Government To Challenge Karnataka High Court's Gameskraft Verdict, Says Revenue Secretary

The Finance Ministry is in the process of filing a special leave petition to challenge the Karnataka High Court's verdict quashing the Rs 21,000-crore tax demand against Gameskraft, Revenue Secretary Sanjay Malhotra said a day after the GST Council approved a 28% levy on online gaming.

The GST Council's decision is merely a clarification, he said. It reinforces the government's long-standing view that online gaming qualifies as an "actionable claim", subject to a 28% tax on its face value, said Malhotra.

The federal body of GST recommended expansion of Schedule 3, Entry 6, of the GST law to include 'online gaming' on a par with activities such as betting, gambling, and lottery, which are all considered actionable claims and subject to GST levy.

The ministry aims to table this amendment during the upcoming monsoon session of Parliament as a CGST amendment bill. The council has empowered the fitment committee to draft the amendment, which the department aims to implement in two to three months, he said.

The Karnataka High Court ruled that rummy, which constituted a significant portion of Gameskraft's revenue, is a 'game of skill' and cannot be equated with lotteries, betting, or gambling.

The dispute primarily revolved around the tax rate for online games, especially rummy, offered by the platform. While Gameskraft argued for an 18% tax rate as applicable to a game of skill, the GST department contended that the game should be treated as a 'game of chance' and taxed at 28%.

In its recommendation on Tuesday, the GST Council agreed to levy 28% GST on all online gaming, regardless of its classification as a game of skill or chance.

Malhotra said the 28% GST levy is not a retrospective tax and that the government's position has consistently been to treat online gaming on a par with betting, leaving the fate of platforms that have so far paid 18% GST on gross gaming revenue uncertain.

"We have been saying that even playing online games is betting, and it is an actionable claim which is taxable ... the amendment proposed in GST laws is to further make it amply clear that 'online gaming' is an actionable claim and liable to GST," he told BQ Prime.

According to Malhotra, online gaming encompasses any form involving the acceptance or making of deposits, whether in money or money's worth, on the outcomes of any event, including a game.