A Critical Analysis of Gross Bet Value Fallacy In DGGSTI Vs Gameskraft Technologies Private Limited
The article examines the Supreme Court’s 27 May 2026 decision in Directorate General of Goods and Services Tax Intelligence (HQS) & Ors. Vs Gameskraft Technologies Private Limited and Ors. upholding the levy of 28% GST on Gross Bet Value (GBV) instead of Gross Gaming Revenue (GGR) for online gaming operators. It explains that the ruling treats the entire amount staked by players as the taxable value, resulting in significantly higher tax liabilities than under the earlier GGR-based model, where tax was levied only on the platform fee retained by the operator. The article argues that Section 15(1) of the CGST Act supports taxation based on the actual consideration received by the supplier, while most player deposits are ultimately distributed as prize money rather than retained by the platform. It further critiques the Court’s reliance on statutory valuation provisions and judicial precedents, contending that the GBV model overlooks the distinction between the taxable event and transaction value. The article also notes that major international gaming jurisdictions generally tax operators on retained gaming revenue rather than the total value of player stakes.
I. Introduction
Gameskraft Technologies Private Limited, an online gaming company, earned a gross revenue of around ₹4,650 crore from 2017 to 2022. The Directorate General of GST Intelligence sent a show cause notice for recovery of taxes, interest and penalties of up to ₹2.1 lakh crore from the company, in September 2022, which is 45 times its total earnings during the said period. This number is not a clerical error. It is the exact mathematical outcome of a particular valuation choice: the one of imposing 28% GST on the entire face value of each bet made on the platform instead of on the net amount of the profits the platform actually retained.
On 27 May 2026, the Supreme Court of India upheld that valuation choice as constitutionally valid and statutorily correct. In doing so, it rejected the argument advanced by virtually every gaming operator, casino, and fantasy sports platform in the country: that GST should be levied on Gross Gaming Revenue (GGR), the amount the operator actually keeps after distributing winnings to players, rather than on Gross Bet Value (GBV), the total pool of money staked by all participants.
II. The GBV–GGR Distinction
A. What the Two Models Mean
The difference between Gross Bet Value and Gross Gaming Revenue is not a technical feature of the tax law. It illustrates the basic question of what an operator of a game actually does and what he gets in exchange for that. Consider a simple example. 100 players pay ₹100 to enter an online Rummy tournament. The total pool is ₹10,000. The platform retains a commission of ₹1,000, which is also known as a platform fee, rake fee or service charge, and the rest of the ₹9,000 goes to the winners as prize money. The platform’s economic activity is a service of games, which involves technology infrastructure, matchmaking, fraud detection, and customer support. It costs Rs. 1000 for this service. That’s the profit it keeps and generates. In the GGR model, the ₹1,000 that the platform keeps would be considered as a sale, and would be liable to GST. The regime that was in force till August 2023 had prescribed an 18% GST on the platform fee which would have resulted in a tax of ₹180 on ₹1,000 of actual revenue. In the case of GBV, as the Supreme Court has held, the entire amount (of ₹10,000) is to be taxed at 28%, which means there will be a tax liability of ₹2,800. The platform has booked ₹1,000 in revenue and is liable to pay ₹2,800 in taxes — at 2.8 times the revenue before taking any operating expenses into consideration. This is a very basic calculation, done on a five-year basis across Gameskraft’s operations, to get the demand of ₹2.1 lakh crore. It is not a paradox. It is the logical output of the GBV model.
B. The Statutory Text: Section 15(1) of the CGST Act
According to Section 15(1) the ‘value of supply’ for computing the GST liability is ‘the price actually paid or payable for the said supply of goods or services or both of the supplier of the said goods or services or both and the recipient of the supply, where the supplier and the recipient are not related and the price is the sole consideration for the supply’. This definition: ‘price actually paid or payable’ establishes the tax base in a genuine manner: based on the price actually paid by the recipient to the supplier for what the supplier actually provides. In the gaming field, the supply is the gaming service. The platform fee is the actual price to be paid for that service. In the above example, the remaining ₹9,000 is not a payment to the supplier, but is rather a deposit that is almost entirely returned as winnings to participants.
