Supreme Court Upholds Levy Of GST On Online Gaming, Says Its Taxable As 'Betting & Gambling'

The Supreme Court upheld the levy of Goods and Services Tax on online gaming activities as constitutionally valid, and rejected the constitutional and statutory challenge mounted against the levy of CGST on actionable claims arising from betting and gambling transactions.A bench comprising Justice JB Pardiwala and Justice R Mahadevan held that organised online gaming activities, including fantasy games involving pooled stakes and contingent price structures, give rise to actionable claims and supplies exigible to GST under the statutory framework governing betting and gambling transactions.Online gaming amounts to betting and gamblingThe Court held that even skill-based games acquire the character of betting and gambling for GST once money is staked on uncertain outcomes. The essential element of betting lies in staking money on uncertain outcomes. The character of betting and gambling does not exclusively depend upon whether the underlying activity is a "game of skill" or a "game of chance", but upon the existence of stakes placed upon future uncertain contingencies. Consequently, even where the underlying activities involve substantial elements of skill, once participation is contingent upon staking money or money's worth on uncertain outcomes, the resultant transaction acquires the character of betting and gambling within the framework of GST framework, the Court ruled.Therefore, it was held :"Online gaming activities, including fantasy sports and other games played on digital platforms, involving staking upon uncertain outcomes, constitute betting and gambling for the purpose of GST framework."Since actionable claims arising from betting and gambling are subject to GST, online gaming activities will also attract GST. The Court held that the levy is upon the taxable supply of actionable claims and not on the activity of betting and gambling. "The levy of GST of the supply of actionable claims arising from betting and gambling is constitutionally valid and does not transgress Articles 366(12) and 366(12A) of the Constitution," Justice Mahadevan pronounced, upholding the levy as a valid legislative measure.The Court observed that mere commercial hardship, reduction in profitability or increase of tax incidence cannot by themselves render a fiscal measure unconstitutional. The levy is supported by statutory authority traceable to Section 7, 9 and 15 of the CGST Act, and satisfied Article 265 of the Constitution, the Court noted.The concept of supply under S.7 of CGST is not confined to mere transfer of pre-existing actionable claims but extends to other forms of supply under the statutory framework, including organised betting and gambling arrangements.Gaming operators not intermediaries; suppliersOrganised gaming and betting platforms create a commercial ecosystem within which participants acquire a contingent beneficial interest in moveable property involving uncertain future outcomes. Such contingent interest constitutes "actionable claim" witihn the meaning of Section 3 of the Transfer of Property Act. Hence, the Court ruled, "Consequently, the amounts staked or otherwise appropriated towards participation in gameplay constitute consideration within the meaning of Section 2(31) of the GST Act."The Court held :"We hold that online gaming activity involving pooled stakes and contingent price structure give rise to actionable claim interest constituting taxable supplies within the meaning of Section 7 of GST Act. The online game operators are not mere intermediaries facilitating transactions inter-se between participants but themselves constitute suppliers of such actionable claims."BackgroundThe GST dispute centred on how online gaming platforms should be taxed, particularly whether tax should be levied only on the platform's revenue or on the full amount deposited by players.Before the law was amended in 2023, online gaming companies generally paid GST at 18% on their platform fee or commission, commonly referred to as Gross Gaming Revenue (GGR). Under this model, if a player deposited ₹100, the platform would retain a portion, say ₹10, as commission and the remaining amount would form part of the prize pool. GST was paid only on the ₹10 retained by the platform, treating the company as a provider of online services.Tax authorities took a different view. The Directorate General of GST Intelligence (DGGI) argued that online real-money gaming platforms were effectively facilitating betting or gambling transactions and that GST should be levied on the entire amount staked by users, not merely the commission earned by the intermediary. This interpretation significantly increased the tax burden. On a ₹100 deposit, the tax liability would rise from ₹1.8 under the earlier model to ₹28 if taxed at 28% on the full face value.The dispute also involved the classification of online games. Gaming companies argued that many offerings, such as fantasy sports, rummy, and poker, had already been judicially recognised in...

Supreme Court Upholds Levy Of GST On Online Gaming, Says Its Taxable As 'Betting & Gambling'

LIVELAW NEWS NETWORK

Online game operators are not intermediaries but suppliers of taxable actionable claims, the Court ruled.

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INR 1099+GST

LIVELAW NEWS NETWORK

Supreme Court Upholds Levy Of GST On Online Gaming, Says Its Taxable As 'Betting & Gambling'

LIVELAW NEWS NETWORK

Online game operators are not intermediaries but suppliers of taxable actionable claims, the Court ruled.

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

LIVELAW NEWS NETWORK

This is a premium content
Available exclusively to
Our subscribers