Karnataka High Court Rules Online Games of Skill Are Not Taxable as ‘Betting and Gambling’ Under GST Act

Karnataka, India (May 14, 2023) — According to local media reports the High Court of Karnataka has ruled that online/electronic/digital games of rummy and other online/electronic/digital game of skills are not taxable as ‘betting’ and ‘gambling’ under the Central Goods and Services (GST) Act

“The expressions, ‘betting’ and ‘gambling’ having become nomen juris, the same is applicable for the purpose of GST also and consequently, the said words, ‘betting’ and ‘gambling’ contained in Entry 6 of Schedule III to the CGST Act are not applicable to online/electronic/digital Rummy, whether played with stakes or without stakes as well as to any other online/electronic/digital games which are also substantially and preponderantly games of skill,” The Hindu reported the Court said.

Justice S.R. Krishna Kumar made these observations in his judgement on a petition filed by Bengaluru-based Gameskart Technologies Pvt Ltd, an online gaming platform company.

Directorate of GST issues show cause notice

The company had questioned the September 23, 2022 show cause notice issued by the Directorate of GST alleging that the company had engaged in ‘gambling’ and had evaded payment of GST at the rate of 28% on the entire sum paid by the players for playing the game on its platform. The GST Directorate, in its notice, had alleged that the company had evaded GST of around ₹21,000 crore

The company was paying GST at 18% only on the platform fees collected by it from the players and not on the entire money pooled in by the players to play rummy, and had contended that rummy being a game of skill cannot be brought under the definition of ‘betting’ and ‘gambling’.

Taxation of games of skill is outside the scope of the term “supply” in view of Section 7(2) of the CGST Act, 2017 read with Schedule III of the Act, the Court said while upholding the company’s contentions.

‘Games of Skill, Not Gambling’

The Court said that claims and arguments, put forth on behalf of GST authorities, are “an outcome of a vain and futile attempt on the part of the respondents to cherry pick stray sentences from the judgments of various Courts including the apex court, this Court and other High Courts and try to build up a non-existent case out of nothing which clearly amounts to splitting hairs and clutching at straws which cannot be countenanced and is impermissible in law.”

As the Courts have already held that Rummy and other games of skills, be it played in physical form or in digital mode, and whether played with stakes or without stakes, are not gambling, Justice Kumar said that “the terms ‘betting’ and ‘gambling’ under in Entry 6 of Schedule III of the CGST Act must be given the same interpretation given to them by the courts, and therefore the terms ‘betting’ and ‘gambling’ appearing in Entry 6 of Schedule III of the CGST Act does not and cannot include games of skill within its ambit.”

“Though Section 2(17) of the CGST Act recognises even wagering contracts as included in the term business, but that in itself would not mean that lottery, betting and gambling are the same as games of skill,” the Court said.

SOURCE: The Hindu.