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Demand for Rs 21,000 Crores!

NOVEMBER 09, 2022

By Vijay Kumar

WHAT would you feel if you got a GST demand for Rs. 21,000 crores? Yes 21,000 crores. If it gets adjudicated, the demand together with interest and penalty may go beyond 50,000 crores. And if you want to go in appeal, you have to make a pre-deposit of Rs. 25 crores and if you want a further appeal to the (at-present-non-existing) Tribunal, it is another 50 crores. How much will the advocates charge for defending such humungous demands?

Gameskraft Technologies Private Limited is India's first gaming company to build an ISO certified gaming platform and have Guinness World Record for organising the world's largest online rummy tournament. And perhaps now they hold the record for the honour of getting the highest demand from the GST department, namely the Directorate General of Goods and Services Tax Intelligence (Headquarters).

What do you do when you get such huge demands? You have two options - go to God or go to the High Court and they chose the second option. So, they approached the Karnataka High Court with a plea to:

1. Issue a writ quashing and setting aside the Notice dated 08 September 2022; AND

2. Issue a writ restraining the Respondents from levying GST at the rate of 28% on their activity.

The High Court cannot straight away pass any such order without hearing the government and the government would sincerely field its top law officers - after all, the issue involves 50,000 crores.

So, Gameskraft sought for the following interim reliefs:-

1. Stay the Intimation Notice dated 08 September 2022.

2. Directions to the Respondents to not act on the same.

3. Directions to the Respondents to not take any coercive or precipitative measures against the Petitioner including but not limited to attachment of properties, bank accounts, any other measures that impact the running of the Petitioner's business in ordinary course etc., till the pendency of the writ petition.

4. Direction to the Respondents restraining them from proceeding further with the matter in any manner whatsoever.

They submitted that:

(i) the petitioner is a company headquartered in Karnataka and is involved in hosting of skill based online games on its platform as an intermediary.

(ii) The impugned Intimation is without jurisdiction or authority of law.

(iii) Even an actionable claim was not taxable under the provisions of CGST Act and that the same would become taxable only if they relate to betting, gambling or lottery, all of which were not being done by the petitioner.

(iv) The games being played on the petitioner's platform have already been held to be games of skill and not games of chance by the Division Bench of this Court in the case of All India Gaming Federation and others vs. State of Karnataka and others, to which the petitioner was a party and even in the petitions filed before the Apex Court challenging the said judgment, there is no order of stay or any other interim order and consequently, the said judgment of the Hon'ble Division Bench continues to remain in force in favour of the writ petitioners.

(v) The impugned Intimation notice invokes Rule 31A of the CGST Rules, the validity of which is seized and sub - judice before the Division Bench of this Court.

(vi) The impugned notice suffers from lack of jurisdiction since it was not issued by the proper officer as is required under law and in contravention of Section 3 of the CGST Act.

(vii) The impugned notice is vitiated with malice, both on facts and law and is arbitrary and violative of Articles 14, 19 and 21 of the Constitution of India, particularly having regard to the earlier round of litigation pending before this Court.

(viii) The total GST demanded in the impugned Intimation notice is close to INR 21,000 Crores (plus interest and penalty) as against the total income earned by the petitioner from 2017-2022 which is little more than only INR 4,000 crores and if the demand is enforced, not only would the petitioner suffer loss of business and reputation but also lead to irreparable injury and hardship to the petitioner and justice would suffer.

(ix) The impugned notice is contrary to the proceedings of the respondents who have referred the issue regarding taxability of online gaming to the GST Council which has not taken any decision in this regard so far.

(x) If the interim reliefs sought for are not granted, petition would be rendered infructuous, resulting in great prejudice and loss to the petitioner.

The Additional Solicitor General of India appeared for the GST department and submitted that:

(i) The petitioner cannot seek to scuttle the due process of law initiated by the respondents and any interim order passed against the respondents would result in preventing them from proceeding against the petitioner in accordance with law and as such, petitioner is not entitled to any interim reliefs sought for in the present petition.

