On Wednesday, the Supreme Court upheld retrospective GST demands against online gaming companies, ruling that once real money enters the picture, the distinction between games of skill and gambling loses significance for taxation purposes. The verdict is expected to have massive financial implications for online gaming, fantasy sports and casino operators facing pending tax demands running into thousands of crores across the country.
The dispute arose after gaming platforms received GST notices demanding 28% tax on the full face value of bets and contest entries placed on their platforms. The companies argued that GST should apply only to gross gaming revenue, the portion retained by the platform after payouts, and not on the entire amount deposited by users. They also challenged retrospective application of the 2023 GST amendments imposing 28% levy on online gaming, casinos and horse racing.
The matter reached the Apex Court after the Karnataka High Court had granted relief to Gameskraft by quashing a ₹21,000 crore GST notice issued in 2022. The Centre and various States defended the levy by raising concerns over addiction, financial losses and public order issues linked to online betting involving stakes.
The Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan held that the presence of monetary stakes changes the character of online games for the purpose of taxation. The Court observed that while Article 19 may protect games of skill, “when the element of betting and gambling enters the picture, the nature of the game ceases to be of relevance.”
The Bench further held that the 2023 GST amendments were clarificatory in nature and therefore applicable retrospectively. Significantly, the Court also ruled that betting and gambling are “res extra commercium,” adding that no fundamental right can be claimed to conduct such activities.
Setting aside the High Court judgment, the Apex Court restored the GST show-cause notice issued to Gameskraft and directed that pending proceedings against gaming and casino operators be decided in line with its findings.
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