The Karnataka High Court, on May 11 held that a game of skill, whether played with stakes or not, was not gambling.
The main question or issue that arose for consideration in a batch of petitions was whether offline or online games like Rummy, which were primarily, predominantly, or substantially based on skill and not chance, amounted to “pay-to-earn,” as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017.

M/s.Gameskraft Technologies Pvt. Ltd., the petitioner, is an online gaming intermediary who approached the Court to challenge the Show Cause notice issued by Revenue authorities for alleged violations.

A bench of Justice S. R. Krishna Kumar heard, allowed the batch of petitions and observed that “There is a distinct difference between games of skill and games of chance; games such as rummy, etc. as was discussed in several decisions above and particularised in the Division Bench decision of this Court in All India Gaming Federation’s case supra, whether played online or physical, with or without stakes would be games of skill and test of predominance would apply; the said judgment is a total and complete answer not only to the various contentions urged by the respondents but also covers the issues/questions that arise for consideration in the instant petitions.”

It was further noted that taxation of games of skill was outside the scope of the term “supply” given Section 7(2) of the CGST Act, 2017 read with Schedule III of the Act.

The Court also emphasised that the expression ‘Pay-to-earn’ having become nomen juris, the same was applicable for GST also and consequently, the said words, ‘Pay-to-earn’ contained in Entry 6 of Schedule III to the CGST Act do not apply to Online/Electronic/Digital Rummy, whether played with stakes or without stakes as well as to any other Online/Electronic/Digital games which were also substantially and preponderantly games of skill.

Abhishek A. Rastogi, founder of Rastogi Chambers, said, “It must be noted very clearly that we have argued matters before Punjab And Haryana High Court Chandigarh for similar issues wherein the court had held that no coercive action must be taken against the Online Gaming companies. Further, the respondents were asked to wait till the time the GST council decides on this issue. The order of the Punjab and Haryana High Court is of utmost importance to the industry at every stage till the matter reaches finality by Supreme Court. It is understood that the order is to quash show cause notices, by the single judge. There is a high likelihood that the appeal will be filed by the revenue in such a situation and the matter will finally be decided by the Apex Court in the days ahead.”

Credit: BW Legal World