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Informist, Wednesday, May 27, 2026

 

By Surya Tripathi

 

NEW DELHI – The Supreme Court's ruling upholding the government's retrospective 28% goods and services tax levy on online gaming companies based on the full value of bets placed may not immediately translate into recoverable demand orders, as the companies still have opportunities to contest the show-cause notices before the tax department.

 

According to experts, online gaming companies still have various legal grounds to contest the notices before the appropriate tax authorities. On Wednesday, the apex court ruled that online gaming activities, including fantasy sports and pooled stakes, give rise to actionable claims and constitute taxable supplies under the Central Goods and Services Tax Act, 2017.

 

Advocate Rohit Jain, managing partner at law firm Singhania & Co., told Informist that the apex court's ruling materially strengthens the tax department's position, but does not convert every show-cause notice into an immediately recoverable demand. The Supreme Court has upheld the GST levy on online money gaming as taxable actionable claims, restored the notices issued to gaming companies, and held that these operators are not mere intermediaries, Jain said. However, under the Central Goods and Services Tax Act, 2017, these notices must still undergo adjudication under Sections 73 and 74 of the Act, Jain said. Under the law, recovery can begin only after a demand order is confirmed and the statutory payment period under the Act has expired, subject to legal proceedings, he said.

 

Sections 73 and 74 of the 2017 Act deal with the determination of tax liability in cases involving unpaid, short-paid, or erroneously refunded taxes. Section 73 of the 2017 Act applies to genuine, non-fraudulent errors and carries lower penalties, while Section 74 applies to cases involving deliberate fraud, wilful misstatement or suppression of facts, and carries severe penalties.

 

Ankit Jain, partner at chartered accountancy firm Ved Jain and Associates, said the top court's judgment does not automatically convert all issued show-cause notices into final liability orders. After a show-cause notice is issued, the taxpayer is given three months to respond to the allegations raised in the notice, he said. Only after considering the reply can the jurisdictional officer issue a final demand order, he said. 

 

Online gaming companies can still raise legal arguments before the tax department, except those rejected by the apex court. Ankit Jain said that online gaming companies can challenge the show-cause notice on grounds such as data duplication, systemic double-counting, or inclusion of gross pool funds instead of individual entry amounts, where applicable. Companies can also dispute the determination of the actual value of bets or deposits, he said. 

 

In addition, companies can raise arguments under the Limitation Act, 1963. If the tax department invoked the extended limitation period for issuing show-cause notices by alleging fraud or suppression, companies could still argue that the matter was purely one of statutory interpretation, potentially placing portions of the demand outside the permissible limitation period, Ankit Jain said. 

 

Under the 2017 Act, tax authorities can invoke an extended limitation period of five years from the due date of the annual return for issuing show-cause notices, compared with the normal three-year period. This extended limitation period applies only to cases involving fraud, wilful misstatement or suppression of facts intended to evade tax. 

 

The chartered accountant said the show-cause notices may also include other demands, such as claims involving ineligible input tax credit or delayed payments. Companies will be free to contest such demands and present their response, Ankit Jain said.

 

Other options available to these online gaming companies include filing review petitions before the apex court. The Supreme Court generally exercises restraint in review proceedings, as its judgments are intended to be final. A review is considered only if there is an error apparent on the face of the record, a glaring mistake, patent error, or an omission that does not require extensive legal arguments or prolonged debate. Further, the petitioners must demonstrate the discovery of new evidence that could not have been produced during the original hearing despite due diligence. 

 

The apex court Wednesday rejected petitions filed by Delta Corp. Ltd., Gameskraft Technologies Pvt. Ltd., and others challenging the government's retrospective levy on the full value of bets placed. The Supreme Court vacated its stay on proceedings related to show-cause notices issued to online gaming companies by the Directorate General of GST Intelligence, involving a potential liability of nearly INR 1.12 trillion. 

 

The character of betting and gambling does not depend exclusively upon whether the underlying activity is a game of skill or chance, but on the existence of stakes based upon uncertain future contingencies, the bench of Justice J.B. Pardiwala and Justice R. Mahadevan said. Consequently, even where the underlying activities involve substantial elements of skill, once participation is conditioned upon staking money or money's worth on uncertain outcomes, the resulting transactions acquire the character of betting and gambling within the framework of the GST legislation, the bench said.  End

 

Edited by Deepshikha Bhardwaj

 

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