Game of skill when played whether played with stakes or without stakes is not gambling.

Gameskraft Technologies (P.) Ltd. v. Directorate General of Goods and Services Tax Intelligence

High Court of Karnataka

W.P.(C) No. 22010 of 2021, 19570 of 2022, 18304 of 2022 & others

Category: Classification | GST Applicability | Online Games | Actionable Claim

Date of Judgment: May 11, 2023

Relevant Section: Sections 7, 9, 83, 74(1), 74(5), Schedule III Entry 6 of the CGST Act, 2017

1. Facts of the Case

1. Petitioner: Gameskraft Technologies Pvt. Ltd. (GTPL), an online intermediary offering skill-based online games like rummy, claimed it was a legally compliant GST taxpayer having paid over ₹1,600 crore till June 2022 (Para 1).
2. Revenue Action: In Nov 2021, DGGI conducted a search and issued provisional attachment orders under Sec 83, attaching GTPL’s bank accounts. These were later confirmed (Para 2).
3. Show Cause Notice: DGGI issued SCNs alleging that GTPL was involved in betting/gambling, incorrectly classified supplies under SAC 998439 instead of ‘actionable claims’ (Para 6).
4. Demand: Intimation under Sec 74(5) of CGST Act demanding ₹20,989 crore was issued (Para 5).
5. Legal Challenges: GTPL challenged attachment orders, the demand notice, and SCNs in various writ petitions. Intervenors like All India Gaming Federation and E-Gaming Federation supported GTPL (Para 8).

1. Question(s) in Consideration

1. Whether rummy, a skill-based game (even when played for stakes), amounts to “gambling or betting” as contemplated under Entry 6 of Schedule III of the CGST Act, 2017 (Para 1)?
2. Whether the show cause notice issued under Sec 74(1) classifying platform operations as supply of “actionable claim” involving betting/gambling is valid in law (Para 7)?
3. Whether such games and the platform fee collected for them can be subjected to 28% GST on gross revenue (Para 9)?

III. Observation of the Court

1. Game of Skill vs Gambling: Court reaffirmed that rummy is predominantly a game of skill. Games of skill are not to be treated as “gambling or betting” under the CGST Act (Paras 59, 65).
2. No Actionable Claim by Intermediary: GTPL does not supply actionable claims—it only facilitates games. The prize pool is held in trust; thus, no supply of actionable claims arises (Para 48).
3. SCN Based on Misclassification: The SCN wrongly treated GTPL’s entire buy-in amount as revenue. The Court held this view as fallacious, noting GTPL only retained platform fees and paid GST thereon (Para 9(ii)).
4. No GST on Prize Pool: The money pooled by players is not GTPL’s revenue or supply—there’s no GST liability on the entire stake amount (Para 9(i), 9(ii)).
5. Distinction Upheld: Court reiterated precedent from RMDC-1, RMDC-2, and K. Satyanarayana that distinguished games of skill from gambling, holding that GST cannot be imposed on rummy played for stakes if skill is predominant (Paras 55-65).

1. Judgment of the Court

The Karnataka High Court held that:

• The game of rummy, even when played for stakes, remains a game of skill.
• The SCN issued under Section 74(1) was based on mischaracterization and erroneous interpretation of actionable claim.
• The writ petition challenging the SCN was maintainable as the SCN was without jurisdiction and in violation of principles of natural justice.
• The Show Cause Notice dated 23.09.2022 and consequential actions were quashed (Paras 85, 87).

Between Fine Lines (Summary in Simple Terms)

1. Playing rummy online with stakes is not gambling—it remains a game of skill.
2. GST is applicable only on platform/service fees, not the entire prize pool or stake.
3. Gameskraft did not supply actionable claims—it merely facilitated games.
4. The tax department’s ₹21,000 crore demand was held as baseless.
5. The Court shielded lawful gaming intermediaries from arbitrary tax demands.

Summary of Referred Cases

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