GST on Online Gaming: SC Reviews Challenge to Centre’s 'Actionable Claim' Tag on Skill Games

The Supreme Court (SC) on Tuesday heard extensive arguments regarding the applicability of the 28 % GST to online gaming. Senior advocates Harish Salve and Abhishek Manu Singhvi, representing online gaming companies, challenged Rule 31A of the CGST Rules in court, according to Storyboard18.

Online real-money gaming companies are reportedly challenging the Centre’s classification of participation fees for skill-based games as “actionable claims.”

An actionable claim is a legal right to demand something from another person, typically monetary compensation.

Singhvi opened his arguments by citing major High Court verdicts. He contended that these decisions accurately interpreted SC precedents on skill-based gaming, specifically referencing the Chamarbaugwala, Satyanarayana and Lakshmanan cases. He urged the bench not to overturn the established legal position on skill-based games.

He further argued that certain High Courts had misread these verdicts, asserting that those courts overlooked critical elements of the binding precedents.

As per NDTV Profit, senior counsel Harish Salve, representing the E-Gaming Federation (EGF), argued that classifying participation fees as actionable claims under GST law was incorrect.

Salve mounted a robust constitutional challenge contending that the 2023 amendment to Rule 31A(3) of the CGST Rules violates the parent CGST Act. He emphasised that the tax regime unfairly imposes GST on the entire player deposit pool rather than the platform’s actual revenue an approach he deemed disproportionate and legally untenable.

The court will continue proceedings on Wednesday (May 14).

Background

In 2017 India introduced the Goods and Services Tax (GST), consolidating multiple indirect taxes into a unified destination-based tax framework. The online gaming sector was initially divided into two categories: “games of skill” and “games of chance.”

Games of skill, such as fantasy sports and certain card games, were taxed at 18 % GST on gross gaming revenue (stakes minus payouts). Games of chance, including casino bets and lotteries, were subject to 28 % GST on the full face value of bets.

However, games like poker and certain fantasy sports, which blend elements of skill and chance, fell into grey areas leading to confusion in their categorisation. As a result, the GST Council’s Law Committee noted numerous instances of tax-related litigation and inconsistent tax treatment.

To address this issue, the GST Council in October 2023 amended the Central Goods and Services Tax Act to impose a 28 % GST on the total entry fee (face value of bets) for online gaming regardless of whether the game involves skill or chance. This amendment applies retrospectively from August 2017.

Following the amendment, the Directorate General of GST Intelligence (DGGI) began issuing show-cause notices to several online gaming firms under Section 74 of the CGST Act, demanding GST at 28 % on the full face value of bets retrospectively.

Dream11 and Games24x7 challenged these demands in the Bombay High Court while First Games plans to file a writ petition seeking similar relief. Several companies have also approached the Supreme Court challenging the retrospective tax imposition and the interpretation of Rule 31A of the CGST Rules.