Online Rummy : Supreme Court Stays Karnataka HC Judgment Which Held That Online Rummy Games Aren't Taxable As ‘Betting’ And ‘Gambling'

The Supreme Court, on Wednesday, stayed for three weeks the judgment of the Karnataka High Court which had quashed the GST Intimation Notice to the tune of Rs 21,000 crore and had held that online/electronic/digital Rummy games and other Online/Electronic/Digital games played on Gameskraft’s platforms are not taxable as "betting" and "gambling". A bench comprising CJI DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra issued notice on the petition filed by the GST Department against the High Court order. "Pending further orders, there shall be an ad interim stay on the interim judgement of the High Court of Karnataka," the CJI stated and remarked orally that the Supreme Court did not wish for other High Courts to rely on the judgement. A bench of Justice S.R. Krishna Kumar of Karnataka High Court had observed that online, electronic, and digital games, were substantially and preponderantly games of skill and not of chance, and thus, were not gambling. The issue raised before the court was whether offline or online games such as Rummy, played with or without stakes, are tantamount to "gambling or betting," as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017.Courtroom ExchangeAdditional Solicitor General N. Venkatraman, appearing for the Directorate of GST, argued primarily on the ground that the single judge's judgement was in contravention of a Constitution Bench judgement of the Supreme Court in H. H. Maharajadhiraja Madhav Rao v. Union Of India and other judgements of the Supreme Court such as State Of Andhra Pradesh v. K. Satyanarayana. He stated that the single judge had "taken the part of upsetting one Constitution judge bench judgement and three judgements of the Supreme Court" and to do so had relied on a division bench judgement of the High Court which was in appeal before the Supreme Court. He argued–"It is the biggest show cause notice issued in this country, that is 21,000 crores. Because in five years this entity has collected 70,000 crores as bet money from their own State fund. Less than ₹200 is the bet money, 99.5% of the players participate in ₹200. 45 lakh players across the country is the base. So let us say that there are four players. When we login, four of us put ₹100 rupees each. Nobody knows the other person. After the end of the game, one person has ₹60 as the winner and the others walk away with ₹40. One walks with the stake, another walks with the profit."He asserted that the judgement had to be stayed because 35 such show cause notices had been made across the country post the judgement.The ASG also took objection to the "condemnation" issued against the respondents in the single judge's judgement. In his judgement, the High Court judge had stated–"After having dealt with the rival contentions as stated supra, it is significant to state that a perusal of the impugned show cause notice as well as contentions and submissions of the respondents will clearly indicate that the same are an outcome of a vain and futile attempt on the part of the respondents to cherry pick stray sentences from the judgments of various Courts including the Apex Court, this Court and other High Courts and try to build up a non-existent case out of nothing which clearly amounts to splitting hairs and clutching at straws which cannot be countenanced and is impermissible in law."Senior Advocate Mukul Rohatgi appeared for the respondents and also argued that even they had Supreme Court judgements in their favour. The court issued notice in the matter and stayed the High Court judgement for three weeks, after which it will hear the arguments. High Court JudgementA bench of Justice S.R. Krishna Kumar had observed that online, electronic, and digital games, which are also substantially and preponderantly games of skill and not of chance, are also not gambling. The issue raised was whether offline or online games such as Rummy, which are mainly based on skill and not on chance, whether played with or without stakes, are tantamount to "gambling or betting," as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017.The petitioner before the High Court was Gameskraft Technologies Pvt. Ltd. (GTPL) was an online intermediary company incorporated in June 2017 that runs technology platforms that allow users to play skill-based online games against each other. The petitioner has over 10 lakh users from across India, is headquartered in Bangalore, and is registered under the GST Act.The department had issued a Show Cause Notice under Section 74(1) of the CGST Act to the petitioner as well as its founders. The department also issued an Intimation Notice under Section 74(5) of the CGST Act, calling upon GTPL to deposit a sum of Rs. 2,09,89,31,31,501 along with interest and penalty.The petitioner contended that the monies contributed by players to the prize pool were merely held in trust and the companies have no right, lien, or interest over them as the entities...

Online Rummy : Supreme Court Stays Karnataka HC Judgment Which Held That Online Rummy Games Aren't Taxable As ‘Betting’ And ‘Gambling'

Padmakshi Sharma

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