Gameskraft Case: There's No Skill Involved, GST Authority Tells High Court

Even as the GST Council reviews taxability of online gaming, Gameskraft is prepping for a Rs 21,000 crore dispute.

<div class="paragraphs"><p>Playing cards. (Photo: <a href=";utm_medium=referral&amp;utm_content=creditCopyText">Jack Hamilton</a>/<a href=";utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a>)</p></div>
Playing cards. (Photo: Jack Hamilton/Unsplash)

Around Rs 21,000 crore of goods and services tax liability is at stake, perhaps making the notice to Gameskraft Technologies Pvt. the highest disputed amount in an indirect tax case against an entity.

The outcome of this case will impact not just Gameskraft but the entire online gaming industry as well. At the heart of the matter is the tax rate that should be applied to online games, specifically rummy, offered on Gameskraft's platform.

The company says it should be 18%—the applicable rate for games of skill.

The Directorate General of GST Intelligence says the company's offerings qualify as games of chance, liable to be taxed at 28%.

The second contention pertains to the amount that this 18% or 28% tax will be applicable to—on the entire ‘bet value’ or only the ‘platform fee’.

In its submissions before the Karnataka High Court, the DGGI has made four key arguments:

  • Gameskraft's claim that the game of rummy played on its platform is a game of skill deserves to be rejected.

  • The company makes profits and gains from such games of rummy played on its platform. This qualifies as betting and gambling.

  • The platform is actively involved in the supply of goods, in the form of actionable claims.

BQ Prime has reviewed a copy of DGGI and Gameskraft's submissions.

The 'Skill' Argument

As per the DGGI, whether online rummy is a game of skill or game of chance is a factual assessment. It has argued that a game constitutes a ‘game of skill’ only when the success depends on the skill of the player.

In the present case, the company does not record skills of the player and assigns a table solely based on the stakes involved. Therefore, it is a game of chance.

The company's argument that an amount staked by a player is directly proportional to the level of skills he possesses in the game of rummy is fundamentally flawed, the GST authority has said.

This presumption of the petitioner (Gameskraft) is fundamentally flawed for the reason that it evaluates the skills vis-à-vis the amount staked by a player and not on how well a particular player can play the game of rummy.
DGGI's Submission

The company has relied on the Supreme Court's decision in Satyanarayana's case to say that rummy is a ‘game of skill’ and is therefore constitutionally protected.

"It is also settled law that the character of rummy being a game of skill does not change when it is played online," it said.

Profit & Gains = Betting 

The platform is profiting from each game, the DGGI has alleged.

The service charge levied by the company is varied and depends upon the amount of stakes involved. This amounts to betting, as per the existing position of law, as the profit of the platform is intrinsically related to the amount of stakes, it said.

The claim of the platform that the varied charge on each game (5%-20%) on the stake involved amounts to a 'service fee' cannot be accepted as service charge needs to be uniform and must be for purely meeting expenses. The alleged service fee changes from table to table depending on total amount of stakes at a particular table.
DGGI's Submission

The practice of the company ends up in them profiting out of the stakes involved, a practice clearly prohibited by the existing precedents.

Even if we assume that it’s a game of skill, playing with stakes makes it ‘betting’, according to the authority's submissions.

Gameskraft has contested this saying it's merely an intermediary, which provides services for skilled players in exchange of a fee, much like Ola or Uber.

There are two transactions, it said. First, facilitation services provided by it for online skill-based gaming. Second, the actual playing between the players/users and the subsequent transfer of the winnings.

In the first transaction, Gameskraft earns a consideration in the form of ‘platform fee’ on which GST is duly deposited. Whereas the second transaction is purely between the players, and the company merely holds and manages the money/deposits of the players for easy accountability and settlement at the end of the game. So, there is no case of profit, it said.

Supply Of Actionable Claim

Gameskraft is involved in the supply of 'actionable claims' in the nature of betting as against 'service' as claimed by it, the DGGI said.

Actionable claim means a claim of any debt, and is exempted from GST. But actionable claim in the form of lottery, betting and gambling is subject to GST as per the existing law.

Pointing to the contract between Gameskraft and its users, the DGGI has said that the winners get a sum in exchange of the betting amount, clearly making it an actionable claim.

This practice of the company is in the nature of facilitating betting and is liable to be taxed on the entire bet value and not on the revenue accrued to the company, as per the arguments of the DGGI.

On this aspect, Gameskraft has maintained that online rummy is a game of skill and does not amount to betting. So, the exemption under law for actionable claim is applicable.

Even as this dispute is playing out in the Karnataka High Court, a group of ministers, chaired by the Meghalaya Chief Minister Conrad Sangma, is looking at whether a uniform 28% GST should be applicable to online gaming, horse racing and casinos. They will also decide on the value at which such tax would be levied.

The high court will hear the Gameskraft matter next on Oct 27.