Advocates appearing for the casino operators in Goa and Sikkim argued this point forcefully before the Court. They contended that a presumptive basis of valuation such as Rule 31A(3) cannot be applied when the price or consideration is known, and that in the context of casinos the only consideration accruing to the operator is the Gross Gaming Revenue — the net amount after payouts to winners. They also challenged Rule 31A as ultra vires, arguing that it conflicts with the definition of ‘consideration’ in Section 2(31) of the CGST Act, which excludes security deposits, and with Sections 7, 9, 15(1), and 15(5) of the Act.
C. The Deposit Argument: Money That Was Never ‘Kept’
A significant portion of what players deposit on gaming platforms is not, in any practical economic sense, consideration flowing to the platform. the ₹90 in every ₹100 is held in trust and passed to the winners rather than being part of the platform’s revenues, so it can be used for the platform’s operations. This is backed up by the proviso in Section 2(31) [1]: provided that the ‘refundable deposit’ is not used in supply, it is not ‘consideration’. Regarded by the Court as amounts appropriated towards participation no longer remain deposits, as this is circular. Appropriation does not add to the platform, it only frees up money to be spread around. It never directly addresses the matter of the ‘price actually paid’ under Section 15(1) which continues to be the platform fee.
III. The Court’s Reasoning
A. The Court’s Core Holding on Valuation
The Supreme Court’s rejection of the GGR model rests on three propositions: –
First, the Court holds that the taxable event crystallises at the moment the player enters a contest and deposits funds. At that moment, the ‘consideration’ for the supply is the whole amount staked, because what the player purchases with that deposit is the chance to win. The subsequent distribution of winnings to the successful player, the Court reasons, ‘cannot erase the taxable supply that has already been made when the player enters the gambling act’.[2]
Second, the Court holds that Section 15(3) of the CGST Act, which specifies deductions permissible from transaction value, does not enumerate prize payouts or winnings. Since winnings are not a statutory deduction, they cannot be netted off.[3]
Third, the Court invokes the doctrine in Union of India v Bombay Tyre International Ltd and Mineral Area Development Authority v Steel Authority of India Ltd that the measure of a tax need not mirror the economic value of the supply: Parliament is entitled to choose gross stakes as the measure even where the economic value of the supply is far smaller.[4]
B. Where All Three Propositions Fail
Each of the three propositions shares a common flaw: it either assumes the conclusion it is called upon to establish, or it invokes a sound doctrinal principle without engaging with the limiting conditions that principle itself imposes.
The first proposition mixes up two analytically distinct concepts, the taxable event with the measure of the tax. The player entering the contest is considered the “taxable event”, and that can be conceded. However, the tax rate should be adjusted to the value of the goods or services provided by the supplier. The player pays the amount of the game service and the rest of the 90% of the deposit is transferred via the platform to other players. The prize pool is not owned by the platform, it is made up of other players’ deposits and is given to the winners. The complete sum deposited on the platform is regarded as its ‘transaction value’ and any money that moves in and out of players’ accounts is treated as its income. It is not.
The second is a circular proposition. Section 15(3) specifies the deductions that can be made after the identification of the transaction value under Section 15(1). The industry’s stance was that if winnings are to be deducted from a transaction value, then it is not ₹10,000 but ₹1,000 that is the value of the transaction. The Court circumvents Section 15(1) by holding that Section 15(3) is the applicable provision, thus reaching the very same result which is challenged.
The third proposition, that tax does not have to equal the economic value, is a valid doctrinal starting point. BOTH Bombay Tyre and Mineral Area Development Authority acknowledge the Parliament’s right to opt for a measure, which is not solely economic. There is, however, a limit to that freedom, and courts can determine whether a selected measure results in constitutionally disproportionate consequences. The difference between ₹2.1 lakh crore tax on revenue of ₹4,650 crore is not a marginal one, but an abyss. The Court does not consider whether that GBV measure is linked to any fiscal goal which a GGR regime could equally achieve, nor does it consider the ‘proximate nexus’ requirement which Bombay Tyre itself requires.
