The Supreme Court has ordered an interim stay of a Karnataka High Court judgment which held that online “games of skill” like rummy are not taxable as “betting” or “gambling” under the Central Goods and Services (GST) Act.

A Bench headed by Chief Justice of India D.Y. Chandrachud, acting on a plea by the Directorate General of Goods and Services Tax and Service Intelligence, issued notice to Bangalore-based Gameskart Technologies Pvt. Ltd., an online gaming entity.

The top court directed the case to be listed in October and gave Gameskart two weeks to file its counter affidavit.

The company had questioned the September 23, 2022 show cause notice issued by the Directorate of GST alleging that the company had engaged in “gambling” and evaded GST at the rate of 28% on the entire sum paid by the players for playing the game on its platform. The GST Directorate, in its notice, alleged the company had evaded GST worth ₹21,000 crore.

In its May judgment, the High Court had reasoned that “the expressions, ‘betting’ and ‘gambling’ having become nomen juris, the same are applicable for the purpose of GST also and consequently, the said words, ‘betting’ 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 company was paying GST at 18% only on the platform fees collected by it from the players and not on the entire money pooled in by the players to play rummy, and had contended that rummy being a game of skill cannot be brought under the definition of “betting” and “gambling”.

Taxation of games of skill was 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, the court said while upholding company’s contentions.

The High Court said there were judicial precedents agreeing that Rummy and other games of skills did not qualify as gambling.