INDIA MARKET UPDATE
Rummy and Poker which have been recognized as games of skill by Indian courts were specified as games of chance by the TNOGA. The rationale was that whilst Indian courts had recognized physical versions of these games as games of skill, online versions of these games were games of chance. The constitutional validity of TNOGA was challenged before the Madras High Court. 19 By an order dated November 9, 2023, the court struck down the provisions classifying rummy and poker as games of chance as unconstitutional. The Madras High Court noted that the same level of brain activity would be required to play poker and rummy online as it would be required to play these games offline. It was also highlighted by the court that the state had included rummy and poker within the umbrella of games of chance on a “mere presumption”. However, the court upheld the constitutionality of other provisions of the TNOGA. The Government of Tamil Nadu filed a Special Leave Petition (“SLP”) before the SC challenging the order of the Madras High Court. 20 Similarly, petitions were filed before the Karnataka High Court to hold that the provisions of the Karnataka Police (Amendment) Act, 2021 (“Karnataka Police Act”), which also sought to ban all online games with stakes (including games of skill), were unconstitutional. 21 These provisions were struck down as being unconstitutional by the Karnataka High Court. However, the entire Act was not struck down by the court. Later, the Government of Karnataka filed a SLP before the SC against this decision. 22 The three appeals before the SC have been clubbed and are currently pending. In addition to this, writ petitions were filed before the Telangana High Court challenging the constitutionality of the Telangana Gaming (Amendment) Act, 2017, 23 which also sought to ban games of skill when played for stakes. In light of the SLPs filed
by the States of Karnataka and Tamil Nadu mentioned above, the State of Telangana followed suit and filed a transfer petition in the SC for the issue to be heard along with them. 24 The outcome of these matters will play a key role in determining the constitutional validity of restricting games of skill by States. The SC’s decision is binding on all Indian states. GST on Online Gaming: A hornet’s nest Indian Real Money Gaming (“RMG”) operators have been receiving a slew of GST notices from GST authorities across India, seeking to impose 28 percent GST on the entire deposit amount by players. The industry had been paying 18 percent GST on the service fee component. Reportedly, authorities have issued notices to 71 online gaming companies. 25 One of the first show cause notices of his nature was received by Gameskraft Technologies Pvt. Ltd. (“Gameskraft”), to the tune of INR 21,000 crores (approximately US$2.5 million). The Karnataka High Court had previously provided relief to Gameskraft, quashing the show cause notice. Dissatisfied with this decision, the GST authorities subsequently challenged the High Court’s decision before the SC, where it is now under consideration. 26 The SC has imposed an interim stay on the Karnataka High Court’s decision. The central issue in this matter was whether online games played for monetary stakes constitute ‘betting and gambling’ or qualify as a ‘game of skill’ under GST law. Other operators have also challenged the issuance of the show cause notices before the High Courts. In many instances, the relevant High Courts have granted a stay on the operation of the show cause notices to the gaming operators. 27 These cases have
19 All India Gaming Federation v State of Tamil Nadu [WP 13203 of 2023, Madras High Court]. 20 The State of Tamil Nadu v All India Gaming Federation [SLP (C) 001588-001592 of 2024, SC]. 21 All India Gaming Federation v The State of Karnataka [WP 18703 of 2021. Karnataka High Court]. 22 The State of Karnataka v All India Gaming Federation [SLP (C) 008794-008805 of 2022, SC]. 23 Head Infotech (India) Pvt Ltd v State of Telangana [WP 20261 of 2017, Telangana High Court]. 24 State of Telangana v Head Infotech India Pvt. Ltd., [Transfer Petition (Civil) No. 2460-2463/2022, SC]. 25 See https://www.livemint.com/news/india/online-gaming-firms-issued-71-show-cause-notices-over-rs-1-12-lakh-crore-gst-evasion-finance- ministry-11701775556689.html 26 Directorate General of Goods and Services Tax Intelligence & Ors v Gameskraft Technologies Private Limited [SLP No. 19366 of 2023, SC]. 27 Delta Corp Limited [WP 715 / 2023, WP 716 / 2023, WP 717 / 2023, Bombay High Court at Goa]; M/s. Playerzpot Media Pvt Ltd [ WP(L) 31946/2023, Bombay High Court]; Delta Corp Limited [WP(C) 41 / 2023, Sikkim High Court] amongst other cases
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IMGL MAGAZINE | SEPTEMBER 2024
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