Gameskraft Judgment Decoded: GST on Online Gaming

Supreme Court Clarifies GST on Online Gaming, Betting and Gambling; 2023 Amendments Held Retrospective

Summary: The article analyses the Supreme Court’s judgment in DGGST, Intelligence vs Gameskraft Technologies Pvt. Ltd. (TS-391-SC-2026-GST) and highlights the legal principles governing GST on online gaming, betting and gambling. It explains the Court’s findings that betting and gambling constitute a composite expression involving staking money or money’s worth on an uncertain outcome; that such transactions give rise to actionable claims constituting goods under the GST framework; and that the taxable event occurs when participation in betting or gambling creates the actionable claim. The article notes that online gaming companies were held to be suppliers of such actionable claims, the entire stake amount constitutes consideration and forms the value of supply under Section 15, and valuation based on Gross Gaming Revenue was rejected for casinos. It further discusses that Rule 31A, Rule 31B and Rule 31C were held to operate within the statutory framework, explains valuation principles for online gaming, fantasy sports and casinos, and states that the 2023 amendments introducing specified actionable claims, online money gaming provisions and Rule 31B were held to be clarificatory and retrospective.

INTRODUCTION:

1. The judgement of Gameskraft Technologies Pvt. Ltd. (DGGST, Intelligence vs Gameskraft Technologies Pvt. Ltd. TS-391-SC-2026-GST) by Hon’ble Supreme Court has made the entire Industry and professionals change their lens through which the transactions are viewed, understood and interpreted. The principles enunciated in this case will have far reaching implications on the digital tech-based businesses and platforms in the days to come.

2. This article seeks to focus on the key legal principles forthcoming from the judgment of the Supreme Court.

FACTS OF THE CASE:

1. Certain important factual aspects of the online games are captured below (considering the terms & conditions of Gameskraft contract with participants) –

1. Generally, there are 2 parties involved in the online gaming / online betting / online gambling – (1)Online platforms and (2) People (minimum two persons) who participate in the game along with stakes.

2. The companies, providing platform, prescribe the manner in which stake amounts are to be deposited, regulate how such amounts are to be utilized, determine the conditions governing withdrawals, specify the manner in which winnings are distributed, and regulate refunds.

3. RC Account: This is the user account maintained with Gameskraft, which enables users to play games and deposit and utilize funds on the Platform.

4. Deposit Segment: The money deposited by the user is credited to the deposit segment.

5. Withdrawable segment: This is the segment of the RC Account to which the winnings of users from the cash games are credited, less the service fees and other levies.

6. Withdrawable request: This is the request placed by the user on the platform to initiate Withdrawal.

7. The Withdrawal Request will be accepted by platform subject to adequate KYC verifications, alignment with the deposit method, Discount terms/restrictions, and/or security reviews by Our automated systems and risk management team.

8. Player intending to participate in games involving stakes must first open an RC Account, and all deposited sums are credited into the “Deposit Segment” of the account.

9. When a Player participates in a game with other players, he electronically instructs that the money be moved from his wallet into a pool created specifically for that game. The “pool” is administered by the Platform Operator, and the funds from the players who elect to play in that game move from the Deposit Segment into this pool.

10. In a fantasy game (which is based on physical event of sport of cricket, soccer, kabaddi etc), a player will constitute his own team before the commencement of the actual game. The performance of sportspersons is ranked and points awarded. The player, who has constituted his own team, with the highest score is the winner.

11. When player joins a fantasy game, the amount fixed for participation is transferred into the pool and once the game is over the platform-fee is deducted by Operator and winnings in the pool are distributed to the winner.

In case of Casino, a player participates in the casino games by placing the bets through chips and tokens. Chips and tokens constitute the medium through which bets are placed.

2. In 2023, a host of amendments were made in the GST law (Act, Rules, Notifications) concerning this industry/sector of online gaming, betting and gambling. These amendments are discussed in detail under heading ‘Retrospectivity’ subsequently.

It is important to note that amendments were introduced into the law post Karnataka High Court decision in Gameskraft Technologies Pvt. Ltd. vide judgment dt. 11-05-2023.

RULING OF THE COURT:

MEANING OF BETTING AND GAMBLING – Are the expressions interchangeable? Is staking money or money’s worth an essential condition?

