SC upholds govt retrospective 28% GST levy on online gaming companies
The apex court held that online gaming platforms are not mere intermediaries and such activities give rise to actionable claims under the GST law. The court ruled that the changes validating the tax were declarative and would apply retroactively.
Online gaming companies had challenged the retrospective imposition of 28% goods and services tax (GST), arguing that the government’s interpretation of the term “gambling” for GST purposes contradicted over six decades of precedents set by the Supreme Court and various high courts.
Gameskraft senior advocate AM Singhvi argued before a bench headed by Justice JB Pardiwala that contests requiring significant skill cannot be treated as betting or gambling. The company argued that online gaming operators did not present actionable claims to players and therefore the GST tax was “unsustainable”.
Gameskraft also argued that courts have consistently distinguished games of skill from games of chance, a distinction the Supreme Court has deemed to be as clear-cut as commercial and wagering contracts. He argued that although money was wagered on games that mostly involved skill, this activity did not amount to gambling. The company argued that accepting the government’s interpretation would mean that social games such as rummy or bridge played between friends or family in exchange for bets on occasions such as Diwali could also be classified as betting and gambling.
According to Singhvi, players on such platforms voluntarily contribute equal amounts to a prize pool and compete against each other in skill-based games, while the platform itself does not participate in the game or determine the betting amounts. The deposited funds are kept in digital wallets and then transferred to the winners.
The company also argued that the platform was merely acting as an intermediary facilitator, without any claim, lien or interest on the prize money and was not engaging in any side betting activity. In September 2023, the Supreme Court had reversed the Karnataka High Court order quashing a notice by the Directorate General of GST Intelligence (DGGI) seeking nearly Rs 21,000 crore of GST from Gameskraft over allegations of promoting online betting through games like Rummy Culture. Gamezy and Remi Time.
Senior lawyer Harish Salve, who works on behalf of fantasy gaming firms, had stated that the industry was not opposed to levying a 28% GST tax on the full face value of bets rather than gross gaming revenue, but objected to retrospective application of the tax.
However, the DGGI argued that online gaming companies were actively engaged in betting and gambling, making the amounts deposited by players taxable at the highest GST slab applicable to speculative activities.
The government told the court that the cumulative tax demand collected through show-cause notifications was about Rs 91,684.81 billion for online gaming companies alone and Rs 1,08,505 billion including casinos.
The Center also amended the GST law in August 2023, making it mandatory for overseas online gaming companies to register in India from October 1 of the same year. Gaming companies were seeking clarity on the retrospective application of the 28% GST tax on the full value of bets placed rather than gross gaming revenue.
Several companies, including Delta Corp, Head Digital Works and Play Games24x7, as well as the E-Gaming Federation, had challenged the government’s decision to apply GST retroactively to the full face value of bets.
The demonstrative notifications had claimed GST on the “entry” amount and prize pool proceeds paid for each game, on the grounds that depositing money in online games amounted to betting and gambling – regardless of whether they were games of skill or chance.
The petitioners argued that the “purchase” amount cannot be treated as actionable claims taxable under GST.
