The Supreme Court on Wednesday gave the verdict in support of the government’s retrospective levy of 28% Goods and Services Tax (GST) on online gaming firms, and validated tax claims on earlier transactions.
This ruling in favour of the tax department can now lead to a potential incremental GST liability in future on the gross-gaming-revenue (GGR) amounts earned by online gaming companies from 18% to 28% that involves a GST demand of almost Rs 2.5 lakh crores from these gaming companies.
According to the bench, the GST demands raised by the tax department from these gaming companies under the law cannot be struck down solely by challenging the rules framed under the legislation.
It further clarified that online gaming platforms cannot be treated merely as intermediaries or facilitators, holding instead that they supply “actionable claims” that are taxable under the GST framework.
In its ruling, the Court upheld the Central GST (CGST) provisions enabling tax authorities to impose GST on the entire face value of bets placed on online gaming portals and in casinos.
According to tax partners, now it will be pertinent to review this judgment at length as to how it has dealt with critical arguments against the constitutional validity of the levy of GST pre-October 2023, as well as the fact that extensive amendments had to be introduced in GST laws in September 2023 to levy GST on online money gaming at 28% of the initial amounts staked.
“This victory may not practically yield to anything significant for GST authorities - with the complete ban on online money gaming now, most companies have either shut down or pivoted to some other area of business.
"Thus, any attempt at recovering such massive GST attempts may not practically yield any results since the GST amounts demanded are several times higher than cumulative revenues ever earned by these companies,” said Sudipta Bhattacharjee, Partner, Khaitan & Co.
A central issue before the Court was whether the games offered by such platforms qualified as games of skill or amounted to betting activities.
The bench held that once money is wagered on outcomes that remain uncertain, even skill-based games assume the nature of betting and gambling for the purpose of GST.