1. When the degree of control is minimal or insignificant in comparison to uncontrollable variables determining the outcome of the game, the game loses its character as one of skill and assumes the character of a game of chance.

2. There are 2 scenarios -> 1) The person placing stakes is merely a spectator or participant and not player in the game 2) Player in the game himself places stakes upon his own performance -> In both cases, once money or money’s worth is risked upon uncertain outcome, the activity acquires the character of betting and gambling, irrespective of whether the underlying game involves skill, chance or a combination thereof.

3. Hon’ble Court placed high reliance on the judgement of Supreme Court in the case of Junglee Games India Pvt. Ltd v. State of Tamil Nadu and others 2021 SCC OnLine Mad 2762 and held that ‘betting’ and ‘gambling’ constitute a composite and interchangeable expression referring to the act of staking money or money’s worth upon uncertain outcomes. The interpretation that Entry 34 (of State List) should be read as “betting on gambling” was rejected.

4. In the Junglee Games case, the Hon’ble Court observed that expression “betting and gambling” cannotbe artificially split to mean that 1) staking angle alone would amount to betting 2) Risk / chance angle would amount to gamble. Both betting and gambling involve the aspect of staking money on an uncertainty. For example, in both games i.e. Rummy (a game of skill) and Teenpathi (a game of chance), the persons staking on an uncertain outcome, ‘equally risk and take a chance’ on their unknown and uncertain victory.

5. Essential ingredients of betting and gambling –

1. There must be a stake/bet.

2. The bet that is placed must be on the result of an uncertain outcome.

3. The stake must be placed with the hope of gaining substantially more than what is being staked, depending upon the result of the uncertain event.

6. Understanding the entry fees based on observations of Supreme Court in Junglee Games case –

1. In a Skill based competition– the payment of entry fees -> would be for obtaining a right to participate in the competition. Here, the prize money / reward is never linked to bet or stake amount.

2. In a Chance-based competition / Inherently Gambling Adventure– the participant is merely taking a shot at a hidden target -> hence Entry fees itself would constitute the stake amount. The usage of phrase “entry fee” is a misnomer is a game of Chance.

Challenge to Constitutional Validity of levy:

1. What was challenged? -> Sec. 9(1) and sec. 2(52) of CGST Act is unconstitutional and beyond the legislative competence insofar as they impose tax on ‘actionable claims’. The important distinction to be borne in mind is– 1) Tax on the activity of betting and gambling and 2) tax on the supply of actionable claims arising therefrom (from the betting and gambling activity).

2. 246A confers wide legislative power upon Parliament and State legislatures to enact laws with respect to GST. The validity of any provision must necessarily be examined within the framework of A.246A and legislative competence flowing therefrom.

3. Hon’ble Supreme Court has held that challenge to legislative incompetence will not sustain as A.246A, containing special constitutional provisions, confer legislative competence to Parliament and State legislature and the disputed levy is within that framework.

4. On the alleged violation of A. 14 and 19 on the basis of arbitrariness, Court has held that doctrine of res extra commercium would apply to activities in the nature of betting and gambling and no fundamental right can be ordinarily claimed.

MEANING OF “ACTIONABLE CLAIM” and how betting and gambling transactions give rise to actionable claim:

1. The term “actionable claim” is defined in Section 2(1) of the CGST Act which in turn adopts the definition of given in Section 3 of the Transfer of Property Act, 1882. The essential ingredients of an “actionable claim” are as follows:

1. There must be a claim to a beneficial interestin movable property:

1. The beneficial interest may be existing, accruing, conditional or contingent.

2. The movable property, in respect of which the beneficial interest exists, must not be in the actual or constructive possession of the claimant.

2. The claim must be one which is recognised by a civil court as affording grounds for relief.

2. Now, it can be seen how betting and gambling transactions fulfills all the aforesaid ingredients of “actionable claim”:

Thus, once a participant stakes money upon an uncertain event, a contingent beneficial interest capable of maturing into an enforceable claim comes into existence.

CAN ACTIONABLE CLAIMS BE CLASSIFIED AS ‘GOODS’ u/s 2(52) of the GST Act when historically actionable claims have been excluded from the concept of goods considering sec. 2(7) of Sale of Goods Act, 1930 and has been treated as distinct incorporeal property rights under Transfer of Property Act, 1882?

