The Supreme Court of India continued hearing arguments in a high-stakes tax litigation involving online gaming platforms. The dispute concerns the applicability of Goods and Services Tax (GST) to online games of skill, a sector facing a potential ₹2.5 lakh crore tax impact.
A division bench comprising Justices JB Pardiwala and R. Mahadevan heard the matter on Wednesday. Former Solicitor General of India and senior advocate appeared for the E-Gaming Federation (EGF), contesting the current interpretation of GST on online gaming.
During the hearing, Justice Pardiwala remarked, “The fate of this litigation depends on our skill — we can’t take any chance.” The comment highlighted the core issue: whether online games of skill should be taxed like gambling and betting.
He argued that the GST regime wrongly classifies skill-based games under rules meant for games of chance. “No one is arguing that games of skill can’t be regulated when there’s money involved,” he stated. “But that’s a far cry from claiming that games of skill suddenly become games of chance just because stakes are introduced.”
The core of his argument focused on the term “actionable claims.” He stated that entry fees paid for games like rummy or fantasy sports do not meet the legal definition. He referenced the 2006 Supreme Court ruling in Sunrise Associates, explaining that actionable claims involve a guaranteed or transferable benefit.
“Online platforms are facilitators,” he explained. “They don’t offer any actionable claim. There is no guaranteed win, no transfer of rights — just competition among players.”
The GST authorities have applied Rule 31A of the CGST Rules to online games, treating entry fees like betting stakes. Under this rule, GST is charged on the full face value of each transaction at 28%.
He pointed out that this classification is flawed. Gaming platforms generally retain only 10% of the entry fee as a platform fee. He explained that the current practice means platforms are taxed on money they do not earn.
“The operators are being taxed on money that never enters their accounts,” he stated. “Players compete against each other. The platform simply hosts the game. How can that be equated with gambling?”
The case has significant implications for the Indian online gaming industry. Companies argue that Rule 31A was created for betting, horse racing, and lotteries — not games that involve skill, strategy, and knowledge.
Arguments are scheduled to continue on May 15.
Source from: https://g2g.news/gst-on-online-gaming/scs-gst-hearing-fate-of-this-litigation-depends-on-our-skill/
