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India’s Supreme Court has stayed a Karnataka state high court decision to block the central government from recovering $2.6bn in disputed goods and services tax (GST) payments from skill gaming company Gameskraft Technologies.

The by a three-member bench on Wednesday (September 6) amounts to a blow to India’s online gaming industry because it allows steep GST recovery claims against Gameskraft and dozens of other companies to proceed during the government’s appeal.

In better news for the industry, however, the court appears to have expedited the appeal by the Directorate General of GST Intelligence (DGGI) against the Karnataka court judgment, ordering the parties to file submissions this month.

Speaking from the bench, Chief Justice Dhananjaya Y. Chandrachud seemed to comfort counsel for Gameskraft that the legal process for the case will outpace the government’s pursuit of 210bn rupees ($2.6bn) in GST from the company.

“Do not worry,” he said, in remarks quoted by judicial media outlet Bar and Bench. “Nothing is going to happen in three weeks.”

Gameskraft successfully argued before the Karnataka High Court that its skill-based games were improperly taxed at the same rate as chance-based “gambling” products, citing Supreme Court precedent on the constitutionality of skill gaming with stakes.

However, the central government’s tax and finance officials refuse to recognise the distinction in the context of taxation, with the Central Board of Indirect Taxes and Customs (CBIC) estimating an industry GST recovery windfall of at least $5.4bn.

This is in addition to some $1.2bn in GST arrears from land-based casinos that the DGGI has identified. 

The DGGI’s appeal of the Karnataka court’s May 2023 decision to the Supreme Court is in parallel to a joint state government appeal to the apex court on the wider legality of online skill gaming with stakes.

Meanwhile, the CBIC on Wednesday published to the Central GST Rules 2017 that implement the 28 percent flat GST for online gaming, land-based casinos, horseracing and lotteries.

Karnataka and other state governments are preparing similar amendments or ordinances to facilitate the GST Council’s decision to “confirm” a 28 percent GST on initial deposits for all online gaming with stakes, regardless of the degree of skill.

The anticipated enforcement date of the change is October 1, forcing some state governments to employ ordinances in lieu of amendments before the deadline.