The Supreme Court upheld the levy of Goods and Services Tax on online gaming activities as constitutionally valid, and rejected the constitutional and statutory challenge mounted against the levy of CGST on actionable claims arising from betting and gambling transactions. A bench comprising Justice JB Pardiwala and Justice R Mahadevan held that organised online gaming activities, including fantasy games involving pooled stakes and contingent price structures, give rise to actionable claims and supplies exigible to GST under the statutory framework governing betting and gambling transactions.
The Court held that even skill-based games acquire the character of betting and gambling for GST once money is staked on uncertain outcomes. Therefore, it was held : "Online gaming activities, including fantasy sports and other games played on digital platforms, involving staking upon uncertain outcomes, constitute betting and gambling for the purpose of GST framework." Since actionable claims arising from betting and gambling are subject to GST, online gaming activities will also attract GST. The Court held that the levy is upon the taxable supply of actionable claims and not on the activity of betting and gambling. "The levy of GST of the supply of actionable claims arising from betting and gambling is constitutionally valid and does not transgress Articles 366(12) and 366(12A) of the Constitution," Justice Mahadevan pronounced, upholding the levy as a valid legislative measure.
The Court observed that mere commercial hardship, reduction in profitability or increase of tax incidence cannot by themselves render a fiscal measure unconstitutional. The levy is supported by statutory authority traceable to Section 7, 9 and 15 of the CGST Act, and satisfied Article 265 of the Constitution, the Court noted. The concept of supply under S.7 of CGST is not confined to mere transfer of pre-existing actionable claims but extends to other forms of supply under the statutory framework, including organised betting and gambling arrangements.
Gaming operators not intermediaries; suppliers
Organised gaming and betting platforms create a commercial ecosystem within which participants acquire a contingent beneficial interest in moveable property involving uncertain future outcomes. Such contingent interest constitutes "actionable claim" witihn the meaning of Section 3 of the Transfer of Property Act. Hence, the Court ruled, "Consequently, the amounts staked or otherwise appropriated towards participation in gameplay constitute consideration within the meaning of Section 2(31) of the GST Act."
The Court held:
"We hold that online gaming activity involving pooled stakes and contingent price structure give rise to actionable claim interest constituting taxable supplies within the meaning of Section 7 of GST Act. The online game operators are not mere intermediaries facilitating transactions inter-se between participants but themselves constitute suppliers of such actionable claims."