SC upholds retrospective 28% GST on online gaming in India
What's the story
The Supreme Court has upheld the Indian government's decision to impose a retrospective Goods and Services Tax (GST) of 28% on online gaming companies. The ruling could have significant financial implications for the sector, as it supports tax demands on past transactions. The court ruled that online gaming platforms are not just intermediaries, but their activities give rise to actionable claims under the GST law.
Legal battle
Online gaming companies challenged retrospective GST levy
The retrospective application of the 28% GST was challenged by online gaming companies. They argued that the government's definition of 'gambling' for tax purposes goes against over six decades of jurisprudence established by the Supreme Court and various high courts. Senior counsel A M Singhvi, representing Gameskraft, argued that skill-based games are not betting or gambling activities.
Defense strategy
Gameskraft's argument on skill-based games
Gameskraft contended that there is no supply of actionable claims by the online operator to players, making the GST levy "unsustainable." The company also argued that if betting occurs on a game requiring a substantial degree of skill, it shouldn't be classified as gambling. This argument was made in the context of social games like rummy or bridge being played for stakes among friends and family.
Clarification
What is a 'Game of skill?'
Gameskraft clarified that players who opt to play for a prize pool stake identical amounts and compete against each other in a Game of Skill. The platform doesn't participate in any gameplay or determine stakes for players. Instead, it merely facilitates the game and has no right or interest on the prize money. The amount deposited by players are kept in a digital wallet and later released to the winner.
Case update
What did SC do in 2023?
In September 2023, the Supreme Court had stayed a Karnataka High Court judgment quashing a Directorate General of GST Intelligence (DGGI) order demanding ₹21,000 crore in GST from Gameskraft. The company was accused of promoting online betting through games like Rummy Culture, Gamezy and Rummy Time. Senior counsel Harish Salve, representing fantasy gaming firms in this case, said they don't oppose prospective levy but are challenging retrospective applicability.
Tax perspective
Government's stance on online gaming companies
The government has maintained that online gaming companies are involved in betting and gambling. It argues that the amounts staked by players in games on their platforms are taxable at the highest slab applicable to speculative activities. The total tax effect from all these show-cause notices is estimated at around ₹91,684 crore for online gaming companies and ₹1,08,505 crore including casinos.