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Tax law blind to crime, gambling triggers GST either way: Govt tells Supreme Court
The Revenue rejected the stand taken by online gaming companies, which argue that games of skill—such as rummy—enjoy constitutional protection and therefore cannot be classified as gambling when played with stakes.
Gaming companies and industry associations have argued that games requiring skill, when played for stakes, do not amount to gambling.
In a significant development that could redefine the taxation and legal treatment of online gaming in India, the Supreme Court continued hearing the case between the Directorate General of Goods and Services Tax Intelligence (DGGSTI) and Gameskraft Technologies Pvt. Ltd and others. The government told the Supreme Court that taxation under the Goods and Services Tax (GST) regime is not dependent on the legality or illegality of an activity, but on the nature of the transaction itself.
Represented by Additional Solicitor General (ASG) N. Venkataraman, the Revenue's rejoinder submissions argue that placing stakes on uncertain outcomes—whether the game is one of skill or chance—qualifies as betting and gambling. As such, actionable claims arising from these transactions would attract GST.
The Revenue maintained that any game where the outcome is unknown and players place money to win more than they wagered, falls under the definition of betting and gambling. This argument applies equally to fantasy sports, rummy, and even casinos.
The Revenue rejected the stand taken by online gaming companies, which argue that games of skill—such as rummy—enjoy constitutional protection and therefore cannot be classified as gambling when played with stakes. The ASG asserted that the mere fact that these games are protected from criminal liability under state gaming laws does not imply that they are not betting or gambling in the context of taxation.
"Games of skill being protected under gaming legislations has no bearing on GST, a taxing regime," Venkataraman stated.
Gaming companies and industry associations have argued that games requiring skill, when played for stakes, do not amount to gambling. They claimed the Revenue was attempting to overturn decades of jurisprudence that distinguishes games of skill from games of chance, citing Supreme Court precedents including the RMDC-I and Satyanarayana judgments.
Venkatraman stated, “Only because it is gambling, there was a requirement to carve out a protection for wagering and betting on games of skill under the two acts. Just because there is a protection from prosecution, games of skill played with stakes does not cease to be gambling.”
He further stated, “It was a policy decision that was taken at that time to protect gambling to the extent that it was in relation to games of skill. For the purpose of taxation, whether or not it is a crime is of no consequence and as long as the underlying transaction is gambling, the taxable event is triggered.”
However, the Revenue dismissed these interpretations as selective and decontextualized. The rejoinder highlighted that in RMDC-I, the Supreme Court did not deal with staking on a game of skill at all, and thus, the case could not be used to infer constitutional protection for staking on games like rummy.
A key point of contention lies in the interpretation of Entry 34, List II of the Constitution, which grants states the power to legislate on “betting and gambling.” While some High Courts, notably in Karnataka and Tamil Nadu, have interpreted the phrase as “betting on gambling,” meaning betting only on games of chance, the Revenue argued that this reading rewrites the Constitution.
According to the ASG, betting and gambling are interchangeable terms in both legal and ordinary usage. “To interpret 'betting and gambling' as only ‘betting on gambling’ amounts to judicial overreach,” he stated, emphasizing that even betting on games of skill involves risk and uncertainty.
The Revenue bolstered its argument by referencing the Constituent Assembly Debates. It pointed out that lawmakers, including T.T. Krishnamachari and Dr. B.R. Ambedkar, acknowledged that even rummy, when played with stakes, could be considered gambling and that states should have the power to regulate or prohibit such activities.
Quoting Krishnamachari, the Revenue noted that when games like rummy are played for high stakes, “it takes the form of gambling.”
In support of its stance, the Revenue cited historical judgments, including:
Dyson v. Mason, where UK courts ruled that playing any game for money constitutes gaming, regardless of skill.
King Emperor v. Arjoon Singh and Re Musa, where Indian courts concluded that it is the presence of a stake, not the nature of the game, that defines gambling.
Panna Lal v. Emperor, which held that games of skill played with stakes are gambling but may be exempt from prosecution due to specific protections in the law.
The Revenue argued that these judgments collectively support the view that staking on games—regardless of whether they involve skill—amounts to gambling and can be regulated or taxed accordingly.
On RMDC-I and II, the Revenue argued that these rulings only held that skill-based competitions with an entry fee are not gambling. However, it stressed that if the entry fee functions as a stake—i.e., is linked to the chance of winning more money—it becomes gambling. The Revenue further added that in online gaming, participants are enticed to place stakes repeatedly, converting what may seem like skill-based games into structured gambling systems.
Similarly, in K.R. Lakshmanan v. State of Tamil Nadu, which concerned horse racing, the Revenue pointed out that the case only dealt with third-party betting by spectators (punters), not players. The protections extended were under specific laws and cannot be taken as a general declaration that staking on games of skill is constitutionally protected.
The Revenue also emphasized the 1968 Supreme Court judgment in State of Andhra Pradesh v. K. Satyanarayana, where it was held that rummy is a game of skill. However, the Revenue argued that the court acknowledged that rummy played with stakes required protection under the gambling act—implying it would otherwise qualify as gambling.
The ASG took issue with recent High Court judgments that interpreted Entry 34 narrowly, arguing that these interpretations impact the enforcement of GST on actionable claims from betting and gambling. He urged the Supreme Court to intervene and clarify that staking on games of skill does not fall outside the scope of betting and gambling.
The outcome of this case is expected to significantly affect the online gaming industry, taxation under GST, and the regulatory powers of states. If the Supreme Court upholds the Revenue’s interpretation, gaming companies offering skill-based games with stakes may be subject to 28% GST, similar to casinos and lotteries.
The hearing continues before the Bench, with implications that could reshape India's fast-growing online gaming sector.
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