Supreme Court stays Karnataka High Court verdict quashing GST department's dues claim against Gameskraft

Supreme Court stays Karnataka High Court verdict quashing GST department's dues claim against Gameskraft

The matter has been listed for hearing after three weeks

The Supreme Court has stayed the Karnataka High Court verdict passed in May that quashed a notice issued by the Goods and Services Tax (GST) department claiming Rs.21,000 crore in dues from online gaming company Gameskraft.

In the Directorate General of Goods and Services Tax Intelligence and Ors v. Gameskraft Technologies Private Limited and Ors case, the bench of Chief Justice DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra sought a response from Gameskraft and listed the matter after three weeks.

Chief Justice Chandrachud orally remarked, "Do not worry... nothing is going to happen in three weeks.”

The Court was hearing the Central government's appeal against the High Court verdict which held that rummy, played with or without stakes, was not gambling.

The Karnataka High Court’s Justice SR Krishna Kumar had held that rummy, whether played online or physically, was a game of skill and not of chance. He had stated that online rummy and other digital games played on Gameskraft's platforms were not taxable as 'betting’ and ‘gambling’.

The Karnataka government's plea challenging this decision is also pending before the apex Court.

The matter arose when in November 2021, a raid was conducted by the GST authorities on Gameskraft's office. It culminated in an order by which all the company's bank accounts were attached.

Initially, the amount of tax allegedly evaded by Gameskraft was marked at Rs.419 crore, but later increased to Rs.5,000 crore, and ultimately to Rs.21,000. This happened after July 2022, when the authorities changed their narrative and alleged that gaming companies might be indulging in betting.

In September 2022, Gameskraft was issued an intimation notice from the GST authorities, raising a demand of Rs.21,000 crore. The notice was challenged before the High Court. In the same month, a single Judge bench stayed the notice, observing several contentious issues.

Thereafter, once again, the online gaming company appealed before the High Court claiming that despite the stay order, the authorities illegally, contemptuously, and maliciously issued another show-cause notice to it on the very same day. The petition also highlighted that a personal penalty was levied on Ramesh Prabhu, the Chief Financial Officer of the company.

Gamaskraft argued that the allegations in the GST authorities' show-cause notice were the same as those that had been stayed. It added that the authorities erred in alleging that the gameplay facilitated by the petitioner was taxable at 28 percent.