‘Skill, chance irrelevant if money staked’: SC upholds retrospective 28% GST levy on online gaming companies

The Supreme Court on Wednesday upheld the government’s retrospective imposition of 28% Goods and Service Tax (GST) on online gaming companies, backing its tax demands on past transactions in a ruling that could have major financial implications for the sector.

The case arose from GST notices issued to real-money gaming companies who challenged whether 28% GST could be levied on the full face value of bets placed through their platforms.

A bench of Justices JB Pardiwala and R Mahadevan held that such a GST levy was constitutionally valid and could not be said to violate the Constitutional scheme governing GST. The levy is supported by statutory authority under the GST Act, the court held.

It also clarified that online gaming platforms cannot be treated merely as intermediaries or facilitators, holding instead that they supply “actionable claims” that are taxable under the GST framework.

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It proceeded to uphold CGST rules that empowered the levy of GST on the full value of bets placed through online gaming platforms as well as casinos.

On the question of whether the online games in question could be termed as a betting activity or were skill-based games, the top court held that even skill-based games acquire the character of betting and gambling for GST once money is staked on uncertain outcomes.

The apex court also set aside a Karnataka High Court judgment in favour of online gaming platform, Gameskraft. It restored the September 2022 show-cause notice issued to Gameskraft, which had demanded around ₹21,000 crore in GST.

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The Court, however, clarified that the final decision in the matter is left to the concerned GST authorities.

The gaming industry had pleaded that GST could only be levied on gross gaming revenue, which is the amount retained by platforms after deducting winnings. The companies argued that taxing the entire stake or deposit amount was disproportionate and commercially unviable.

The controversy intensified after the GST Council decided in 2023 to impose 28% GST on the full face value of online gaming, casinos and horse racing. Gaming companies, however, argued that the levy could not be applied retrospectively for the period before October 1, 2023.

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The demands against the industry initially stood at around ₹1.12 lakh crore. With interest and penalties, the potential exposure was estimated to be much higher. Some later reports placed the total exposure at around ₹2.5 lakh crore.

Gameskraft had challenged the notice before the Karnataka High Court, which ruled in its favour, holding that rummy is a game of skill and that the company was not supplying actionable claims in the manner alleged by the tax department.

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The GST department appealed to the Supreme Court. In September 2023, the Supreme Court stayed the Karnataka High Court ruling.

The gaming companies were represented by Senior Advocates Harish Salve, AM Singhvi, Mukul Rohatgi, Neeraj Kishan Kaul, Arvind Datar, Dhruv Mehta, Balbir Singh, Sajan Poovayya, V Sridharan, Gopal Sankaranarayanan, Vikram Nankani, Tarun Gulati, Abhishek Malhotra, Sanjay Jhanwar, Jay Savla and Vivek Reddy.