“The character of betting and gambling does not depend exclusively upon whether the underlying activity is a game of skill or a game of chance but upon the existence of stakes placed upon uncertain future contingencies,” said the Supreme Court of India while pronouncing a combined judgement in the following cases:
Platforms are not just intermediaries; they are suppliers: “The online gaming operators are not mere intermediaries facilitating transactions that intersect between participants, but themselves constitute suppliers of such actionable claims within the framework of CGST legislation,” said the SC’s Justice J.B. Pardiwala and R. Mahadevan.
Gambling money is taxable: The court further said that even if a game requires skill, it becomes betting and gambling under the GST law once players risk their money on uncertain outcomes. The judgement further laid out how money involved with online gambling is taxable.
The state has the right to tax the gambling or betting money: “The legislative scheme embodied in the CGST Act 2017 and the corresponding state enactments validly subjects actionable claims arising from betting and gambling to GST. The provisions embodied in Section 231, 252, 7, 9, 15 of the GST Act, insofar as they operate upon actionable claims arising from betting and gambling, are constitutionally valid and clearly traceable to the legislative competence conferred by Article 246 of the Constitution,” said SC.
“Mere commercial hardship, reduction in profitability, or increased tax incidents cannot by itself render a fiscal measure unconstitutional.” – SC
Only the claims are taxable, not on the act of games itself: “The levy is upon the taxable supply of actionable claims and not upon activity of betting or gambling simpliciter. Further, the levy of GST on 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.” Article 366-12A defines what is a “good” under the Indian Constitution. The Supreme Court also rejected arguments based on Articles 14, 19 (1) (g), 21, and 265 of the Constitution.
All money put into stakes is taxable, not just the payout: “There exists no statutory basis for excluding or deducting price pools, winnings, payouts, or similar components while determining taxable value under the statutory framework,” said the SC.
The court also said that Rule 31A of CGST Rules is valid as it explains how to calculate betting/gambling taxes, and it is not arbitrary, nor unfair. “The valuation mechanism embodied in Rule 31A cannot be characterised as manifestly arbitrary or violative of Article 14 merely,” said the court.
Authorities can rely on reconstruction methods if platforms fail to have proper records: “Reconstruction methodologies are a best judgment assessment in the absence of complete and reliable contemporaneous records reflecting aggregate gaming activity. Mere reliance upon mechanical reconstruction, statistical exploration, or inferential methodologies cannot by itself invalidate an assessment, particularly where the associates themselves fail to maintain adequate records relating to gaming transactions,” said SC.
All pending tax cases should be taxed following the rules: “The constitutional and statutory challenges mounted against the levy of CGST on actionable claims arising from betting and gambling transactions are rejected,” said the SC. The court said that the authorities can follow 31A, 31B, and 31C of the CGST Rules.
“The ultimate determination and computation of taxable value shall stand governed by Rule 31C, in accordance with the principles laid down hereinabove,” said the court. It also said that the valuation framework under Rule 31C is “clarificatory and retrospective in nature.”
The Supreme Court also overturned the following judgements:
However, the platforms can still avail a fair hearing to defend themselves. The tax officer must follow the current SC ruling when determining the final decision.
Courts can’t give platforms a license, approach authorities: “However, if the appellant’s application seeking license permission relating to the period in question remains pending, the competent authority shall consider and decide the same expeditiously and preferably within a period of six weeks from the date of receipt of a copy of this judgment. The appeal is accordingly disposed of,” said SC. After concluding the judgement, the court further extended the six-week deadline to 12 weeks.
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