Gaming, gambling and taxation

“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 futile attempt on the part of the respondents to cherry-pick stray sentences from the judgements 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.”

This was one of the observations of the Karnataka High Court in the case of Gameskraft Technologies Pvt Ltd vs Director General of Goods and Service Tax Intelligence (2023)150 taxmann.com (252). The observation was part of their decision that the game of rummy is not a game of chance but a game of skill and hence, should be taxed at 18 per cent and not 28 per cent. It would appear that the GST Council did not appreciate the above observation/decision of the high court.

Also Read: Explained | How will 28% GST on online gaming impact the industry?

There are a number of historical precedents both in service tax as well as GST wherein the government taxes a transaction only to negate the decision of a court. The 50th meeting of the GST Council decided to add to these precedents by taking a decision to levy GST at 28 per cent on the full value of the transaction. There is a very thin line of difference between a game of skill and chance but there have been enough judicial precedents in India for the council to have opted for the 18 per cent rate. In most online games, it is the gamers’ skill that improves the chances of winning. Due to this, the entire game cannot be equated with gambling for the purposes of taxation. The last has still not been heard on this as the gaming industry is certainly going to knock on the doors of the Supreme Court for succour. In case the Supreme Court confirms the rate at 28 per cent, illegal gaming apps will flourish. Gaming companies would be hoping that the Supreme Court gives the benefit of doubt to them, and not the tax department.

Prior to the 50th meeting, a cool video was released that highlighted the success of the GST regime through statistics and interviews. We learn from the video that till date, the GST Council has taken more than 1,500 decisions (an average of 30 decisions per meeting); the total number of GST taxpayers stands at around Rs 1.36 crore; total GST revenue totals Rs 18,07,681 crore per annum (from which we can derive an average monthly revenue of around Rs 1,50,000 crore); and the total refunds sanctioned come to Rs 1,19,110 crore. A stamp was also released to commemorate the 50th meeting of the Council.

Tribunals

The council meeting took some further incremental steps towards the establishment of the GST Appellate Tribunals. The council has recommended rules governing the appointment and conditions of the president and members of the proposed tribunal. It also recommended that the provisions of the Finance Act, 2023, pertaining to the GST Appellate Tribunal may be notified by the Centre with effect from 01.08.2023. It was decided to set up state benches of the tribunal in a phased manner. Litigation in GST is only going to increase thanks to the law being amended several times and tax officers who have an eye on tax collections to meet their revenue targets. A delay in setting up benches in states is going to increase the workload of the tribunals that would be set up invariably in the metros, leading to delays in adjudication of cases. Since electronic appeals are planned to be introduced at the tribunal level, it should not take much time to set up tribunals at the state level. It is possible that finding the right resources to man these tribunals could be the reason for the decision to set them up in a phased manner.

The council also took a number of other decisions on rates of taxes, amending forms and GST rules. The menace of fake registrations is being tackled by mandating that the bank account in the name and with the PAN of the person applying for registration be provided within a month of registration. Failure to provide a valid bank account could result in blocking the ability to file returns and it could culminate in the cancellation of registration. Biometric-based Aadhaar registrations are being piloted in Puducherry, Gujarat and Andhra Pradesh.

The GST Council should also take a relook at the provision that restricts availing input tax credit in case the difference between GSTR 3B and 2B exceeds a certain threshold. Initially, the restriction should be invoked at six months since the entire purpose of the GST law is to provide seamless availability of input tax credit.

(The writer is a tax expert based in Bengaluru)