Online real-money gaming companies on Tuesday opposed in the Supreme Court the imposition of 28 per cent goods and services tax (GST) on their services, arguing that the levy was fundamentally flawed and contrary to the legal framework.
Appearing for the online gaming companies (petitioners), Senior Advocate V Sridharan argued that the GST provisions before October 2023 were inadequate to impose 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 (value of supply in case of lottery, betting, gambling and horse racing), introduced in 2018, was challenged because it lacked statutory authority under the Central GST (CGST) Act.
Sridharan said 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 added.
The senior advocate contended that attempts to tax actionable claims like betting and gambling as “goods” by amending the Goods Rate Notification were also flawed. Until October 1, 2023, there was no entry for actionable claims in the Customs Tariff Schedule, making their classification as goods unsustainable under GST.
Sridharan pointed out that gambling and online gaming were consistently treated as “services” under various GST notifications and the Integrated GST Act, and that this abrupt reclassification lacked legislative coherence.
The petitioners explained to the court 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. They claimed that prize pool contributions do not constitute consideration and thus cannot be taxed under GST.
In the case of online games, they argued that these games are played against each player, with the online gaming operator merely providing platform services, and that the platform operator, as the supplier of platform services, has discharged GST during the relevant period at the specified 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, which 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 the senior advocate if the entire game will be treated as a transaction, to which Sridharan said, “GST is a contract-based tax.”
The case deals with the absence of clear taxing provisions to enforce tax collection before the October 2023 overhaul.
The petitioners claim that attempts to retroactively impose GST without statutory backing violate fundamental tax principles, and must be struck down as ultra vires (acting or done beyond one’s legal power or authority).
The Supreme Court scheduled July 25, 2025, as the date for the final hearing in the case involving show-cause notices issued to several online gaming firms. The case, with an estimated financial impact of ₹2.5 trillion, is one of the biggest tax battles in India’s history. The matter will continue on Wednesday.
Source: Business Standard
Online real-money gaming companies on Tuesday opposed in the Supreme Court the imposition of 28 per cent goods and services tax (GST) on their services, arguing that the levy was fundamentally flawed and contrary to the legal framework.
