Levy of 28% GST on online money gaming flawed, firms tell Supreme Court

Business Standard

15-07-2025

Online real-money gaming companies on Tuesday opposed the imposition of a 28 per cent Goods and Services Tax (GST) on their services, arguing that the levy was fundamentally flawed and contrary to the legal framework.
Senior advocate V Sridharan, appearing for the online gaming companies (petitioners), argued that the GST provisions before October 2023 were inadequate to impose a 28 per cent tax on online gaming operators in the manner attempted by the authorities. The government's reliance on Rule 31A of the GST Rules—pertaining to the value of supply in cases of lottery, betting, gambling and horse racing—was challenged on grounds that the rule lacked statutory authority under the Central GST Act.
Sridharan argued that Rule 31A, which prescribed the valuation method for betting and gambling, did not comply with the mandatory two-step process under Section 15(5) of the CGST Act. Specifically, the rule was issued without first notifying 'actionable' claims as taxable supplies, rendering it ineffective and invalid, he said.
He contended that attempts to tax actionable claims such as betting and gambling as 'goods' by amending the Goods Rate Notification were flawed. Until 1 October 2023, there was no entry for actionable claims in the Customs Tariff Schedule, making their classification as goods unsustainable under GST.
The petitioners also argued the distinction between platform fees—on which GST is already paid—and prize pool contributions made by players, which are held in trust and returned to winners. The petition claimed that these deposits do not constitute consideration and thus cannot be taxed under GST.
In online games, players compete against each other, while the operator merely provides the platform, the gaming companies submitted. As the supplier of platform services, the operator had discharged GST during the relevant period at the applicable rate.
'However, the operator does not make any other supplies and only holds the prize pool as a deposit to be settled in favour of the winner, who is decided between the players. Thus, the operator cannot be made liable for supplies made inter se between the players,' Sridharan said.
The division bench of Justices J B Pardiwala and R Mahadevan asked whether the entire game would be treated as a single transaction, to which Sridharan replied, 'GST is a contract-based tax.'
The case highlights the absence of clear taxing provisions to enforce GST collection before the October 2023 overhaul. The petitioners concluded that attempts to retroactively impose GST without statutory backing violate fundamental tax principles and must be struck down as ultra vires.
The Supreme Court has scheduled 25 July 2025 as the date for the final hearing in the case, which involves show-cause notices issued to several online gaming firms. With an estimated financial impact of ₹2.5 lakh crore, the case ranks among the largest tax battles in India's history. The matter will continue on Wednesday.