The Supreme Court on Monday began hearing a high-stakes case that could reshape the legal and financial contours of India’s online gaming and digital entertainment industry. At the heart of the matter is a massive ₹1.12 lakh crore Goods and Services Tax (GST) demand on online gaming platforms, fantasy sports operators, casinos, and racecourses — applicable retrospectively from July 2017.
A bench of Justices JB Pardiwala and R Mahadevan is considering whether games involving real-money stakes—regardless of whether they require skill or not—should be treated as gambling under GST law.
Sources in the Revenue Department said the government remains committed to recovering the dues. There is no change in its stand, and it continues to believe that the tax demand is lawful. When asked about earlier suggestions by former Revenue Secretary Sanjay Malhotra that some relief might be considered, officials maintained that such comments do not alter the legal position or official stance.
The case hinges on a crucial legal question: does a skill-based game like rummy or fantasy sports turn into gambling once players put money at stake?
The Centre, through its legal representatives, has argued that once a financial stake is introduced, the activity becomes “betting and gambling” and is no longer exempt under GST law. It then qualifies as a taxable actionable claim under the Central Goods and Services Tax (CGST) Act, 2017.
Key Arguments
The government’s case is built on seven legal propositions:
- Stakes Define the Activity: Any game, whether based on skill or chance, is considered gambling if played for money.
- Skill Exemption Doesn’t Cover Stakes: State laws that exempt skill-based games from criminal penalties apply only when they’re not played for money.
- GST Law Operates Independently: Even if a game is protected under state law, it may still be taxable under GST, which uses its own definitions.
- 2023 Amendment Was Clarificatory: The recent amendment on taxing actionable claims is being described as a clarification of existing law, not a new tax.
- Actionable Claims Count as ‘Goods’: These are treated as intangible movable property and fall under the definition of goods in GST.
- Valuation Rules Are Valid: Rule 31A(3) of the CGST Rules, which is under challenge, is consistent with earlier court-approved frameworks.
- Centre Has Taxing Power: The 101st Constitutional Amendment gives the Centre taxation rights over betting and gambling. State regulatory powers do not override this.
Petitioners Push Back on Constitutional Grounds
Petitioners, including gaming platforms, casinos, and racecourses, argue that such a tax regime violates Article 14 (equality before law) and Article 19(1)(g) (freedom to practise any profession). They say it unfairly places skill-based games in the same category as games of chance, imposing disproportionate financial and compliance burdens.
The Counsel for one of the petitioners, pointed out that three of the government’s seven arguments directly raise constitutional questions. If these are found invalid, he said, the entire tax demand would collapse. He also raised concerns about the 10% mandatory pre-deposit required to appeal such tax demands, which could effectively block access to justice for many platforms.
He said the core legal issue is whether the introduction of money alone changes the nature of a skill-based game, adding that the outcome will affect how the law treats similarly placed businesses.
Business Impact
The online gaming industry, which now employs over 100,000 people and is expected to generate over $5 billion in annual revenue by 2026, is watching the proceedings closely. One promoter said the legal interpretation of monetised games as gambling would be both legally flawed and economically disastrous.
Industry players argue that such a classification risks wiping out legitimate businesses that have built systems around skill-based gaming, regulatory compliance, and investor trust.
He also warned that equating all monetised games with gambling would deal a major blow to businesses that have helped develop a credible and fast-growing digital sector.
What’s at Stake
The court’s final ruling is expected to come after several rounds of hearings. The outcome will shape the future of more than ₹1.5 lakh crore in tax claims and provide a critical precedent on how India navigates the balance between taxation, digital innovation, and constitutional rights in a rapidly evolving economic landscape.
Source from: https://www.cnbctv18.com/business/supreme-court-hearing-gst-online-gaming-fantasty-sports-casinos-ws-l-19599346.htm
