04.11.2023: Game of Skill Brought at par with Game Of Chance: Writ Challenging the CGST Amendment Act, 2023 and Vires of section 15(5) of the CGST Act Filed In Allahabad HC

On Thursday, Allahabad High Court issued notice in writ petition challenging the validity of the Central Goods and Service Tax (Amendment) Act, 2023 notified on August 18, 2023 which sought to tax all online money games in toto.

Prior to the amendment, only the platform fee charged for services provided was taxable. However, the entire amount, including the amount won by the users based on their skills is sought to be taxed by way of the impugned amendment. The petitioner has also challenged Rule 31-B of the amended CGST Rules which provides for taxability of the full contest entry amount without providing for any deductions of the price money payout.

Petitioner has its own technology platform that allows users to play skill-based online games against each other. With over 5000 users, petitioner retains only 10% of the total amount skated by players as platform fee. The remaining 90% of the amount was given to the winner and petitioner had no claim over it.

Earlier, only the platform fee was taxed at 18% GST for the services provided by the platform, whereas the 90% was treated as an actionable claim flowing from a game of skill and was exempted for GST. Petitioner claimed that only actionable claims flowing from betting, gambling and lottery were taxable. However, with the recent amendment to the Act, games in toto were made liable to taxation.

In the writ petition, Petitioner has contended that placing online-skill games at par with online-chance games would lead to ouster of startups leaving only bigger and more established players in the market.

With the new amendment, the words ‘lottery, betting and gambling’ were substituted by the words ‘specified actionable claims’ which included online money games. Post amendment, Entry 6 of Schedule-III read as “Actionable claims other than specified actionable claims,” which meant all online money games, except lottery, betting and gambling, which were earlier exempted would now be taxed under the GST Act.

It has been stated in the petition that the “games involving skill like chess, cricket, etc. fall within the range of legitimate and desirable activities that are protected by Article 19(1)(g) of the Constitution of India. Thus, activities involving skill, or predominantly skill (in a game of mixed chance and skill) are by their very nature distinct from activities of betting and gambling.” It is for this reason that taxes on only betting and gambling were provided in Entry 62 of List-II of the Seventh Schedule of the Constitution of India prior to its deletion by the 101st Constitution Amendment Act.

Further, the amended classification is claimed to be in violation of Article 14 of the Constitution of India as it aims to treat “unequals as equals”. It has been contended in the petition that the Group Ministers have arbitrarily removed the classification between game of skill and game of chance by taxing them both at 28% under the GST Act.

Challenge has also been made to Section 15(5) of the CGST Act, 2017 which contains a non-obstante clause with respect to other sub-sections of Section 15 (Value of Taxable Supply) of the CGST Act. Section 15(5) provides that notwithstanding anything contained in preceding sub-sections of Section 15, the value of supplies shall be notified by the Government on the recommendation of the GST Council in manner as may be prescribed.

The petitioner contended that this delegation of power by the Parliament is unfettered and unchecked which “makes it vulnerable to the vice of excessive delegation.” Accordingly, it has been submitted that Section 15(5) is violative of Article 14 of the Constitution of India.

The bench comprising of Justices Saumitra Dayal Singh and Shiv Shanker Prasad heard the matter and directed that notice be issued to respondents.


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