The apex court ruled that online gaming platforms are not mere intermediaries and that such activities give rise to actionable claims under the GST law. The court held that the amendments validating the levy were clarificatory in nature and would apply retrospectively.
Online gaming companies had challenged the retrospective application of 28% goods and services tax (GST), saying that the government’s construct of the expression ‘gambling’ solely for the purposes of levying GST runs counter to over 60 years of jurisprudence evolved by the apex court and various high courts.
Earlier, Senior counsel A M Singhvi, appearing for Gameskraft, told a bench led by Justice JB Pardiwala that competitions that involve games requiring substantial skills are not in the nature of betting and gambling.
The gaming company had said that there is no supply of actionable claims by the online operator to players, and hence the levy of GST is “unsustainable.”
Games of Skill are always a distinct class and always have been judicially differentiated from Games of Chance by the SC, which held that the distinction between the two is “as distinct as the distinction between commercial and wagering contracts, Singhvi added.
The Bengaluru-based online gaming platform further argued that if ‘betting’ occurs on a game involving a ‘substantial’ degree of skill or on a game ‘preponderantly’ based on the skill, the activity is not ‘Gambling’. If it were otherwise, friends or family playing rummy or bridge for stakes, either at home or during social events like Diwali would be stigmatized as Betting and gambling, Singh argued.According to the senior counsel, while the players choosing to play for a prize pool, stake identical amounts and play a Game of Skill against each other and its platform does not participate in any gameplay. The platform does not determine the stakes for the players and players are free to choose the game for a particular stake amount, he said, adding that the amounts deposited by the players are put in a digital wallet and are later released to the winner.
The platform is merely a facilitator, and has neither any right or lien or interest on the prize money nor indulges in any “side-betting” on the games played between players, he argued.
In September 2023, the top court had stayed the Karnataka High Court judgment overturning the DGGI order imposing a Rs 21,000 crore GST demand on GamesKraft, which was accused of promoting online betting through games like Rummy Culture, Gamezy and Rummy Time.
Senior counsel Harish Salve, representing fantasy gaming firms in the case, argued that the industry is not opposed to a prospective levy of 28% GST on the full value of the bets placed, and not on the gross gaming revenue, but is challenging the retrospectively applicability of the higher tax.
However, the Directorate General of GST Intelligence (DGGI) has taken the stand that online gaming companies indulged in betting and gambling, and the amounts that are staked in the games by the participating players on their platforms are taxable at the highest slab applicable to speculative activities.
According to the government, “The cumulative tax effect in all these show-cause notices is approximately to the tune of Rs 91,684.81 crore alone vis-à-vis online gaming companies and Rs 1,08,505 crore including casinos.”
The government also amended the GST law in August 2023, making it mandatory for overseas online gaming companies to register in India from October 1, 2023. The online gaming companies have sought clarity as the government is retrospectively imposing 28% GST on the “full value of the bets placed, and not on the gross gaming revenue.”
The gaming firms, including Delta Corp. Ltd, Head Digital Works and Play Games 24×7, besides the E-Gaming Federation of India, then challenged the government’s decision to retrospectively impose 28% GST on the full value of the bets placed, and not on the gross gaming revenue.
The notices raised GST demands on the ‘buy-in’ amount for each game and the proceeds, reasoning that the staking of money in online games–whether of skill or chance–amounted to betting and gambling, according to the gaming companies. The ‘buy-in’ constituted a transfer of goods as actionable claims, according to petitioners challenging the notices.