GST Is Levied On Actionable Claims Arising From Stakes, Not Dependent On Whether A Game Is Of Skill Or Chance: Supreme Court

The Supreme Court has recently held that GST liability on online gaming transactions does not depend on whether the underlying game is one of skill or chance, ruling that the levy is attracted by the supply of actionable claims arising from money staked on uncertain outcomes.

A bench of Justices J.B. Pardiwala and R. Mahadevan said the taxable event under the GST framework is the supply of actionable claims generated by staking money on uncertain outcomes and not the underlying game itself. The court accordingly upheld the constitutional validity of the GST levy on such transactions and rejected the contention that Parliament lacked the legislative competence to impose the tax.

"The taxable event under the GST regime is not the abstract game, whether of skill or chance, but the supply of actionable claims arising from the staking of money on uncertain outcomes."

The ruling came in a batch of challenges by online gaming companies, fantasy sports operators, poker platforms, casinos, horse-racing operators and industry bodies to GST demands, show cause notices, and provisions governing the taxation of such activities.

The Court held that GST on such transactions is imposed on actionable claims arising from betting and gambling arrangements and not on the activity of betting and gambling itself. An actionable claim broadly refers to a legally enforceable beneficial interest that may materialise upon the occurrence of a future event.

According to the Court, participation in organised betting and gambling arrangements gives rise to contingent beneficial interests capable of constituting actionable claims that are taxable under the GST framework.

“In other words, what is subjected to tax under the GST framework is the supply of actionable claims arising from betting and gambling transactions. Merely because such actionable claims arise out of betting and gambling does not transform the levy into a direct tax on the activity of betting and gambling simpliciter. The distinction between a tax on the activity of betting and gambling and a tax on the supply of actionable claims arising therefrom must be borne in mind.”, the court held.

Rejecting the argument that GST creates a new field of taxation or impermissibly expands the scope of betting and gambling, the Court said the legislation merely taxes actionable claims arising from such transactions.

“Moreover, the GST legislation neither creates a new taxable field beyond constitutional competence nor artificially expands the meaning of betting and gambling. It merely gives effect to the conception of betting and gambling, as constitutionally understood and discussed herein, within the framework of Article 246A by rendering supply of actionable claims arising from such activities exigible to GST. The taxable event under the GST regime is not the abstract game, whether of skill or chance, but the supply of actionable claims arising from the staking of money on uncertain outcomes..” the court held.

Addressing the core contention raised by online gaming operators, the Court held that taxability does not depend upon whether the underlying game is one of skill or chance. Instead, the focus is on the commercial arrangement through which actionable-claim interests arise upon participation by players.

The Court held that organised betting and gambling arrangements operated through gaming platforms fall within the ambit of taxable supply when participation gives rise to contingent actionable-claim interests.

“It must also be noted that Schedule II merely classifies certain supplies as supply of goods or supply of services. It is not an exhaustive catalogue of taxable supplies. The levy of GST arises upon the occurrence of “supply” under Section 7 and not merely upon classification under Schedule II. Consequently, merely because the manner in which actionable-claim interests arise and operate within betting and gambling transactions is not specifically enumerated in Schedule II does not exclude such transactions from the ambit of taxable supply under the CGST Act. In betting and gambling arrangements, where the organised commercial structure operated by the platform gives rise to contingent actionableclaim interests upon participation by players, such arrangements fall within the broad ambit of taxable supply contemplated under Section 7 read with Schedule III”, the court held.

The Court further held that taxability attaches when a gaming platform operates and facilitates the commercial arrangement within which actionable claims arise and is not dependent upon the eventual outcome of the transaction.

"GST thus attaches to the organised betting and gambling framework within which actionable-claim interests arise. In other words, where it is factually established that a gaming platform or gaming company operates and facilitates the commercial arrangement within which betting and gambling transactions take place, and beneficial interests, whether contingent or otherwise, arise upon participation by players so as to constitute actionable claims, the taxable supply contemplated under the GST regime stands attracted. The subsequent maturation, discharge, or extinguishment of such interests upon determination of the outcome does not detract from the taxability already attracted at the stage of supply.”, the court held.

The judgment also rejected challenges to the valuation mechanism used for betting and gambling transactions. The Court upheld Rule 31A, under which GST is computed on the full amount staked by participants rather than merely on the platform fee, commission or other revenue retained by the operator. It held that the rule merely operationalises the valuation framework already contained in the statute and does not create a separate levy.

“Rule 31A of the CGST Rules is intra vires the provisions of the CGST Act and constitutes a valid machinery provision enacted to operationalise the valuation framework inhering in Sections 9 and 15 of the Act read with Entry 6 of Schedule III and other connected provisions. The Rule neither creates a fresh levy nor enlarges the charging provisions of the statute.”, the court held.

The Court also rejected the industry's contention that the 2023 amendments introduced a new tax regime for online gaming, casinos and horse racing. Instead, it held that the amendments were clarificatory in nature and merely provided greater specificity regarding valuation and collection mechanisms already embedded in the GST framework.

“The amendments introduced in 2023, including the amendments to Entry 6 of Schedule III and insertion of Rules 31B and 31C, are clarificatory and explanatory in nature and consequently retrospective in operation in the manner indicated hereinabove. The said amendments neither create a fresh levy nor introduce a new taxable event for the first time, but merely provide greater statutory specificity and operational clarity in relation to valuation and collection mechanisms governing online gaming and casino transactions. Moreover, Rules 31B and 31C likewise constitute valid machinery and valuation provisions governing online gaming and casino transactions respectively. ”the court held.

The court ultimately upheld the GST framework governing actionable claims arising from betting and gambling transactions and rejected the challenges mounted by gaming operators, casinos, fantasy sports platforms, and industry bodies.