2023 (1) TMI 1127 - HC - GST

Betting/gambling - Actionable claim - whether nature of gaming services as provided by it is in the nature of services or an actionable claim or not? - HELD THAT - A Division Bench of this Court in CHANDRESH SANKHLA VERSUS THE STATE OF RAJASTHAN AND OTHERS 2020 (2) TMI 1062 - RAJASTHAN HIGH COURT in respect of a similar company Dream11 which also provided gaming services online held that the issue is no longer res-integra and as such gaming services are not in the nature of betting/gambling. Some of the games offered by the petitioners online have already been held to be games of skill rather than that of chance or that of betting/gambling. Thus when the matter is so settled by various Courts, the issuance of the impugned show cause notice is nothing but an abuse of the process of law. Accordingly, we call upon the respondents to file counter affidavit to the writ petition within a period of one month from today. The writ petition is directed to be listed for admission/final disposal immediately thereafter.

Issues:
1. Challenge to show cause notice under Section 74(1) of CGST Act, 2017 regarding misclassification of supply by a gaming company.
2. Jurisdiction of authorities to issue show cause notice after settled classification by the Court.
3. Nature of gaming services provided by the company - skill-based games or gambling.
4. Legality of the show cause notice and requirement to deposit tax liability, interest, and penalty.
5. Comparison with previous judgments on similar gaming services.
6. Abuse of process of law in issuing the show cause notice.

Analysis:

1. The petitioner, an online gaming company, received a show cause notice under Section 74(1) of the CGST Act, 2017, alleging misclassification of their supply as service instead of actionable claims, leading to tax avoidance. The company challenged the notice, arguing that the nature of their gaming services has been settled by previous authorities as games of skill, not chance or gambling.

2. The petitioner contended that once the Court has settled the classification issue, authorities have no jurisdiction to issue a contradictory show cause notice, citing the principle laid down in Union of India vs. Vicco Laboratories. The petitioner's counsel emphasized that the notice essentially determined tax liability, interest, and penalty, demanding immediate deposit.

3. The respondent's counsel opposed the petition, claiming it was premature as it only targeted the show cause notice. They argued that the company's activities constituted betting and gambling, not skill-based gaming, justifying the notice. The respondent highlighted that the notice was tentative and subject to confirmation based on the company's reply.

4. Previous judgments, such as the Division Bench ruling on Dream11's case and Ravindra Singh Chaudhary's case, supported the view that online gaming services involve skill, not chance or gambling. The Court noted that the Supreme Court had not overturned these decisions, indicating a settled legal position on the matter.

5. Referring to the case of Dr. K.R. Laxmanan vs. State of Tamil Nadu, the Court reiterated that the games offered by the petitioner are skill-based, not chance-based. Considering the established legal precedents and the nature of the games provided, the Court found the show cause notice to be an abuse of the legal process.

6. Consequently, the Court directed the respondents to file a counter affidavit within a month and scheduled the petition for immediate admission or final disposal. It also restrained the respondents from taking coercive measures to recover any amounts until a final decision is made, provided the petitioner responds to the show cause notice within the specified timeframe.

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