1. 366(12) defines ‘goods’ in an inclusive manner and not exhaustive in character. The definition contained in Sale of goods Act is not sacrosanct; intangible and incorporeal moveable property capable of transfer, delivery, storage and possession have been held to be falling within the ambit of goods. Hon’ble Court placed reliance on Tata Consultancy Services vs State of A.P (2005).

2. Constitution Bench in Sunrise Associateshad held that actionable claims constitute moveable property and ‘goods’, though historically this was excluded from the ambit of sales tax legislations by specific statutory exclusion.

3. Hon’ble Court has held that classification adopted between actionable claims arising from lottery, betting and gambling on the one hand and other actionable claims on the other, is founded upon an intelligible differentia having a rational nexus to the object of the GST Act.

TAXABLE EVENT:

1. Section 9(1) of the CGST Act is the charging provision levying GST on all intra-State ‘supplies’ of goods or services or both.

2. Section 7 of the CGST Act provides for the scope of supply. It reads: “supply includes– all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal“. It is clear that the definition employs expressions of the widest amplitude.

3. Thus, the legislative intent is manifestly to confer broad scope upon the expression ‘supply’ so as to encompass the diverse forms of modern commercial and economic transactions is clear from the following:

1. It is a settled principle of statutory interpretation that the expression ‘includes’ enlarges the meaning of the term defined and renders the definition illustrative rather than exhaustive.

2. Likewise, the expression “such as” is indicative and illustrative in nature and cannot be construed as restrictive.

3. The phrase “all forms of supply” occurring in Section 7(1)(a) cannot also be artificially confined only to the illustrative forms specifically enumerated therein.

4. Schedule III carves out certain activities and transactions which are to be treated neither as supply of goods nor supply of services. However, Entry 6 of Schedule III specifically excludes from such exemption actionable claims relating to lottery, betting and gambling. Therefore, the statutory consequence is – while actionable claims generally stand excluded from GST, actionable claims arising out of lottery, betting and gambling remain expressly taxable.

5. In this background, it was argued by the assesses that GST can be levied only where there exists a transfer or assignment of a pre-existing actionable claim and not where actionable claims arise as part of a betting or gaming transaction itself.

6. The aforesaid submission was rejected by the Court on the following grounds:

1. The taxable event in GST is no longer confined merely to ‘sale’ or ‘transfer’ but extends to the broader concept of ‘supply’. Section 7 of the CGST Act merely requires the existence of a ‘supply’ of goods or services.

2. Entry 6 of Schedule III expressly excludes from the negative list only actionable claims other than lottery, betting and gambling, thereby affirmatively bringing actionable claims arising from betting and gambling within the fold of taxable supply.

3. Thus, the mere coming into existence of an actionable claim/ arising of actionable claim constitutes the taxable event.

7. The moment a person participates on platform by placing a bet, it gives rise to contingent actionable claim interests and thus triggers taxable event.

8. Once the taxable event has occurred, subsequent discharge of contingent claims upon determination of the gaming outcome (i.e, eventual payout or transfer of winnings to the winner) has no impact on the taxable event.

9. At this juncture, it was also argued by the assesses that:

1. Sl no. 34(v) of Notification No. 11/2017-CT(R) dated 28.06.2017 provides tax rates for recreational, cultural and sporting services – gambling. Thus, the present transactions must be taxed as a service at the applicable rate.

2. Alternatively, the term “online information and database access or retrieval services” (‘OIADAR’) is defined in Section 2(17) of the IGST Act to mean services whose delivery mediated by information technology and expressly includes electronic services inter alia such as online gaming. Thus, the present transactions must be taxed as OIADAR services.

10. However, both the above arguments were rejected by the Court. It was inter alia held that the said entry applies only to cases where the platform merely provides intermediary services facilitating two or more participants, that too where staking is not involved on any uncertain outcome. They do not apply to transactions which are statutorily characterised as supply involving actionable claims constituting goods in terms of Section 7 read with Section 2(52) of the CGST Act.

WHO IS THE SUPPLIER?

1. Section 2(105) of the CGST Act defines “taxable person” to mean the person supplying goods or services or both.

2. In the instant case, online gaming companies themselves constitute the suppliers of the actionable claim arising within the organised gaming framework. This is because:

1. The entire transaction originates, operates and culminates through the platform architecture controlled by the gaming company.

