Online Gaming Platforms Are Suppliers Of Actionable Claims In Betting & Gambling, Not Mere Intermediaries: Supreme Court Upholds 28% GST On Full Stakes

The Court held that once participation in an online gaming activity is conditioned upon staking money upon uncertain outcomes, the resulting transaction acquires the character of betting and gambling irrespective of whether the underlying game involves skill or chance. Online gaming transactions accordingly attract GST at 28% on the entire value of bets placed, and not merely on the platform fee.

The Court further held that the 2023 CGST amendments, including amendments to Entry 6 of Schedule III and insertion of Rules 31B and 31C, are clarificatory and retrospective in operation. Prize pools, winnings and payouts cannot be excluded from taxable value, and all pending show cause notices and demands shall be governed by the valuation framework in Rules 31B and 31C.

A Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed, “…The online gaming operators are not mere intermediaries facilitating transactions inter se between participants, but themselves constitute suppliers of such actionable claims within the framework of the GST legislation. The taxable supply comes into existence upon placement and appropriation of stake amounts towards participation in gameplay itself. Consequently, valuation of online gaming and fantasy sports transactions shall stand governed by Rule 31B, including in relation to pending show cause notices, adjudication proceedings and consequential demands, in light of the clarificatory and retrospective nature of the 2023 amendments as held hereinabove. The principles governing organised online gaming platforms involving pooled stakes and contingent prize structures apply with equal force to fantasy sports contests and analogous gaming formats”.

N. Venkataraman, Additional Solicitor General of India appeared for the appellant and Senior Advocates Dr. Abhishek Manu Singhvi, Rakesh Dwivedi, Dhruv Mehta appeared for additional respondents.

The lead matter arose from show cause notices dated September 23, 2022 issued by the Directorate General of GST Intelligence under Section 74(1) of the CGST Act, 2017 against Gameskraft Technologies Private Limited, proposing recovery of GST on the premise that the company had misclassified its supplies as services taxable at 18% on platform fees, whereas the Revenue contended the supplies constituted actionable claims arising from betting and gambling taxable at 28% on total stakes.

The demand raised against Gameskraft was ₹ 2,09,89,31,31,501, a sum substantially exceeding the company's entire revenue of approximately ₹ 4,650 crores for the period 2017–2022. Connected writ petitions, transferred cases and criminal appeals raised identical questions across online gaming, fantasy sports and casino segments, leading to consolidation before the Supreme Court.

Pertinently, the Karnataka High Court, by judgment dated May 11, 2023, allowed the writ petitions filed by Gameskraft and quashed the show cause notices, holding that online rummy is a game of skill and cannot constitute betting or gambling.

The Revenue appealed and simultaneously, multiple online gaming companies filed writ petitions before the Supreme Court under Article 32 challenging the constitutional validity of Sections 2(31), 2(52), 7, 9 and 15 of the CGST Act and Rule 31A of the CGST Rules. The Bombay High Court's judgment in the Dream 11 PIL was also challenged by way of criminal appeal. All matters were heard together as a common batch.

The Court held that the character of betting and gambling does not depend upon whether the underlying activity is a game of skill or chance, but upon the existence of stakes placed upon uncertain future contingencies. Online gaming platforms, the Court held, create and operate the commercial ecosystem within which participants acquire contingent beneficial interests in movable property, which constitute actionable claims under Section 3 of the Transfer of Property Act and fall squarely within the GST framework.

“…The amount staked towards participation in gameplay constitutes consideration within the meaning of Section 2(31) of the CGST Act, while the determination of the statutory valuation measure falls to be governed in accordance with Rule 31B…There exists no statutory basis for exclusion or deduction of winnings, prize pools or payout amounts while determining taxable value under the statutory framework…The levy of GST on the statutory valuation measure adopted under the CGST framework, including the amount deposited for participation in online money gaming under Rule 31B, is valid and consistent with the statutory framework of the CGST Act…”, it noted.

“The amendments introduced in 2023, including the amendments to Entry 6 of Schedule III and insertion of Rules 31B and 31C, are clarificatory and explanatory in nature and consequently retrospective in operation in the manner indicated hereinabove. The said amendments neither create a fresh levy nor introduce a new taxable event for the first time, but merely provide greater statutory specificity and operational clarity in relation to valuation and collection mechanisms governing online gaming and casino transactions”, it noted further.

The constitutional challenges under Articles 14, 19(1)(g), 21 and 265 of the Constitution of India were rejected, the Court holding that mere commercial hardship or increased tax incidence cannot render a fiscal measure unconstitutional, and that Article 21 has no application in the present fiscal context.

The Bench summarised the conclusion, as following:

• The levy of GST on actionable claims arising from betting and gambling transactions is constitutionally valid, within the legislative competence conferred by Article 246A of the Constitution, and consistent with the statutory framework embodied in the CGST Act, 2017 and the corresponding State GST enactments.
• The challenge to the constitutional and statutory validity of Sections 2(31), 2(52), 7, 9 and 15 of the CGST Act, 2017, the corresponding provisions of the State GST enactments, and Rules 31A and 31B of the CGST Rules, 2017, together with the notifications, circulars and executive instruments issued in furtherance thereof, fails and is accordingly rejected.
• The amendments introduced by the Central Goods and Services Tax (Amendment) Act, 2023, including the amendments to Entry 6 of Schedule III and insertion of Rules 31B and 31C, are clarificatory and explanatory in nature and shall operate retrospectively in the manner indicated hereinabove.
• Organised online gaming activities, including fantasy sports and analogous gaming formats involving pooled stakes, give rise to actionable-claim supplies 414 exigible to GST under the statutory framework governing betting and gambling transactions.
• Insofar as casino transactions are concerned, recourse to Rule 31 and adoption of best judgment methodologies under the pre-amendment framework cannot be said to be impermissible in the absence of complete and reliable contemporaneous records. However, the ultimate determination and computation of taxable value shall stand governed by Rule 31C in accordance with the principles laid down hereinabove.
• Pending show cause notices, adjudication proceedings and consequential demands relating to online gaming, fantasy sports and casino transactions shall accordingly be considered and decided in accordance with the valuation framework embodied in Rules 31B and 31C of the CGST Rules, as applicable, and the findings recorded in the present judgment.

Accordingly, the writ petitions and transferred cases were dismissed and the Karnataka High Court judgment quashing the Gameskraft show cause notices was set aside and the notices restored, with assessees granted eight weeks to file replies and the competent authority directed to pass orders within twelve weeks thereafter.

The criminal appeal arising from the Dream 11 PIL was allowed to the extent the Bombay High Court had held the transactions fell outside taxable supply. All interim orders were vacated. No order as to costs was made.

Cause Title: Directorate General of Goods and Services Tax Intelligence (HQS) and Ors. v. Gameskraft Technologies Private Limited and Ors. (Neutral Citation: 2026 INSC 595)

Appearances:

Appellant: N. Venkataraman, Additional Solicitor General of India,

Respondents: Dr. Abhishek Manu Singhvi, Rakesh Dwivedi, Dhruv Mehta, Senior Advocates, appeared for additional respondents.

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