GST notice to Gameskraft: Analysts see long-drawn legal battle | The Financial Express

GST notice to Gameskraft: Analysts see long-drawn legal battle

GTPL has approached the Karnataka High Court, which, in an order dated September 23, has stayed the notice till the hearing in the case begins after Dussehra.

GST notice to Gameskraft: Analysts see long-drawn legal battle
GTPL said it has paid more than Rs 1,500 crore as taxes to the government exchequer (as Income Tax and GST) till June 2022.

The hefty Rs 21,000 crore tax notice to Bengaluru-based online gaming company Gameskraft Technology (GTPL) for not collecting Goods and Services Tax (GST) on the entire consideration of betting at the rate of 28% may ultimately lead to prolonged litigation with little tax recovery, analysts have said.

Already, GTPL has approached the Karnataka High Court, which, in an order dated September 23, has stayed the notice till the hearing in the case begins after Dussehra.

While opposing the plea of the company to quash the tax order, the revenue department has said that it has given an option to the company to pay the tax, interest and 15% of the penalty.

The key issue of contention is that while the Directorate General of GST Intelligence (DGGI) held that the firm’s platform offered betting and gambling activities worth Rs 77,000 crore between 2017 and June 30, 2022, the company has contested, saying these were skill gaming activities and not betting.

Also read: Gaming firm gets Rs 21K-cr GST notice

While CGST or SGST rules don’t make any distinction between games of skill and games of chance, so-called skill gaming companies have been paying 18% GST on the platform fee (which is usually 5-20% of the entire game participation amount, including prize money pool) as a batch of litigation on the issue is going on in the Supreme Court. The GST Council is also seized of the matter.

Once these issues are settled, the tax department could ensure that the online gaming trade pays its due tax, by enforcing a strict compliance mechanism.

A senior analyst with a global consulting firm said there is no way the company can now recover the taxes from the past players in the platform if it had not done so, as ultimate GST liabilities on the customers.

“However, under the GST laws, the primary liabilities are that of the company to collect and deposit taxes, not of its customers. So, the company will ultimately have to bear the tax bill if revenue wins the case,” a senior consultant of another consulting firm said.

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Besides the tax, the company was liable for a penalty equivalent to the tax amount and 18% interest per annum. If found guilty, top management could also face imprisonment of up to five years.

A Gameskraft spokesperson said in a statement on Monday: “Games of skill are a constitutionally protected activity, as per the Supreme Court and various High Courts across the country. Rummy is one such game declared to be a skill game like horse racing, bridge and fantasy games. Therefore, the notice is a departure from the well-established law of the land.”

“As a responsible start-up with Unicorn status in the online skill gaming sector, we have discharged our GST and Income Tax liabilities as per standard industry practice, which is now over a decade old. We are confident that we will be able to respond to this notice to the satisfaction of the authorities since they have sought to apply 28% tax applicable to games of chance and lottery, instead of the 18% applicable to online platforms of games of skill,” the spokesperson said.

In its submission to the Karnataka HC, the company said it is an intermediary and that the game of Rummy constitutes more than 96% of the games played on the petitioner’s platforms and that Rummy is declared and held as being a game of skill and not a game of chance by “the apex court and several High Courts including this (Karnataka HC) Court.”

However, the revenue department has dismissed this argument by saying that the “decision of the Hon’ble Division Bench of this Court in All India Gaming Federation’s case has been challenged and is pending adjudication before the apex court apart from the fact that the same issue arising out of the Madras High Court and Bombay High Court is also pending before the Apex Court, who is seized of the said issue and consequently, no reliance can be placed upon the said decision by the petitioner.”

GTPL said it has paid more than Rs 1,500 crore as taxes to the government exchequer (as Income Tax and GST) till June 2022. “The total GST demanded in the impugned intimation notice is close to Rs 21,000 crore (plus interest and penalty) as against the total income earned by the petitioner from 2017-2022 which is little more than only Rs 4,000 crore and if the demand is enforced, not only would the petitioner suffer loss of business and reputation but also lead to irreparable injury and hardship to the petitioner and justice would suffer.”

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