SC holds GST is leviable on supply of actionable claim in online gaming, fantasy sports and casinos, retrospectively from July 2017

This Tax Alert summarizes a recent ruling  of the Supreme Court (SC) addressing the GST implications on online gaming, fantasy sports and casino transactions, including constitutional validity of levy on actionable claims and the valuation mechanism prescribed under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Rules framed thereunder.

The key observations of the SC are:

• Betting and gambling constitute a composite expression referring to staking money on uncertain outcomes, and such characterization is independent of whether the underlying activity involves skill or chance. Accordingly, online gaming, fantasy sports and similar formats involving pooled stakes fall within the ambit of betting and gambling for GST purposes.
• The inclusion of actionable claims within the definition of ‘goods’ under the GST framework is valid, and GST is leviable on the supply of actionable claims arising from betting and gambling.
• Rule 31A of Central Goods and Services Tax Rules, 2017 (CGST Rules) is a valid machinery provision, and valuation based on the entire amount paid or staked is permissible, not confined to the platform fee or commission alone. The amendments introduced in 2023, including insertion of Rules 31B and 31C, are clarificatory in nature and operate retrospectively to the extent they explain the existing legal position.
• The entire amount paid or deposited by players for participation constitutes the taxable value in online gaming, fantasy sports and casino transactions, without any deduction for payouts or winnings.

Basis above, SC set aside the ruling of the Karnataka High Court and directed pending notices, adjudication proceedings and consequential demands to be decided in accordance with the above principles. 

Comments

• The Apex Court ruling suggests a significant development as it settles the long-standing controversy on taxability of stakes vs platform fee, effectively endorsing the Revenue’s position.
• Judgement departs from earlier industry reliance on the “game of skill” related jurisprudence and aligns taxability with the concept of staking on uncertain outcomes.
• Taxpayers may need to reassess historical positions, provisioning, and ongoing litigation strategy, particularly in light of retrospective implications and the expanded valuation base confirmed by the SC.
• The Court’s characterization of the provisions amended in 2023 as clarificatory and retrospective, may need to be analyzed for the possible applicability of such finding to other similar amendments in the law aimed at reinforcing legislative intent or overturning adverse precedents.
• SC has not examined the appropriateness of invoking Section 74 in the present cases, that may leave scope for taxpayers to contest such notices on the grounds of bona fide interpretational disputes.
• It remains to be seen whether the matter will be referred to a larger bench.