Do Online Gaming Platforms Supply An 'Actionable Claim'? Supreme Court Issues Notice On Plea Challenging 28% GST

The Supreme Court on Monday (January 8) issued notice and sought the centre's response on a batch of petitions filed by online gaming companies, including Dream 11, Games 24x7, and Head Digital Works, challenging the constitutional validity of imposition of 28% GST.

Senior Advocate Harish Salve, representing the gaming companies, told a bench comprising the Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra that the GST was imposed on the entire value of bets, effective from October 1 and not on the revenue of the companies and this amounted to arbitrariness and illegality. He pointed out that this levy was being made applicable for the period before October 1, resulting in the companies facing demand notices for the previous financial years too.

Expanding on the issue further today, he said the case raises "very interesting questions". One of the questions is whether an actionable claim can be brought into the definition of goods, without a Constitutional change. Salve pointed out that as per the impugned provision, the value of supply of an actionable claim in the form of a chance to win in abetting, gambling, horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator.

The CJI asked “So you have to pay tax on the basis of the entire collection?”, to which Mr Salve clarified, “No my lord, on the churn”.

The senior advocate contended that the respondents are seeking to tax the 100% amount of the bet a player may deposit for gaming purposes. He stressed, “Where is the supply of actionable claims? To whom? What they are seeking to tax is 100% of the face value of the bet ....”

Salve submitted that there are 3 aspects which need the court's attention. Firstly, whether actionable claims can be treated as goods considering the classic definition of goods, “as the parliament doesn't alter the definition of goods, the Constitution doesn't alter the definition of goods”; secondly, assuming actionable claims are goods, “it is the govt's case, which we dispute, that it is wagering. Wagering cannot give rise to an actionable claim, because an actionable claim is actionable in law and if it is a pure wagering contract, then it is not an actionable claim.”; thirdly, even assuming there is an actionable claim, “there has to be supply of an actionable claim, you cannot deem a supply.”

Elaborating on the third point, the senior advocate explained that an actionable claim is a right to recover by action. He submitted that the petitioners, being online gaming platforms. merely provide 'a gambling table' for people to sit and gamble their money in “a game of skill".

It was further added that by the impugned rule, the online gaming platforms are assumed to provide an opportunity to win which constitutes a supply of actionable claim, when in fact they only provide a “them a table and chair to play”, thus making such an assumption to be misplaced.

Salve illustrated, “A and B are playing a game, A loses 50 Rs to B. Let's assume it's actionable in an actionable claim. B pays him 50 Rs, that's the end of an actionable claim. It is not a supply of actionable claim.”

Appearing on behalf of the Union, Additional Solicitor General Mr Venkataraman submitted that the Supreme Court's 5 judges bench in Sunrise Associates has said the lottery is nothing but an actionable claim which is goods.

The second point he raised was that it is the gaming platform which organises the game, “ The entire contract, every participant signs with this platform…they say how the game should be conducted, they draw the rule, it supplies the service. In an electronic platform, how can individuals organise it? It's not like sitting in a table in a room, one man doesn't know the other, they don't know the faces. The table is allotted by the computer”.

It was also suggested that the matter be tagged with the ongoing Gameskraft matter . The ASG said that the Government will seek transfer of all the similar cases pending in High Courts to the Supreme Court.

The law officer further raised a grievance that gaming companies are projecting a picture in the media that there is a difference of opinion within the government functionaries on this issue.

"Now they have come to a stage where they are saying that the government is thinking differently, the Revenue Secretary is thinking differently, lawyers are thinking differently.  So I have to say this with a sense of responsibility that we ran a meeting 3 days before and all of us are on the same page we have no difficulty about…”, the ASG asserted.

To which Mr Salve expressed, “My lord if my client goes to the media, you will not see me on the next date”

Issuing notice, the bench sought a response from the Union within 2 weeks. The counsels were asked to update the common compilation submitted in the SLP of the Directorate General of Goods and Services Tax Intelligence and Ors v. Gameskraft Technologies Private Limited and Ors.

Case : M/S E-GAMING FEDERATION vs. UNION OF INDIA W.P.(C) No. 001374 - / 2023, PLAY GAMES 24 7 PRIVATE LIMITED vs. UNION OF INDIA

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