SUPREME COURT ON BETTING & GAMBLING – GAMESKRAFT CASE

[Dr. Sanjiv Agarwal]

In DIRECTORATE GENERAL OF GOODS AND SERVICES TAX INTELLIGENCE (HQS) & ORS. VERSUS GAMESKRAFT TECHNOLOGIES PRIVATE LIMITED & ORS. - 2025 (1) TMI 1027 - SC ORDER, a SLP appeal was preferred by revenue authorities against Karnataka High Court judgement dated 11.05.2023 [GAMESKRAFT TECHNOLOGIES PRIVATE LIMITED, RAMESH PRABHU, MR. PRITHVI RAJ SINGH, MR. DEEPAK SINGH, MR. VIKAS TANJEA, MR. DEEPAK JHA VERSUS DIRECTORATE GENERAL OF GOODS SERVICES TAX INTELLIGENCE, NEW DELHI, ADDITIONAL DIRECTOR GENERAL DIRECTOR GENERAL OF GOODS OF SERVICES INTELLIGENCE (HEADQUARTERS), SENIOR INTELLIGENCE OFFICER DIRECTORATE GENERAL OF GOODS AND SERVICES INTELLIGENCE (HEADQUARTERS) CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, PRINCIPAL ADDITIONAL DIRECTOR GENERAL DIRECTORATE GENERAL OF GOODS AND SERVICES INTELLIGENCE AND OTHERS - 2023 (5) TMI 926 - KARNATAKA HIGH COURT].

Karnataka High Court dealt with the issue of classification of services and whether offline /online games such as Rummy which are mainly / preponderantly / substantially based on skill and not on chance, whether played with / without stakes tantamount to ‘gambling or betting’ as contemplated in Entry 6 of Schedule III of the Goods and services Act, 2017 ?

It observed that the words ‘gambling’, game of chance’, ‘game of skill’ have developed meanings in judicial parlance. Therefore, applying the principle of nomen-juris, the words should be construed in their legal sense, instead of general parlance. While ‘gambling’ or ‘game of chance’ have been held to involve chance as a predominant element, on the other hand ‘game of skill’ has an exericise of skill which can control the chance. The element of chance cannot be completely overruled in any case but what is to be seen is the predominant element. In a game of rummy, certain amount of skill is required because the fall of the cards has to be memorized and the building up of rummny requires considerable skill in holding and discarding cards. Threfore, a game of rummy is a game of skill.

Further, there is a distinct difference between games of skill and games of chance; games such as rummy etc. The court inter alia, held as under:

• Though Section 2(17) of the CGST Act recognises even wagering contracts as included in the term business. but that in itself would not mean that lottery, betting and gambling are the same as games of skill.
• The meaning of the terms "lottery, betting and gambling" as contemplated in Entry 6 of Schedule III of the CGST Act should be construed nomen juris in the light of the decisions of the Hon'ble Supreme Court, this Court and other High Courts which do not include games of skill.
• Entry 6 in Schedule III to the CGST Act taking actionable claims out of the purview of supply of goods or services would clearly apply to games of skill and only games of chance such as lottery, betting and gambling would be taxable.
• Taxation of games of skill is outside the scope of the term "supply" in view of Section 7(2) of the CGST Act, 2017 read with Schedule III of the Act.
• A game of chance whether played with stakes is gambling;
• A game of skill whether played with stakes or without stakes is not gambling;
• A game of mixed chance and skill is gambling, if it is substantially and preponderantly a game of chance and not of skill;
• 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;
• Rummy whether played with stakes or without stakes is not gambling;
• There is no difference between offline/physical Rummy and Online/Electronic/Digital Rummy and both are substantially and preponderantly games of skill and not of chance;
• Online/Electronic/Digital Rummy whether played with stakes or without stakes is not gambling;
• Other Online/Electronic/Digital games which are also substantially and preponderantly games of skill and not of chance are also not gambling;
• The expressions, 'Setting' and 'Gambling' having become nomen juris, the same are applicable for the purpose of GST also and consequently, the said words, 'Setting' and 'Gambling' contained in Entry 6 of Schedule III to the CGST Act are not applicable to Online/Electronic/Digital Rummy, whether played with stakes or without stakes as well as to any other Online/Electronic/Digital games which are also substantially and preponderantly games of skill;
• The subject Online/Electronic/Digital Rummy game and other Online/Electronic/Digital games played on the Petitioners' platforms are not taxable as 'Setting' and 'Gambling' as contended by the respondents under the CGST Act and Rules or under the impugned show cause notice issued by the respondents.

The court held the show cause notices issued to the petitioners as illegal, arbitrary and without jurisdiction of authority of law and were therefore, quashed.

Consequently, a bunch of writ petitions were filed before various high courts. These batch of writ petitions were filed against High Court’s holding that online / offline / physical / electronic / digital Rummy games and also other games, played with or without stakes on assessee’s mobile App being substantially and preponderantly games of skill and not of chance, are not covered within expression ‘betting and gambling’ appearing in Entry 6 of Schedule III of CGST Act, 2017 and, hence, such, games are not taxable. Such writ petitions stood transferred to the Supreme Court from different high courts while few were directly filed before the Apex Court.

Accordingly, the main matter is SLP (C) Nos. 19366-19369/2023 titled ‘Directorate General of Goods and Services Tax Intelligence (HQS) & Ors. v. Gameskraft Technologies Pvt. Ltd. & Ors and all petition have been tagged with the main matter.

Since revenue contended that some of the show cause notices shall get time barred in February 2025, apex court held that the further proceedings of all the impugned show cause notices shall remain stayed till the final disposal of the main matter along with all the matters which are tagged.

Apex court stated that main matter was ripe for final hearing and as such, these were tagged with W.P.(C) No. 858 of 2024 for final disposal and the next date of hearing in May, 2025.