The Karnataka High Court has invalidated a show cause notice that was issued by the Directorate General of GST Intelligence (DGGI) to Gameskraft Technologies, an online gaming platform. This was despite a court stay on a previous tax demand claim of Rs 21,000 crore. Justice SR Krishna Kumar delivered the judgment in response to a petition from the Bengaluru-based company challenging the notice. The GST authorities issued the notice on September 8, 2022, raising a demand of Rs 21,000 crore.

The company challenged it before the court, which granted a stay on September 23, 2022, observing that the case involved several contentious issues. The company then approached the court after the GST Intelligence authorities sent a show cause notice on the same day the court issued the interim stay to the tax demand intimation.

The petition argued that the claims made by the GST authorities in the notice were identical to those in the earlier tax demand intimation notice that had been stayed. The petition also noted that the taxability of online gaming had been a subject the GST Council had been seized of for the past three years. The company pointed out that the entire case of the  gst authorities had been built on the “erroneous surmise that the activities undertaken by Gameskraft were an actionable claim and not a service.”

The tax demands arose after GST authorities searched Gameskraft’s office in November 2021 and charged it with evading taxes. The authorities finally estimated that the company owed Rs 21,000 crore in taxes.

Joyjyoti Misra, Gameskraft group general counsel, hailed the judgment and called it a “clear vindication” of its business model. “We had and continue to have full faith in the government and the judiciary. We are hopeful that this decision will pave the way for constructive dialogues with the GST authorities and will form the basis of progressive GST regulations for the industry.”

Roland Lander, CEO of the All India Gaming Federation (AIGF), said the “landmark decision” by the court would greatly aid gaming startups across India to work towards building the industry and ensure its healthy growth. “We are hopeful that this progressive decision will pave the way towards clarity and certainty from the GST Council in the GST policy for this sunrise sector,” Lander said in a statement.

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Malay Shukla, secretary of E-Gaming Federation, said, “The honorable court has upheld the law by allowing the petitions and quashing the show cause notice issued by the GST authorities. We believe this is a meaningful outcome that will have a direct and material impact on the growth of the online gaming industry and will help the industry operate with clarity.”

Sameer Chugh, Games24x7 chief legal officer, said the verdict was a reinforcement of the industry’s stand in following the existing GST framework under which it has been operating. The judicial pronouncement would help reinstate the demarcation between online gaming from games of chance involving betting and gambling. “We are hopeful that the legal precedence set in this case will guide future discussions on economic and taxation policies pertaining to the skill gaming industry,” he said, adding that legitimate online skill gaming platforms were united in developing strong and ethical self-regulatory mechanisms.

Experts said that after the clarity on the regulatory front from MEITY recently, this judgment would go a long way in achieving certainty of tax position under GST for the sector and should mitigate investor concerns in this regard. They added that the judgment was in line with more than 60 years of settled law as laid down and repeatedly affirmed by the Hon’ble Supreme Court and various High Courts.

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