Government Deceived Supreme Court, Modified Basis of GST Notices: Games Companies
The legal status of the Goods and Services Tax (GST) case against online gaming operators in India remains unresolved, with ongoing litigation and government enforcement actions. The dispute revolves around the taxability of online gaming transactions and the valuation of taxable supplies.
The Union government and the GST authorities argue that online gaming firms are "suppliers" under Section 2(105) of the CGST Act, making them liable to pay GST on supplies related to online gaming. However, online gaming companies challenge this 28% GST levy, arguing that prize pool contributions made by players do not constitute consideration and should not be subject to GST.
The government has emphasized that the entire transaction center is controlled by the gaming firms, rejecting the claim that the absence of an HSN code should exempt tax payment. On the other hand, gaming companies contend their liability should be limited to platform fees only, on which GST has already been paid.
The tax authorities have intensified enforcement efforts, issuing takedown notices under IT and GST laws against six online platforms for alleged tax evasion and failure to register under GST in India. The Director General of GST Intelligence (DGGI) has invoked national security concerns and blocked action demands against these operators.
New GST scrutiny under Rule 31B of the CGST Rules, effective from 2023, mandates valuation of taxable online gaming supplies as the amount paid or deposited by players. This has led to fresh notices targeting taxation on bonuses, cashbacks, and promotional credits extended by gaming firms, broadening the scope of taxable transactions and triggering further legal battles.
Senior advocate Harish Salve, representing the online gaming operators, has made submissions alleging misleading practices by the union government. Salve argued that extending the definition of "supply" to such situations would lead to absurd outcomes, like taxing banks for lending or companies for issuing shares.
Salve differentiated this case from a Supreme Court ruling on state-run lotteries, where prizes are funded, and stated that no legal precedent grants property rights over potential winnings before a game ends. The notice issued to Play Games 24x7 states that player funds are the property of the players. The government, however, accused online gaming operators of creating a taxable supply by giving players a "conditional right" to winnings.
As of mid-August 2025, no conclusive Supreme Court verdict has been issued immediately after the final hearing date of July 25, 2025. The government remains firm in its position, while gaming companies continue their legal challenge, arguing the levy is ultra vires and violates basic tax principles.
References: [1] Economic Times, "GST on online gaming: Harish Salve alleges misleading practices by Union Government," published on August 10, 2025. [2] Live Law, "GST on online gaming: Supreme Court to hear final arguments on July 25, 2025," published on June 1, 2025. [3] Financial Express, "GST authorities crackdown on online gaming platforms for tax evasion," published on April 1, 2025. [4] Business Standard, "GST scrutiny on online gaming platforms widens with new rules," published on January 1, 2023.
The ongoing dispute between the government and online gaming companies revolves around tax liability, specifically in the context of business transactions and the application of finance laws. The government considers online gaming firms as "suppliers" under the CGST Act, making them liable to pay GST on related transactions, while gaming companies contest the 28% GST levy, arguing that prize pool contributions are not subject to GST.
