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With all the uncertainty surrounding the levying of GST on skill-based gaming, the Karnataka High Court today, on May 11, axed a GST notice that was issued to Bengaluru-based online gaming company, Gameskraft—for an alleged tax evasion of Rs 21,000 crore.

For those unaware, in September last year, Gameskraft Technologies, a Bengaluru-based skill-based games developer, received a show cause notice from a GST intelligence unit for allegedly failing to pay Rs 21,000 crore in GST—marking the largest claim of its kind in the history of indirect taxation. The notice covered a period between 2017 and June 30, 2022, and has significant implications for the company, as per a report by Moneycontrol.

“We are very pleased with the verdict of the Karnataka High Court. It is a clear vindication of our business model. We had and continue to have full faith in the government and the judiciary. We are hopeful that this decision will pave the way for constructive dialogues with the GST authorities and will form the basis of progressive GST regulations for the industry,” said, Joyjyoti Misra, Group General Counsel, Gameskraft.

As per Bar and Bench, the single-judge involved with the case, on September 23, 2022, stayed this notice and stated, “If the same is not stayed, the petition would be rendered infructuous and as such, I deem it just and appropriate to stay the impugned Intimation pending disposal of this petition.”

Moneycontrol reports that Gameskraft Technology Private Limited was also accused of promoting online betting through various games—including Rummy Culture and Gamezy. Moreover, GST officials stated that the company did not issue invoices to customers and submitted fake invoices. Further, authorities claimed that the skill-based games developer levied a 28 percent tax—which amounted to Rs 77,000 crore.

However, Gameskraft denied the allegations and said that its products constitute as skill-based gaming, and only 18% GST is levied on the transactions—which is charged during the entry fee.

“The verdict of the Hon’ble High Court of Karnataka upholding the law by allowing the petitions is a reinforcement of the stand of the industry in following the existing GST framework under which it has been operating. The pronouncement today, along with the recent progressive regulations in the online gaming sector including the notification of rules for online gaming by the Ministry of Electronics and Information Technology (MeitY) and the amendments to the Income Tax Act made through the Finance Bill 2023, helps to reinstate the demarcation between online gaming from games of chance involving betting and gambling,” said Sameer Chugh, Chief Legal Officer, Games24x7.

“The legitimate online skill gaming platforms have been united as an industry in developing strong and ethical self-regulatory mechanisms and have been forthcoming in their commitment to running fully compliant businesses, operating by the laws of the land. We are hopeful that the legal precedence set in this case will guide future discussions on economic and taxation policies pertaining to the skill gaming industry,” he added.