(ii) The petition is not maintainable against an intimation which was merely an option for the petitioner to exercise payment of tax, interest and 15% of penalty and as such, the petition is premature and liable to be dismissed.

(iii) Since the final relief and interim relief are one and the same, there is no need for any separate interim order and on this score also, petitioner is not entitled to any interim relief as sought for in the petition.

(iv) The contention regarding lack of jurisdiction on the part of the Officer is incorrect in view of the notification dated 01.07.2017 and Corrigendum dated 28.07.2019 issued by the respondents and as such, the said contention is liable to be rejected.

(v)   Merely because the GST Council has not taken any decision, in the absence of any recommendation by the Council, no reliance can be placed upon the same by the petitioner, who is not entitled to any interim relief in the present petition.

(vi) The decision of the Hon'ble Division Bench of this Court in All India Gaming Federation's case has been challenged and is pending adjudication before the Apex Court apart from the fact that the same issue arising out of the Madras High Court and Bombay High Court are also pending before the Apex Court, who is seized of the said issue and consequently, no reliance can be placed upon the said decision by the petitioner.

(vii) The issue of online gaming being game of chance or a game of skill in the context of GST is also pending adjudication before the Bombay High Court and since, no finality has been reached on this issue, there is no merit in the contention of the petitioner.

(viii) If an interim order is passed in favour of the petitioner against the respondents, the same would prevent the respondents from proceeding further against the petitioner under Section 74 of the GST Act or any other provision and on this ground also, petitioner is not entitled to any interim relief in the present petition.

After hearing both sides and upon perusal of the material on record, the High Court observed,

1. There are several contentious issues and complicated / disputed questions that arise for consideration in the present petition, which would necessarily have to be adjudicated upon at the time of final disposal of the petition.

2. Though the petitioner has sought for various reliefs and interim reliefs, since the issue with regard to legality, validity and correctness of the impugned Intimation dated 08.09.2022 would have to be decided at the time of final disposal of the petition,

3. If the same is not stayed, the petition would be rendered infructuous and as such, it is just and appropriate to stay the impugned Intimation pending disposal of this petition.

And the Court ordered: -

Pending disposal of the petition, the impugned intimation dated 08.09.2022 is hereby stayed until further orders.

Several other companies engaged in online gaming have joined the case and top lawyers are appearing in the High Court - after all the issue is worth at least 50,000 crores. If the case for one company is worth about 50,000 crores, what would it be when several other similar entities join in?

This is bound to be big game - a gamer changer and what will happen if the GST Council or the Courts decide that, after all, this is not taxable? A damp squib of a game.

There is action in another stage. On 24.05.2021, the GST Council issued an OM stating - In pursuance of the decision of the GST Council a Group of Ministers (GoM) on Casinos, Race Courses and Online Gaming has been constituted .

The GoM headed by Mr. Nitin Patel, Deputy Chief Minister of Gujarat had ministers from six states as Members.

The GoM was:

(i) To examine the issue of valuation of services provided by Casinos, Race Courses and online gaming portals.

(ii) To examine whether any change is required in the legal provisions to adopt any better means of valuation of these services.

(iii) To examine the administration of such valuation provision if an alternative means of valuation is recommended.

(iv) To examine impact on other similarly placed services like lottery.

But unfortunately, within a few months of being appointed as the head of this GoM, Mr. Patel lost his job as a Minister in Gujarat and so couldn't head the GoM. So, on 10th February 2022, the GST Council reconstituted the GoM with Mr. Conrad Sangma, Chief Minister of Meghalaya as the convenor. Obviously, the GoM is yet to give its report, but that is no bar for the field to issue demand notices.

Whether it is gambling or a game of chance or skill, perhaps there is no reason to not tax it. After all, if you can tax chapathis and rotis, why can't you tax rummy? - simple and of course good.

Until Next week


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