Supreme Court Hearing on GST Classification of Online Gaming: Key Arguments So Far

The Supreme Court of India is in the midst of one of the most consequential tax litigations in recent history. This case could redefine the legal and fiscal future of India’s online gaming industry. At the center of the dispute lies a fundamental question: Should games of skill, when played for money, be treated as gambling and taxed at 28% under the Goods and Services Tax (GST) regime?

Let’s have a look at what happened so far.

Background

The dispute traces back to 2022, when the Directorate General of GST Intelligence (DGGI) issued a Rs. 21,000 crore GST demand against Gameskraft Technology Pvt. Ltd., alleging tax evasion. The notice was grounded in Rule 31A of the Central Goods and Services Tax (CGST) Rules, which the government claimed allowed it to classify online gaming as betting or gambling, taxable at 28% on the total bet value.

In May 2023, the Karnataka High Court quashed the GST notice, holding that games of skill like rummy do not constitute gambling and cannot be taxed as such. The Court differentiated between games of skill and games of chance, highlighting the role of player expertise.

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The Union government appealed this decision, and in September 2023, the Supreme Court stayed the Karnataka High Court’s ruling, allowing GST proceedings to continue and setting the stage for a consolidated legal review.

Consolidation and Interim Relief

Recognizing the widespread implications, the Supreme Court consolidated 27 writ petitions from 11 High Courts in April 2024. By January 2025, a bench led by Justice J.B. Pardiwala issued a stay on all show-cause notices (SCNs) against gaming platforms, providing temporary relief to companies such as Dream11, Games24x7, and Head Digital Works.

Government’s Position: “Stakes Define Gambling”

The Union government has presented a firm and structured argument, led by Additional Solicitor General N. Venkataraman, particularly during the May 6-7, 2025, hearings.

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He introduced the “Seven Sutras of Gambling”, asserting that:

1. There is no gambling without stakes, regardless of skill or chance.
2. Once stakes are involved, even skill-based games become gambling.
3. Even a game of chance with a competition fee qualifies as gambling.
4. A game of skill by itself is not gambling.
5. When played for stakes, a skill game becomes gambling.
6. This change doesn’t reclassify the game into one of chance.
7. State protections for skill games only exist because they would otherwise qualify as gambling.

He cited Supreme Court precedents, including Satyanarayana, RMDC, and Lakshmanan, and used vivid analogies such as “a game of dice leads to a game of vice”. His contention: Financial stakes obliterate the legal distinction between skill and chance.

The government further claimed that the 2023 GST amendment, which explicitly defined “online money gaming” as a taxable actionable claim, merely clarified existing law, justifying retrospective application from July 2017.

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Petitioners’ Arguments: Skill, Not Gambling

Senior advocates including Harish Salve, Mukul Rohatgi, and others appearing for Gameskraft, the E-Gaming Federation (EGF), and the All India Gaming Federation (AIGF) have raised significant legal, constitutional, and commercial objections.

1. Actionable Claims Misapplied

• Games like rummy or fantasy sports do not offer actionable claims, since there is no assured benefit, no transfer of rights, and outcomes are based on competition, not entitlement.
• Unlike lottery tickets, which are transferable and state-regulated, online games are personal, skill-based, and non-transferable.
• Casino chips and online tokens are tools of gameplay — not goods or services.

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2. No Supply of Goods or Services

• Platforms merely facilitate gameplay; they do not participate, guarantee outcomes, or control prize money.
• Players play against each other, and winnings are directly credited to their wallets or escrow accounts, bypassing the platform.

3. Rule 31A is Constitutionally Flawed

• Petitioners termed Rule 31A a “colourable exercise of legislative power” that wrongfully extends provisions meant for lotteries and horse racing to skill-based games.
• They argued that platforms retain only 10% of the entry pool, but the current regime demands GST on the entire pool — effectively taxing them on money they don’t earn.

4. 2023 Amendments Are Substantive, Not Clarificatory

• According to petitioners, the 2023 GST amendments created a new tax mechanism for online gaming and cannot be applied retrospectively.
• Prior to these amendments, there was no legal foundation to tax online games of skill at 28%.

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Constitutional Grounds

Petitioners have invoked Article 14 (equality before law) and Article 19(1)(g) (freedom to practice any profession), arguing that:

• Skill-based businesses are being unfairly equated with gambling.
• Retrospective taxation with no prior legislative backing violates the rule of law.
• The 101st Constitutional Amendment removed states’ powers to tax gambling under Entry 62 of List II, limiting legislative powers in this space.

Judicial Observations

Justice JB Pardiwala’s pointed comment, “The fate of this litigation depends on our skill — we can’t take any chance,” captured the nuanced complexity of the case.

The bench has questioned key aspects, including:

• How refunds of unplayed games are treated.
• Whether entry fees actually constitute goods, services, or enforceable legal claims.

Petitioners clarified that refunds are not transfers of actionable claims, but merely discharges of player balances.

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Business and Industry Impact

The online gaming industry:

• Employs over 100,000 people.
• It is expected to generate $5 billion+ in revenue by 2026.
• Faces potential tax liabilities of over Rs. 2.5 lakh crore.

Industry leaders warn that applying 28% GST on full bet amounts (instead of platform commission) and treating all monetized gaming as gambling could:

• Destroy investor trust.
• Lead to business closures.
• Reduce user engagement due to lower payouts and increased costs.

What’s Next?

• Next Hearing set on May 19, 2025. Hearings are scheduled daily until May 23, 2025.
• If arguments are not concluded, they will resume after the Supreme Court’s summer vacation in July.
• The final verdict is expected to:
• Decide the constitutional validity of Rule 31A and the 2023 amendments.
• Clarify whether skill games played for stakes qualify as taxable actionable claims.
• Determine if the Rs. 2.5 lakh crore in tax demands can be enforced retrospectively.

Case Name: Directorate General of Goods And Services Tax Intelligence (HQS) Vs. Gameskraft Technologies Private Limited

DIARY NUMBER: 30797/2023

SLP(C) No. 019366 – 019369 / 2023

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