The Supreme Court on Monday began hearing a high-stakes case that could reshape the legal and financial contours of India’s online gaming and digital entertainment industry. At the heart of the matter is a massive ₹1.12 lakh crore Goods and Services Tax (GST) demand on online gaming platforms, fantasy sports operators, casinos, and racecourses — applicable retrospectively from July 2017.

A bench of Justices JB Pardiwala and R Mahadevan is considering whether games involving real-money stakes—regardless of whether they require skill or not—should be treated as gambling under GST law.

Sources in the Revenue Department said the government remains committed to recovering the dues. There is no change in its stand, and it continues to believe that the tax demand is lawful. When asked about earlier suggestions by former Revenue Secretary Sanjay Malhotra that some relief might be considered, officials maintained that such comments do not alter the legal position or official stance.

The case hinges on a crucial legal question: does a skill-based game like rummy or fantasy sports turn into gambling once players put money at stake?

The Centre, through its legal representatives, has argued that once a financial stake is introduced, the activity becomes “betting and gambling” and is no longer exempt under GST law. It then qualifies as a taxable actionable claim under the Central Goods and Services Tax (CGST) Act, 2017.

Key Arguments

The government’s case is built on seven legal propositions:

Stakes Define the Activity: Any game, whether based on skill or chance, is considered gambling if played for money.

Skill Exemption Doesn’t Cover Stakes: State laws that exempt skill-based games from criminal penalties apply only when they’re not played for money.

GST Law Operates Independently: Even if a game is protected under state law, it may still be taxable under GST, which uses its own definitions.

2023 Amendment Was Clarificatory: The recent amendment on taxing actionable claims is being described as a clarification of existing law, not a new tax.

Actionable Claims Count as ‘Goods’: These are treated as intangible movable property and fall under the definition of goods in GST.

Valuation Rules Are Valid: Rule 31A(3) of the CGST Rules, which is under challenge, is consistent with earlier court-approved frameworks.

Centre Has Taxing Power: The 101st Constitutional Amendment gives the Centre taxation rights over betting and gambling. State regulatory powers do not override this.

Petitioners Push Back on Constitutional Grounds

Petitioners, including gaming platforms, casinos, and racecourses, argue that such a tax regime violates Article 14 (equality before law) and Article 19(1)(g) (freedom to practise any profession). They say it unfairly places skill-based games in the same category as games of chance, imposing disproportionate financial and compliance burdens.

Source: CNBC TV-18