Gameskraft Technologies Private Limited vs. Directorate General of Goods, Services Tax Intelligence (Headquarters) and Ors.

The Honorable High Court of Karnataka while deciding the issue”Whether online rummy played on Gameskraft is taxable under GST act”. Hon’ble Justice S.R. Krishna while deciding and considering the various aspects pronounced judgment on 11.05.2023. The Petition was filed by Gameskraft challenging the actions initiated by Directorate General of Goods, Services Tax Intelligence

(DGGSTI) including a GST intimation notice to tune of Rs. 21, 000 crores.

The petitioner argued that the fundamental nature of an online skill-based game facilitated by Gameskraft is such that it has no influence or involvement in the actual playing of the games. Users/players select the games based on their desired stakes and match their skills against other players who also want to play for a similar amount. Gameskraft simply hosts the games. It was claimed that the activities undertaken by Gameskraft were in the form of betting or gambling, which constitutes an actionable claim rather than a service. The challenged notice displayed a significant misunderstanding of Gameskraft’s actual business practices, as the only service provided by Gameskraft is the facilitation of games as an online intermediary.

The respondents, on the other hand, contended that challenging the show cause notice is premature and therefore not maintainable. They further argued that Gameskraft allows players to place stakes and bet on the outcome of online rummy games. They claimed that Gameskraft is profiting from these rummy games played on its platform, which they believe constitutes betting and gambling.

The Court deemed the present petition maintainable based on Gameskraft’s specific argument that the impugned notice issued by the respondents lacked jurisdiction. The Court acknowledged the jurisprudence that regards lottery, betting, and gambling as inherently harmful and categorizes them as “res extra commercium,” beyond commerce. The Court conducted a comprehensive analysis of the provisions of the CGST Act, 2017, particularly Section 7, which inclusively defines “supply”. It noted that Section 7 was retrospectively amended to clarify that the entries in Schedule II are merely for classification purposes and do not, on their own, constitute supply.

Section 7(1)(a) encompasses various forms of supply made for consideration in the course of business. Additionally, Section 7(1)(d) classifies an activity as the supply of goods and services. Examining the definition of “business,” the Court stated that it includes wagering or similar activities as per Section 2(17) of the CGST

Act, although “wager” is not explicitly defined. By considering the definition of “wager” in the Indian Contract Act, along with law lexicons and dictionaries, and applying the rule of ejusdem generis, the Court concluded that the phrase “any other similar activity” in Section 2(17) encompasses activities akin to wagering. The Hon’ble Court relied on the judgment of State of Karnataka v. State of Meghalaya (2023) 4 SCC 416 and held that the expression “betting and gambling” in Schedule III Entry 6 of the CGST Act should be interpreted consistently with Schedule 7 List II Entry 62 of the Constitution and the Public Gambling Act, 1867. Accordingly, the terms “betting” and “gambling” in Entry 6 of Schedule III of the CGST Act do not include games of skill. The Court rejected the respondents arguments that rummy played with stakes can be considered as “forecast” or “hidden target” and quashed the GST notice of Rs. 21,000 crores holding it to be arbitrary.