespective of skill or chance, would attract a GST rate of 28 percent on the full value of the bets placed, and not on the gross gaming revenue, from October 1.

Source: Money Control
https://www.moneycontrol.com/news/business/economy/online-gaming-firms-to-argue-skill-game-played-with-money-is-still-skill-sources-11957471.html