Much has been written on the recently pronounced hard hitting judgement of the Supreme Court in the matter of Gameskraft and several other online gaming, betting and casino entities. Though the main case was an SLP filed by the department against the judgement of the Karnataka High Court in the case of Gameskraft Technologies Private Ltd, but the court had transferred to itself large number of writ petitions pending in various high court pertaining to almost all online gaming platforms and also casino operators.

The Karnataka High Court had held that since the Schedule III of the CGST Act had carved out lottery, betting and gambling from actionable claim for taxing purpose, games involving skill were out of this category, thus not leviable to GST. from actionable. It also held that the GST was payable only on the operators’ service fee.

In the 400-page judgement, the apex Court discussed all issues relating to taxability of betting, gambling, horse racing, online money gaming, lottery and casinos; constitutional validity of the relevant provisions; retrospective applicability of recent amendments; classification; valuation and all other connected issues. It turned the tables on the High Court judgement and went on and on coolly dismissing the arguments of the counsels one by one. challenging show cause notices issues to the parties, particularly the adoption of gross betting amount as the value and treating of their business as suppliers of actionable claims rather than service providers. The learned ASG very effectively defended the statutory provisions and their interpretation by the authorities.

The essence of the judgement is that since stakes are involved in the events which involve an element of chance, such activities are covered in betting and gambling, even if some degree of skill is involved. The GST law doesn’t use the expression betting or gambling but betting and gambling which is a cognate expression. The court also rejected the argument of the counsels that it was supply of a service provided by the online gaming operators by providing the platform and organizing games and retaining only small amount as commission or fees.

The Court held that as per Transfer of Property Act the beneficial interest may be existent, accruing, conditional or contingent and on payment of stake money, contingent actionable claim arises in favour of the players, therefore it becomes supply of actionable claim. The GST is not on act of betting and gambling per se but on supply of actionable claim which was included in definition of goods as defined under section 2(52) of the CGST Act.

The court further held that the newly inserted definitions and explanations of Actionable Claim, Specified Actionable Claims, Online Money Gaming all were held to be only clarificatory in nature, thus applicable retrospectively. Similarly on the issue of valuation also the Hon’ble Court found no incongruity and held the newly inserted Rules 31B and 31C providing for determination of the value of online games and casinos to be in conformity with the valuation provisions under section 15 held them as clarificatory only, thus applicable retrospectively.

It further observed that newly inserted Rules 31B and 31C were only further elaboration of rule 31A which already provided mechanism for valuation of actionable claims in the form of chance to win in betting, gambling and horse racing. The only redeeming feature of the judgement from the industry’s perspective seems to be validating from retrospective effect the Explanation inserted under Rules 31B and 31C which provides that the bets put forward out of the amounts of winnings from the ongoing online games, event, competition or casino shall not be included in the gross value for the purpose of GST.

In the absence of this Explanation department had been contending that in absence any record of multiple bets out of winnings in continuously played games the gross value of each bet shall be extrapolated. Many show cause notices had been issued to Casino operators by extrapolating such value based on House Advantage constant derived by some mathematical formula. In case of one casino operator with turnover of about Rs one crore only, a demand notice of over Rs. 33 crores was issued which looks rather absurd.

The most relevant issue before the apex Court was whether the platform operators of online betting, money gaming, casinos, horse races and the like were supplying services or goods, in the form of actionable but conspicuously none of the advocate brought in the provisions of the newly enacted legislation, the Promotion and Regulation of online Games Act, 2025 and the Rules framed thereunder. This Act treats the online gaming platforms as service providers.

The section 2(h) of the Act states “online money gaming service” means a service offered by a person for entering or playing the online money game. The Rule 2(h) of the Rules, 2026 also provides that “online game service provider” means any person who alone or jointly, offers, operates, organizes, manages or makes available one or more online games. It is evident that the Ministry of Electronics and Information Technology, the administrative ministry promoting and regulating the online gaming industry treats the platforms as service providers.

Though it is a well settled principle of law that different statutes may treat and define an activity differently for the limited purpose of the legislation but it causes confusion in the minds of the regulated entities as well as the tax authorities leading to compliance and enforcement challenges. Even the department had initially accepted payment of GST on the platform fees, treating it as supply of service. By including actionable claim in definition of the CGST Act has not followed the well accepted and commonly understood definition of goods which as defined under the Sale of Goods Act and also under the Constitution.

Though in the Skill Lotto judgment the Hon’ble court had earlier held that in view of the definition under CGST Act, actionable claims shall be treated as goods for the purpose of that Act, but it only further adds to the complexity of the issue. While strictly constructing the law as it stood then and stands now, the Hon’ble court didn’t even so much as suggest that in view of the highly disproportionate burden on the industry, the government may consider amending the legislation.

Be it as it may, the question has been finally settled that the activities of betting and gambling enabled on the platforms of the online gaming companies as well as lotteries casinos and horse racings are actionable claim and leviable to GST as supply of goods on the gross value of the bets. Though review petition has been filed in the Supreme Court as a desperate attempt by the industry in the hope of some relief, it is highly unlikely to succeed, unless it is referred to a larger bench.

The grievance of the gaming companies does not seem to be the classification of their supplies as goods or services, nor the rate of tax but the valuation of the supplies and retrospective applicability of the newly inserted so clarificatory provisions. The gaming companies had been treating it as a case of supply of service of providing the platform for playing online games and paying GST at the rate of 18% or 28% on the gross amount of commission/service charge they were retaining out of the gross receipts, rest going back as prize money to the winners.

Now when the legal position is settled, all the pending demand notices running into several thousands of crores of rupees are soon going to be confirmed with equally large amounts of interest and penalties. Since the total turnover of the online gaming and casino operators is only a fraction of the tax demands, the confirmed demands, interest and penalties would only add to unrealizable arrears of revenue.

Moreover, the newly notified Promotion and Regulation of online Games Act, 2025 has prohibited online money games, with effect from May 1, 2026, leading to shutting down the entire industry of online money games. It is only hoped that in order to bring a sense of proportionality to the entire issue the GST Council would consider recommending adoption of the commission or platform fees retained by the suppliers of actionable claims as the assessable value for the period prior to October 1, 2023, when sweeping clarificatory amendments were made.

—The author, O.P. Dadhich, is Former Member, Central Board of Indirect Taxes and Customs (CBIC). The views are personal.