IV. International GGR Consensus
There is a settled international consensus on gaming taxation, and the Gameskraft judgment does not address it. Comparative regulatory practice is not binding precedent, but when the approach of a given jurisdiction is inconsistent with that of every comparable jurisdiction in the world, that is a meaningful indicator of structural unsoundness.
Every major gaming jurisdiction taxes operators on what they keep, not what they handle. The United Kingdom, which previously levied a General Betting Duty on turnover analogous to India’s GBV model, abandoned that approach precisely because it was misaligned with operator profitability. Remote Gaming Duty in the United Kingdom now applies at 40% of gross gaming yield which is player stakes minus winnings paid effective from 1 April 2026.
The effective tax rate in Macau is around 39-40% of gross gaming revenue. In Australia there are point-of-consumption taxes from 8% to 15% of net wagering income. Japan charges the operators of integrated resorts 30% on their gross gaming revenue. The EY India report submitted to the GST Council called for a levy based on GGR, which is more in line with economic reality of the operator’s earnings. This suggestion was not followed. The consequence is fiscal self-defeat. An operator subject to 28% on the entire value of each bet cannot offer competitive prize pools against offshore platforms paying no Indian tax. Indian players migrate offshore, revenue is lost to Indian public finances, and the legal domestic market is extinguished.
V. Conclusion
Three mutually reinforcing reasons why the GBV model fails are: It is legally incorrect: according to the 15(1) it is the price actually paid for the supply, which is the platform fee, and not the whole of the pool of deposits. It is economically unsound: taxing passes-through money immediately is treating pass-through money as operator income. And it’s isolated worldwide: each big gaming jurisdiction levies taxes on retained profits. The Court’s technical responses, that the measure of tax need not be the value of supply, and that there is no deduction for winnings under Section 15(3), are doctrinally correct, but fail to take into account the limiting conditions of those doctrines. The Bombay Tyre and Mineral Area Development Authority does not lay the foundation for the existence of an unlimited gap between measure and value. The fiscal law is not an exception from the doctrine of manifest arbitrariness. Section 15(1) does not allow a calculation of the transaction value without taking into account the actual payment. A rational framework would impose a tax on gross gaming revenues which raises some revenue but preserves India’s ability to offer a viable gaming industry; would impose the tax on a prospective basis as opposed to a show cause notice; and would implement the tax on a point of consumption basis, as done in the United Kingdom with Remote Gaming Duty, instead of incentivizing Indian gaming operators to move offshore. This is not a constitutional novelty, but standard policy architecture. The decision of the Gameskraft case was the exact opposite of that structure. Apart from the industry valuations and jobs that this will cost, it will also affect the credibility of GST as a value-added tax; a damage that can take years to rectify.
Note:
[1] CGST Act, s 2(31) (proviso). The proviso excludes from ‘consideration’ any amount received as a refundable deposit in so far as such deposit has not yet been utilised towards the supply. See also Gameskraft para 53 for the Court’s treatment of the appropriation argument.
[2] Gameskraft para 62. The Court held that the taxable event crystallises at the moment a player enters the contest and that the full amount staked constitutes ‘consideration’ for the supply of an actionable claim in the nature of a chance to win.
[3] CGST Act, s 15(3); Gameskraft para 62. The Court held that prize payouts are not among the deductions enumerated in s 15(3) and accordingly cannot be netted off against the transaction value.
[4] Union of India v Bombay Tyre International Ltd (1984) SCC 1 467 (Pathak, Bhagwati and Sen JJ) 367 (‘Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy’); Mineral Area Development Authority v Steel Authority of India Ltd (2024) 10 SCC 1; both cited in Gameskraft para 62.
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