The Goods and Services Tax (GST) department has filed a special leave petition (SLP) in the Supreme Court against a ruling by the Karnataka High Court in the case of Gameskraft Technologies Pvt. The high court had quashed a Rs 21,000-crore show cause notice issued by the GST department against the online gaming platform, and the matter has now reached the Apex Court.
The dispute revolves around the appropriate tax rate applicable to the platform's online games, particularly rummy. Gameskraft Technologies argued that a tax rate of 18% was appropriate for games of skill like rummy. However, the GST department contended that all games played with stakes, regardless of skill or chance involved, should attract a 28% tax as it amounts to betting or gambling.
The Karnataka High Court, in its ruling, was not convinced by the department's argument and subsequently quashed the show cause notice.
Last month, Revenue Secretary Sanjay Malhotra announced that the Finance Ministry was in the process of filing an SLP to challenge the High Court's verdict. This decision came after the GST Council, in its 50th meeting, had approved a tax rate of 28% on the total value of bets placed on online gaming platforms.
Following the development, the Union finance ministry filed the SLP on August 1, and the Supreme Court is expected to schedule a hearing in the coming days.
Malhotra clarified that the amendments for GST on online gaming, horse racing, and casinos would be prospective, indicating that the changes in tax rates will apply from a certain date onward. He further explained that the amendment is a clarification, as betting has been included as an actionable claim, and online gaming and betting fall under the category of betting, making them taxable at 28%.
In May, a single-judge Bench of the Karnataka High Court set aside the Rs 21,000-crore GST show cause notice against Gameskraft Technologies Private Ltd. The Directorate General of GST Intelligence had alleged that the company promoted online betting activities amounting to Rs 77,000 crore between 2017 and June 30, 2022, and sought a 28% GST payment on the entire consideration. Gameskraft contested this claim.
In the recent 51st meeting of the GST Council, certain amendments were recommended in the CGST Act 2017 and IGST Act 2017, including an amendment in Schedule III of the CGST Act to provide clarity on the taxation of supplies in casinos, horse racing, and online gaming. These amendments are expected to be presented in Parliament during the current session, and states are also likely to table them in their ongoing assembly sessions. Some states may issue an Ordinance to levy the tax from October 1. The final decision of the Supreme Court on the matter will ultimately prevail.
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