The Karnataka High Court in its recent decision, pronounced on 11 May 2023, has held that offline/online games such as Rummy which are mainly/preponderantly/substantially based on skill and not on chance, whether played with/without stakes, do not tantamount to ‘gambling or betting’ as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017.
According to the Court, the terms ‘betting’ and ‘gambling’ appearing in Entry 6 of Schedule III of the CGST Act do not and cannot include games of skill within its ambit. It was held that 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 thereof.
The High Court in this respect, rejected the contention of the Revenue department that games of skill played with stakes amounts to gambling. The Revenue had contended that when any person including the players of rummy wagers, stakes or bets on the outcome of a game of rummy, which outcome is unknown and uncertain till the game gets over, such activity of wagering, staking or betting on the unknown and uncertain outcome tantamount to betting and gambling, irrespective of the nature of the underlying game, i.e., of skill or of chance.
Rejecting the said contention, the High Court in the dispute Gameskraft Technologies Private Limited v. Directorate General of Goods Services Tax Intelligence stated that rummy played with stakes cannot be viewed as a ‘forecast’ or a shot at the ‘hidden target’.
Setting aside the show cause notice demanding INR 21,000 crore of GST, the High Court also observed that in the definition of wagering, the persons so doing should not have any interest in the outcome, which is completely contrary to the concept of game of skill, where the person playing the rummy is clearly interested in winning, which is also a circumstance to rule out the possibility of it being called a wagering contract.
The Court in this regard also observed that Rummy is a game where predominantly skill is exercised to control the outcome of the game. According to it, the game of Rummy is not one where forecasting or predicting the answer or the winner against stakes is the activity of the player. The game is one, where exercise of substantial skill is the activity of the player and such skill controls the outcome of the game and not chance. In a game of rummy, certain amount of skill is required because the fall of the cards must be memorised and the building up of rummy requires considerable skill in holding and discarding cards.