While courts (including the Supreme Court of India) have, over the years, clarified a whole range of issues surrounding classification of games, albeit, lack of clarity lingers in the taxation sphere. Classification of a game as a game of skill or as a game of chance has a direct impact on the rate of tax and also the valuation of the said supply. Accordingly, the dichotomy between the game of skill and game of chance in the taxation sphere needs a deeper examination.

With the above background, we wish to update you that in the month of September, 2022, proceedings were initiated against online gaming company Gameskraft Technologies Private Limited (“Company” or “Petitioner”) by the directorate general of goods and services tax intelligence (“DGGI”) for allegedly indulging in betting and gambling. From the news reports, it appears that a demand of INR 21,000 crores (including interest and penalty) is being imposed on the Company, which is one of the biggest demands in the history of indirect taxes in India. DGGI is the investigation wing of the goods and services tax (“GST”) department. The Company has challenged the said proceedings before the Karnataka High Court and has secured interim relief, by way of stay of the intimation notice. The petition is expected to be taken up, for final hearing and disposal, around mid-October.

As per the order dated 23.09.2022, the Karnataka High Court held that the Company is engaged in providing an online version of rummy on its platform as an intermediary for which the Company is charging GST at 18%. The Company has averred that rummy is a game of skill. On the contrary, the DGGI has alleged that it should be discharging tax on the basis of provisions which apply to betting and gambling which are chargeable at 28% GST on the face value of bets. It may be noted here that GST at 28% is leviable on the face value of the amount at stake in each game as per rule 31A of the central goods and services tax rules ("CGST Rules, 2017”), which is applicable to betting, gambling and horse racing.

The Company has averred that they have paid taxes at the rate of 18% under the bonafide belief that the supplies provided fall within the purview of games of skill and not betting or gambling. In this regard, it has been specifically argued before the Karnataka High Court that their largest revenue generating game product has passed the test of being a game of skill.1

We have provided below the relevant provisions and the synopsis of the matter along with our comments and way forward.


GST is leviable on the activity of supply of goods and services, and the scope of supply has been kept very wide to cover all kinds of activities including sale, transfer, barter, exchange, licence, rental, lease or disposal.

Online gaming and gambling attract different rates of taxation. While services relating to betting and gambling attract 28% GST, on the other hand, online games which qualify as games of skill attract 18% GST.

Amounts staked in online gaming or gambling qualifies as ‘actionable claims', which falls within the scope of supply of goods. Similar to the rate of tax on services relating to gambling, under the taxing schedule pertaining to goods, actionable claims in the form of chance to win in betting, gambling or horse racing in race club attracts 28% GST.

As regards valuation of such actionable claims, rule 31A of the CGST Rules, 2017 provides that 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 totalizator.”

Entry 6 to schedule III of the central goods and services tax act, 2017 (“CGST Act, 2017”) provides that actionable claims other than lottery, betting and gambling are outside the purview of taxation.

The above position clearly indicates that while services and actionable claims in relation to betting, gambling and horse racing attract 28% GST, the other online skill-based games attract 18% GST. Further, games of skill do not have any special rules of valuation, and only the consideration for the operator is subjected to tax.

At this juncture, it must be highlighted that several High Courts2 and the Supreme Court of India3 have ruled on the classification of fantasy sports games and other nature of games including rummy4 and have held such games to be falling within the category of games of skill.

However, due to a factual argument by the Union of India and the State of Maharashtra regarding proceedings before the Bombay High Court on the issue of taxation, the judgment of the Bombay High Court was stayed by the Supreme Court of India5 . In a subsequent application6 , it was clarified by the Supreme Court of India that the above-referred stay order is only relatable to the issue of taxation, and not to revisit the issue as to whether gambling is or is not involved.

It must be noted that a review petition on the issue of taxation in respect of online gaming is currently before the Bombay High Court7 . Separately, a matter on the constitutional validity of rule 31A of the CGST Rules, 2017 is pending final disposal before the Karnataka High Court8.


