Gaming Cos Slam Treatment Of User Fees As Actionable Claims

SUMMARY

Senior advocate Harish Salve, arguing for EGF, contended that treating the participation fees as actionable claims under GST law was misconceived as platforms acted merely as facilitators

Salve also argued that the methodology of taxing the entire deposit pool to ascertain valuation distorted the actual tax base and amounted to an unjust financial burden on gaming platforms

Advocate Abhishek Manu Singhvi also questioned the Centre’s “legislative competence” to impose GST on real money gaming platforms, which he argued fell under the State List

Online real money gaming platforms have reportedly challenged the Centre’s classification of participation fees for skill-based games as “actionable claims”.

As per NDTV Profit, senior advocate Harish Salve, arguing for E-Gaming Federation (EGF), contended that treating the participation fees as actionable claims under GST law was misconceived.

He made the comments during the ongoing hearing in the Supreme Court against the 28% GST levy on online gaming platforms.

For context, an actionable claim represents a legal right to demand something from another party, often involving monetary compensation. In an order last year, Bombay High Court had ruled that funds pooled in an escrow account for online fantasy gaming constituted an actionable claim, as they are distributed among winning participants.

Salve, as per Storyboard18, argued that the current GST notifications and show cause notices (SCNs) fundamentally mischaracterised the nature of online gaming, adding that online gaming platforms act merely as facilitators and not as suppliers of any transferable rights or claims.

Salve also reportedly contended that the 2023 amendment to Rule 31A(3) of the CGST Rules “ultra vires” the parent CGST Act. Arguing that the tax regime unfairly levied GST on the entire player deposit pool instead of the platform’s actual revenue, Salve termed the approach “disproportionate and legally untenable”.

“The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator,” reads the contentious provision.

Drawing parallels with casino taxation and precedents such as DeVANS Modern Breweries and Mohit Minerals cases, Salve said that the methodology of taxing the entire deposit pool to ascertain valuation distorted the actual tax base and amounted to an unjust financial burden on gaming platforms.

Meanwhile advocate Rakesh Dwivedi, arguing for gaming platforms, contended that Rule 31(A) was originally designed for physical betting establishments, such as race clubs. He added that extending the provision and applying it to the online gaming platforms without legislative backing was legally indefensible.

Another counsel for gaming platforms, advocate Abhishek Manu Singhvi, stressed upon the judicial and constitutional distinction between games of skill and chance and emphasised that games like rummy and fantasy sports fell under the ambit of the “skill” category and should not be equated with gambling.

Singhvi also reportedly questioned the Centre’s “legislative competence” to impose GST on real money gaming platforms, which he argued fell under the State List.

Meanwhile, the division bench of the SC, comprising Justices J B Pardiwala and Manoj Misra, reportedly questioned the validity of applying racing-specific tax provisions to modern digital platforms.

As per the report, the bench also acknowledged the potential constitutional overreach in taxing player deposits and underscored the importance of preserving legal distinctions between gambling and skill-based gaming.

That said, Salve will continue with his submissions as the SC will hear the matter again on Wednesday (May 14).

This comes a week after online real money gaming platforms informed the SC that they were opposed to the retrospective imposition of 28% GST on the full face value of entry amounts, and not prospectively.

The Row Around 28% GST

At the heart of the matter is the GST council decision, in 2023, to impose a 28% GST on the amount being paid at the entry level for online gaming. The new rules came into force on October 1 that year.

The new entailed 28% tax on the total value of bets for online games, irrespective of whether they are games of skill or chance. Previously, a lower 18% GST was levied, specifically on the platform fee for skill-based games.

Subsequently, GST authorities issued tax notices to the tune of INR 1.12 Lakh Cr to multiple gaming platforms including Gameskraft, Dream11, Games 24×7 and Head Digital Works. Subsequently, these platforms moved the Supreme Court to get a stay on these notices.

In January this year, the SC put a temporary halt to GST proceedings against 49 real money gaming companies.