The Karnataka High Court today has quashed the show-cause notice issued to online gaming platform Gameskraft by the Directorate General of Goods & Services Tax Intelligence despite the High Court’s stay on a previous ₹21,000 crore tax notice issued to the company.
Justice SR Krishna Kumar passed the order in a plea challenging the subsequent show-cause notices.
Gameskraft was issued an intimation notice from the GST authorities on September 8 2022 raising a demand of ₹21,000 crore, which was challenged before the High Court.
On September 23, 2022, the single-judge stayed this notice, observing that there were several controversial issues in the case.
The single judge had stated that “If the same is not stayed, the petition would be rendered infructuous and as such, I deem it just and appropriate to stay the impugned Intimation pending disposal of this petition.”
However, the online gaming company claimed that despite the stay of the order, the authorities illegally, arrogantly, and maliciously issued the show cause notice on the very same day as the High Court’s order.
Also, the petition highlighted that Ramesh Prabhu, Chief Financial Officer of the company himself was levied with a personal penalty.
However, the petition argued that the allegations in the GST authorities’ show-cause notice were exactly the same as those in the intimation notice which had already been stayed.
The plea argued that, “Given the main proceedings are already stayed, the action of the Respondents in the present ought to be stayed since it is a flagrant violation of this Court’s order.”
Further, it was submitted that the issue of taxability of online gaming was pending consideration before the GST Council for more than 3 years. In this light, the authorities erred in alleging that the gameplay facilitated by the petitioner was taxable at 28 %.
Also, the petition pointed out that the Respondents’ entire case that was built on the erroneous surmise that the activities undertaken by Gameskraft were an actionable claim and not a service.
In this regard, it was submitted that if interim relief was not granted to the petitioner, it would cause an irreparable loss of goodwill and reputation. Therefore, the show-cause notice was sought to stay.
Therefore, the quantum of the amount alleged to be evaded by Gameskraft was at first marked at ₹419 crore. However, this increased to ₹5,000 crores, and ultimately to over ₹21,000 crores after July 2022 when the respondents changed their narrative and began to allege that Gameskraft might be oneself in betting.
The petition contended that, “It is submitted that the aforesaid averments of the Respondents would itself depict that the course of investigation had suddenly changed mid-way.”