3.1 Key submissions of the Petitioner

  1. Petitioner contended as to how the show cause notice (“SCN”) as well as the intimation notice is based on rule 31A of the CGST Rules, 2017 to demand deposit of 28% GST on the entire value of bets even though the very constitutional validity of rule 31A of the CGST Rules, 2017 is sub-judice before the Karnataka High Court.
  2. Petitioner further highlighted the fact that the issue regarding taxability and valuation for the purposes of taxation in respect of online gaming is pending before the GST council. Petitioner further contended that if at all there was any actionable claim, it was only between the players in respect of which, the petitioner did not have any claim or beneficial interest.
  3. Petitioner relied on various judicial precedents, including pertaining to their own case, to submit that the game of online rummy is declared to be a game of skill and not a game of chance.
  4. Petitioner submitted that the impugned notice is arbitrary and violative of Articles 14, 19 and 21 of the Constitution of India.

3.2 Observations of the Karnataka High Court

  1. The High Court deemed it fit to stay the operation of the intimation notice since the issue with regard to the legality, validity and correctness of the impugned SCN would have to be decided at the time of final disposal.
  2. The High Court categorically stated that this interim order is restricted and limited to the impugned intimation notice and is issued without prejudice to the rights and contentions of the parties in any other matter, pending or otherwise and also without expressing any opinion on the merits or demerits of the rival contentions and the same are kept open.


In relation to taxation of skill-based games, as per the provisions of law as on date, a clear view may be taken that the same attract 18% GST, on the consideration earned by the operator of the platform.

However, as per reports, it appears that the tax department's approach is to reopen the pandora's box by alleging that the nature of such online games is that of betting or gambling. This appears to be a reappreciation or reopening of cases which have already passed the tests on prior occasions before the High Courts. One can only hope for the group of ministers constituted by the GST council to come up with favourable recommendations by releasing some guidelines or clarifications as regards the applicable rates of taxation on games which have been already adjudicated as games of skill by the High Courts.

Going forward, as a preparatory step, it is important for all the online gaming companies to be prepared in advance with proper documentation (legal and commercial) evidencing the position adopted to classify their activities as games of skill.

In the event the companies have not taken a legal opinion on the position adopted as regards the classification of their games, this could possibly be the time to get the positions reviewed and vetted, to secure the company from any future risk, if at all, and strategise on saving any interest or penal implications.


1. All India Gaming Federation & Ors. v. State of Karnataka & Ors., Writ Petition Civil No. 18703/2021

2. Varun Gumber vs. UT of Chandigarh 2017 Cri. L J 3827, Gurdeep Singh Sachar Vs. Union of India & Ors., (2019) 75 GST 258 (Bombay), Chandresh Sankhla Vs State of Rajasthan, reported in 2020 SCC Online Raj 264, Ravindra Singh Chaudhary v. Union of India, DB Civil Writ Petition No. 20779/2019

3.  Appeal filed against judgment by Punjab and Haryana High Court in the case of Varun Gumber was dismissed by the Supreme Court of India vide its order dated 15.09.2017 vide Diary No. 27511 of 2017. Similarly, special leave petition filed by the Petitioner against the Bombay High Court judgement in the case of Gurdeep Singh Sachar was dismissed by the Supreme Court of India on the specific issue of classification, vide Diary No. 43346 of 2019.

4. State of Andhra Pradesh vs. K. Satyanarayana & Ors., 1968 AIR 825 SC; Head Digital Works Pvt. Ltd. & Ors. v. State of Kerala & Ors., Writ Petition Civil No. 7785/2021

5. The State of Maharashtra vs. Gurdeep Singh Sachar, SLP (Crl.) Diary No. 42282 of 2019

6.  Union of India v. Dream 11 Fantasy Private Limited, Misc. App. No. 502 of 2020 in SLP (Crl.) No. 11445 of 2019; Avinash Mehrotra v. The State of Rajasthan, SLP (C) Diary No. 18478 of 2020

7. Union of India vs. Gurdeep Singh Sachar, IA No. 125 of 2020 in CRPILST No. 22 of 2019

8. The State of Karnataka vs. Bangalore Turf Club Limited, Writ Appeal No. 779 of 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.