Online real-money gaming companies have challenged the 28% Goods and Services Tax (GST) on their services in the Supreme Court, arguing that the levy is legally unsound and inconsistent with the GST framework.

Appearing for the gaming operators, senior advocate V. Sridharan argued that the GST provisions in effect prior to October 2023 were not sufficient to justify the imposition of 28% tax on online gaming platforms. He contended that the government’s reliance on Rule 31A of the GST Rules—which deals with valuation of supply for lottery, betting, gambling, and horse racing—was flawed, as the rule lacked statutory backing under the Central GST (CGST) Act.

Sridharan further pointed out that Rule 31A did not follow the mandatory two-step process outlined in Section 15(5) of the CGST Act, which governs how taxable values must be determined. He argued that the rule was enforced without first notifying “actionable claims” as taxable supplies, making it legally invalid.

The petition also questioned the recent attempt to classify betting and gambling as “goods” through a modification in the Goods Rate Notification. Sridharan noted that prior to October 1, 2023, actionable claims were not included in the Customs Tariff Schedule, and therefore could not be taxed as goods under GST.

The counsel stressed that both gambling and online gaming were consistently treated as “services” under existing GST notifications and the Integrated GST Act. The sudden reclassification as “goods,” he said, lacked legal clarity and legislative backing.

The gaming firms also clarified to the court the difference between platform fees and prize pool contributions. While GST is already paid on platform fees, the prize pool contributions—collected from players and returned to winners—are held in trust and should not be considered “consideration” for taxation under GST.

This legal battle carries significant implications for the online gaming industry, which is grappling with retrospective tax demands and a new tax regime that could reshape its operational and financial landscape.

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