[Opinion] Journey of Online Games & E-Sports under GST Regime so far

Pramod Kumar Rai & Pawan Arora – [2023] 150 taxmann.com 299 (Article)

The Online Gaming Industry in India, is soaring out of its nascency stage at a lightning pace & has grown exponentially. However, the pace of the Government with respect to the GST taxability surrounding online games, still seems to be dawdling & fluctuating. GST Authorities are continuously trying to levy higher tax & thus, the debate circumscribing Online Game is still battling in the judicial forums to find a suitable consensus & reach ad idem with respect to its GST Taxability.

Last year, a stir was generated in the Online Gaming Industry when the Department raised a Show Cause Notice proposing a hefty & unprecedented demand of Rs. 21,000 crores to a Gaming Company. The GST Department demanded tax on the full amount pooled by the players in game pool by alleging it to be “Betting” & taxable as ‘Goods’ @ 28%. The Hon’ble Karnataka High Court, recently on 11.05.2023, passed a landmark judgement in the said matter and addressed these dilemmas surrounding the issue of taxability under GST with respect to the transaction value and the tax rate for the services provided by Online Gaming Platforms.

The Hon’ble High Court has quashed the SCN demanding the tax on full amount of contribution pooled by the Players for playing the game ‘Rummy’. The Department took a stand that-

• Online Game of Rummy involves ‘betting’.
• The full amount pooled in by the players for the game of Rummy are against betting & taxable as ‘goods’ under GST.
• Therefore, the applicable GST rate is 28%.

The Hon’ble High Court has elaborately discussed multiple judicial pronouncements with respect to “Game of Skill” and “Game of Chance”, opined & concluded that-

• The expression “Betting” & “Gambling” do not include “Game of Skills”.
• A game of skill whether played with stakes or without stakes is not gambling.
• A game of mixed chance and skill is not gambling, if it is substantially and preponderantly a game of skill and not of chance.
• Rummy is substantially and preponderantly a game of skill and not of chance.
• The Court has also held that Taxation of games of skill is outside the scope of the term “supply” as actionable claims are neither considered as Goods nor Service.

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