The Supreme Court on Wednesday upheld the government’s retrospective imposition of 28% Goods and Service Tax (GST) on online gaming companies, backing tax demands on past transactions in a ruling that could have major financial implications for the sector.
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 imposition of 28% goods and services tax (GST), arguing that the government’s interpretation of the term “gambling” for GST purposes contradicts more than six decades of jurisprudence laid down by the Supreme Court and various high courts.
Senior advocate, appearing for Gameskraft, had argued before a bench led by Justice JB Pardiwala that competitions involving substantial skill cannot be treated as betting or gambling. The company contended that online gaming operators do not supply actionable claims to players and therefore the GST levy was “unsustainable”.
Gameskraft further argued that courts have consistently distinguished games of skill from games of chance, with the Supreme Court holding the distinction to be as clear as that between commercial and wagering contracts. It maintained that even when money is staked on games predominantly involving skill, the activity does not amount to gambling. Accepting the government’s interpretation, the company argued, would imply that social games such as rummy or bridge played for stakes among friends or families during occasions like Diwali could also be classified as betting and gambling.
According to him, 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 gameplay or determine stake amounts. The deposited funds are held in digital wallets and later transferred to the winners, he said.
The company also maintained that the platform merely acts as an intermediary facilitator, without any claim, lien or interest in the prize money, and does not engage in any side-betting activity.
In September 2023, the Supreme Court had stayed a Karnataka High Court ruling that quashed a Directorate General of GST Intelligence (DGGI) notice seeking nearly Rs 21,000 crore in GST from Gameskraft over allegations that it promoted online betting through games such as Rummy Culture, Gamezy and Rummy Time.
Another Senior advocate, appearing for fantasy gaming firms, had submitted that the industry was not opposed to a prospective 28% GST levy on the full face value of bets, rather than on gross gaming revenue, but objected to the retrospective application of the tax.
The DGGI, however, argued that online gaming companies were effectively engaged in betting and gambling, making the amounts staked by players taxable at the highest GST slab applicable to speculative activities.
The government told the court that the cumulative tax demand raised through show-cause notices amounted to around Rs 91,684.81 crore for online gaming companies alone and Rs 1,08,505 crore including casinos.
The Centre had also amended the GST law in August 2023, mandating overseas online gaming companies to register in India from October 1 that year. Gaming firms sought clarity over the retrospective application of the 28% GST levy on the full value of bets placed instead of gross gaming revenue.
Several companies, including Delta Corp, Head Digital Works and Play Games24x7, along with the E-Gaming Federation, had challenged the government’s decision to retrospectively impose GST on the full face value of bets.
The show-cause notices had sought GST on the “buy-in” amount paid for each game and the prize pool proceeds, on the ground that staking money in online games — irrespective of whether they were games of skill or chance — amounted to betting and gambling.
The petitioners argued that the “buy-in” amount could not be treated as actionable claims taxable under GST.
Detailed Judgment is awaited
Source from: https://economictimes.indiatimes.com/news/economy/policy/sc-upholds-govt-retrospective-28-gst-levy-on-online-gaming-companies/articleshow/131346516.cms?from=mdr