2. The platform invites participation, prescribes gameplay rules, pools stakes, algorithmically assigns opponents, conducts gameplay, determines outcomes, declares winners and administers disbursal of winnings.

3. Without the platform structure, no actionable-claim interest capable of participation could arise at all.

4. Online gaming companies do not merely provide technological services or facilitate services upon their platform and this position is statutorily reinforced by insertion of proviso to sec. 2(105) of CGST Act.

3. It cannot be said that actionable claim is supplied inter sebetween participating players and that the gaming platform merely renders independent facilitative services. This is because:

1. The players neither know nor choose the persons against whom they ultimately participate.

2. A player merely selects the amount proposed to be staked, whereafter the platform algorithm assigns the player to a gaming pool consisting of other participants staking corresponding amounts.

VALUATION OF TAXABLE SUPPLY AND MEASURE OF TAX LEVY:

1. The levy u/s 9 of the CGST Act operates upon the ‘value of supply’. The value of supply is in turn provided under Section 15(1) of the CGST Act and envisages value to be price actually paid or payable for the said supply. Further, he definition of consideration u/s 2(31) uses the expressions – in respect of, in response to or for the inducement of. These expressions are of wide import and to be interpreted accordingly. Therefore, any payment bearing a direct nexus with the supply and forming an integral part of commercial arrangement may constitute consideration for the purpose of levy.

2. In betting and gambling transactions, participation is linked to the condition of payment of stake amounts. Such payment cannot be disconnected from the valuation mechanism. Without such payment, the participant will not acquire actionable-claim interest arising from the said supply. Therefore, the entire stake amount qualifies both as the “price paid or payable” under Section 15(1) and ‘consideration’ under Section 2(31).

3. Hon’ble Court has also upheld the principle that in fiscal jurisprudence the measure adopted for quantification of a levy must be reasonable to the taxable event and may not be identical. Reliance was placed on the cases of Mineral Area Development Authority and another v. SAIL and another, Union of India vs Bombay Tyre International Ltd. 1984.

4. Was Revenue’s Contention that value of supply u/s 15 is intrinsically linked to the amount staked towards participation in the betting / gambling arrangement correct? This principle has been held to be correct for the following reasons –

1. Amount staked / deposited will be treated as refundable deposit under proviso to sec. 2(31) of CGST Act until appropriated towards participation in betting and gambling. Court has also held that amounts received cannot be treated as ‘Entrustment’ as the essential feature of continuing reclaimability is absent.

2. Once the amount is appropriated towards participation in organized betting and gambling, the taxable supply constituting actionable claims crystallises and the stake amount legitimately enters the transaction value.

5. Hon’ble Court has also observed that, by placing reliance on Skill Lotto Solutions case, prize money paid should not be excluded from Gross value as there is no specific exclusion provided u/s 15(3) of the CGST Act.

6. Rule 31A of CGST Rules dealing with valuation of supply in case of lottery, betting, gambling and horse racing is a machinery provision and does not create any new levy nor expands the charging provision.

7. Does Rule 31A travel beyond the scope of sec. 15(1) – as contended by taxpayers?

1. The Hon’ble Court held that sec. 15(1) accommodates valuation on the basis of the entire stake amount. Rule 31A merely clarifies the statutory position to avoid ambiguity and inconsistencies. It has been held that Rule 31A remains fully within the framework of sec. 15(1) and was introduced ex abundanti cautela to avoid issues. From this interpretation, it becomes clear that in the absence of Rule 31A also, the valuation methodology based on the stake amounts holds water and is within the statutory framework of sec. 15(1).

8. Application of sec. 15(4) of the CGST Act– It has been held that expression “… cannot be determined under sub-section (1)” as appearing should not be construed in a narrow manner so as to apply only in case of absolute impossibility. 15(4) must receive purposive interpretation and extends to situations where uncertainty exists regarding valuation, divergent industry practices prevail or clarification is required.

9. Rules 31A also survives in-terms of sec. 164 of the CGST Act independent of sec. 15(4) of the CGST Act.

10. Valuation in case of Online Gaming– Under the amended framwork, vide Rule 31B, the valuation attaches to the amount paid or payable or deposited with the supplier for the participation in online money gaming. Consequently, the amount deposited in the RC account / Deposit segment, to the extent deposited for participation in online game, constitute the value for the purpose of levy. This is irrespective of the quantum actually staked in any individual game.

