In a significant development, the Supreme Court has issued a stay on the Karnataka High Court’s decision regarding the online gaming company GamesKraft. The High Court had previously suspended a show cause notice (SCN) demanding the deposit of Goods and Services Tax (GST) amounting to a staggering ₹21,000 crore in May.
The Supreme Court has now listed the matter for a hearing, which is scheduled to take place three weeks from today.
GamesKraft, known for its online gaming platforms such as Rummy Culture, Rummy Platform, and Rummy Partner, found itself in legal turmoil after the GST Department issued a notice due to alleged betting activities on its platforms. According to GST Department sources, the face value of total bets made on the platform between 2017 and 2022 amounted to a colossal ₹77,000 crore. Since the games were categorized as games of chance, a GST rate of 28 percent was applied, resulting in a cumulative amount exceeding ₹21,000 crore after penalties were imposed.
This Supreme Court decision represents a substantial setback for the online gaming industry, coming on the heels of the GST Council’s recommendation for a uniform 28 percent tax rate on the face value for online gaming, casinos, and horse racing, along with amendments to the GST laws (CGST Act and IGST Act). In response to the recommendation, the government enacted legislation to implement these changes.
The amendments notably distinguish between online gaming and online money gaming, clarifying that online money gaming involves players making payments or deposits with the expectation of winning money in a game or event. These amendments do not affect the taxation of casual online gaming, where no real money, betting, or wagering is involved.
Online money gaming activities will now be subject to GST based on the total amount paid or payable to the supplier, irrespective of whether the game relies on skill, chance, or a combination of both. Furthermore, the Act has been amended to explicitly include actionable claims associated with casinos, horse racing, and online gaming within the scope of GST.
To ensure that individuals or entities managing digital or electronic platforms for supplying specific actionable claims are considered suppliers, the definition of “supplier” is set to be amended. Such suppliers will now be liable to pay GST on these claims. Additionally, the amendments make GST registration mandatory for those supplying online money gaming services from outside India to individuals in India.
The IGST Act amendments introduce tax liabilities for overseas suppliers of online money gaming and provide provisions for simplified GST registration for such suppliers. Furthermore, it empowers authorities to block websites or platforms of non-compliant overseas suppliers.
These changes are aimed at addressing concerns within the domestic online gaming industry, preventing the potential migration of online money gaming to platforms outside India, and creating a level playing field for domestic suppliers of online money gaming.
Regarding the import of intangible goods such as actionable claims associated with online money gaming, the amendments propose granting the government powers to notify such goods for the collection of IGST on their import as regular inter-State supplies under the IGST Act.
