The Union government on Tuesday firmly argued before the Supreme Court that the full face value of stakes placed in online gaming constitutes the taxable value under the Goods and Services Tax (GST) framework.
In its detailed rejoinder submission in the Gameskraft Technologies case, the Directorate General of Goods and Services Tax Intelligence maintained that betting and gambling activities—whether online or through race clubs—are liable to GST on the gross stake value and not merely on platform commissions.
The submission, made by Additional Solicitor General (ASG) N. Venkataraman, addresses the fourth canon of taxation—the value of supply—and counters the arguments raised by Gameskraft and other gaming operators that only the platform’s earnings (i.e., commissions or service fees) should be taxed.
The Revenue stated that under Section 15(1) of the CGST Act, the value of supply is the transaction value, defined as the price actually paid or payable for the supply of goods or services. Since actionable claims from betting and gambling are considered a supply of goods, the full stake amount paid by a player qualifies as consideration. The Centre emphasised that the stake amount is the sole payment made by a player to enter a game. The transaction, therefore, is inseparable from the stake: without it, the player is not supplied with an actionable claim, and no game can proceed.
“The entire stake amount would constitute the consideration under Section 2(31) and consequently form the transaction value under Section 15(1),” the Revenue noted.
Rejecting the gaming companies’ argument that only their earnings should be taxed, the Centre cited the Supreme Court’s 2020 ruling in Skill Lotto Solutions, where the Court held that the prize money in lottery sales cannot be excluded from the value of supply for GST purposes. The same reasoning, it argued, applies here—there is no statutory mandate to exclude winnings from the taxable amount.
The government also defended Rule 31A(3) of the CGST Rules, which explicitly prescribes that the value of supply in betting and gambling is 100% of the face value of the bet or the amount paid into the totalisator.
The ASG said Rule 31A does not go beyond the statutory provisions and is consistent with Section 15(1). He argued that the rule was introduced based on a recommendation by the GST Council during its 25th meeting, following proposals from the Fitment Committee.
The committee had expressed concerns that betting operators could attempt to reduce their GST liability by deducting winnings from the amount staked. Rule 31A was introduced to prevent this and to ensure uniform tax treatment.
Gaming companies contended that Rule 31A applies only to horse racing in race clubs. The Centre refuted this, asserting that the rule covers all betting and gambling activities, including online games. The use of the word “or” in “betting, gambling or horse racing in a race club” indicates separate and distinct categories.
“The Court must not accept an interpretation that would shrink the scope of Rule 31A,” the Revenue cautioned.
Responding to arguments that Rule 31A applies only to games of chance (and not games of skill), the government clarified that “chance to win” refers to the opportunity presented to players once they place a stake. Regardless of the skill involved, once stakes are placed on an uncertain outcome, it qualifies as betting or gambling for GST purposes.
“The underlying nature of the game is immaterial. Be it skill or chance, placing a stake on an unknown outcome amounts to betting and gambling,” the submission stated.
The Revenue rejected claims that taxing the full stake is arbitrary or confiscatory. It said tax laws cannot be judged by the revenue impact on an industry but must be assessed on legal merit. The GST framework clearly permits taxation on the gross consideration.
Gaming companies argued that winnings held in escrow accounts do not constitute their income and cannot be taxed. Citing English judgments like Barclays Bank v. Quistclose Investments, they said such funds are not the companies’ assets. The Centre dismissed this analogy, asserting that players have no control over stakes once placed, and therefore, the Quistclose doctrine does not apply.
The Centre concluded that all four canons of taxation—charge, person, rate, and value—are satisfied in its case against Gameskraft. The rejoinder sets the stage for the Supreme Court to decide whether the online gaming industry must pay GST on full stakes or only on platform earnings.