11. To Rule 31B and Rule 31C provide that winnings redeployed into subsequent gameplay without withdrawal shall not constitute fresh deposit for valuation purposes. Consequently, there is only one levy on the value entering the gaming eco-system.

12. Valuation in case of online Fantasy Sports (Fantasy sports relating to cricket, football and others)– Hon’ble Court has held that valuation provisions as applicable to online gaming arrangements would apply mutatis mutandis to fantasy sports involving pooled stakes and contingent prize structures. The Stake amount paid by the participants constitute consideration and is liable to valuation in accordance with sec. 15(1) and Rule 31B.

13. Valuation in case of Casinos– Is the liability on GGR – Gross gaming revenue after adjustment of winnings OR on GBV – Gross Bet value?

1. Hon’ble Court has held that GGR methodology proceeds on erroneous understanding of taxable event. GST is not a tax on profits and hence GGR methodology where payouts are netted-off for arriving at tax liability is incorrect. Valuation has to be based on sec. 15 and cannot be confined to residual earnings.

14. Can insertion of Rule 31C w.e.f 01-10-2023, which deals specifically with casino, mean that Rule 31A(3) was inapplicable and there was no statutory mechanism prior to OCT’2023?

1. The Court has negated this interpretation. It has been held that Rule 31C merely introduces greater specificity and certainty in relation to valuation methodology. Rule 31 and 31A together provided sufficient statutory basis for valuation which were consistent with the nature of betting and gambling transactions carried out by casinos.

RETROSPECTIVITY:

• By the 2023 amendments to the CGST Act [introduced under Section 15(5)] a more detailed statutory framework governing online gaming, online money gaming and specified actionable claims were introduced within the GST regime. The key changes made under the new regime are as follows:
  • What is now taxable?: Only “specified actionable claims” is taxable and out of the ambit of Schedule III.
  • Meaning of “Specified actionable claims”: As per Section 2(102A) it includes betting, gambling and online money gaming.
  • Meaning of “Online money gaming”: As per Section 2(80B), it means online gaming (played over the internet) in which players pay or deposit money with an expectation of winning money. Further, it is irrelevant if the online money game is one of skill or chance.
  • Who is the supplier of “specified actionable claim” and how consideration is paid to him: Proviso to Section 2(102) states that one who organizes or arranges the supply of “specified actionable claims”, directly or indirectly, is deemed to be the ‘supplier’, whether consideration is paid or conveyed to/through him or placed at his disposal in any manner.
  • Value of supply of online money gaming: As per Rule 31B, the total money deposited with the supplier would be the value. Return/refund of any money back to the player for any reason, does not affect the value of supply (i.e, the amount returned will not be reduced from the value of supply).
  • What money is not considered as being deposited with the supplier?: As per Explanation below Rule 31C, if winnings are re-deployed for online money gaming, it will not be considered as having been deposited with the supplier.
• Taxability of actionable claims arising from betting and gambling transactions were already recognized under the pre-amendment provisions and no new levy was created after the amendment for the first time.
• The difference between Rule 31A before amendment and the new Rule 31B was brought out in the judgment as under:

• Thus, the new Rule 31B is a special machinery provision framed under Section 15(5) r/w Section 164 of the CGST Act. These provisions too maintain a clear and rational nexus with the underlying taxable supply arising from betting and gambling transactions and merely refine the manner in which such value is quantified and collected within evolving online gaming ecosystems.
• The amendments principally operate to clarify and standardise the existing framework governing taxation and valuation of actionable claims arising from betting and gambling transactions, including online gaming and casino transactions. The amendments are therefore clarificatory and explanatory in nature insofar as they elucidate, refine and operationalise the already existing statutory framework governing such taxable supplies.
• Just because an amendment is brought into force on a particular date, it does not necessarily mean that the provision is prospective. It is well settled that if an amendment is meant to remove doubts or cure defects or explain legislative intent, such amendments may operate retrospectively. It need not even be expressly stated in the statute/notification that the amendments are retrospective.
• Consequently, the amendments were held to be retrospective in nature.

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Article prepared by Adv. Rajath, Partner at Katti & Co. (rajathb1995@gmail.com), and CA B. U. Aneesh, Indirect Taxes Lead at ConsultCrew Knowledge Partners (buaneesh@zohomail.in).