In September 2022, Director General of Goods and Services Tax Intelligence (DGGI) issued a tax notice to Gameskraft, an online gaming firm headquartered in Bangalore. Gameskraft challenges Rs. 21,000 crores show cause notice before High Court of Karnataka and HC quashed the notice.  However, Revenue (Union of India) escalated the matter into a Supreme Court battle that could decide the future of India’s flourishing online gaming industry. While it may seem like just another indirect tax dispute, in reality the outcome of this case could determine the future of millions of gaming companies in India and their ever growing fanbase.

The Show Cause Notice issued by the DGGI (Directorate General of Goods and Services Tax Intelligence) demands taxes to the tune of ₹21,000 crore. The entire case hinges on whether playing online games like rummy involves a transfer of actionable claims — a concept borrowed from contract law. The outcome will undoubtedly have a significant impact on the tax treatment of online skill-based gaming in India and will impact the ‘scope of activity’ for future gaming companies.

In this blog, we break down the case by explaining the positions of both the Revenue ( Union of India) and Gameskraft. We look at arguments presented by both parties while exploring the implications of the case not only for online gaming platforms but also digital businesses in India.

Background: The ₹21,000 Crore GST Demand on Gameskraft

The case involves Gameskraft Technologies Pvt. Ltd., one of India’s largest online gaming platforms. A key proponent of the online platform is their Rummy-based games that are popular around the country. Around three years ago, the company received a GST demand from the Directorate General of GST Intelligence, which sought ₹21,000 crores in GST payments. Their rationale was a tax on the full amount that players stakes in games @ 28%. This would in essence include a tax on the prize money to winners.

Gameskraft refused the initial tax demand and challenged the DGGI decision in the Karnataka High Court. On 11 May 2023, the High Court ruled in favour of Gameskraft, while calling the DGGI ‘ Rs. 21,000 tax evasion notice “illegal, arbitrary and without jurisdiction or authority of law. However, the DGGI wasn’t done yet; over subsequent months, the DGGI challenged the Karnataka High Court verdict in the Supreme Court.

Highlights of Revenue Countering the High Court’s Assertions

Additional Solicitor General (ASG) N. Venkataraman led the charge on behalf of the Revenue. The Supreme Court began hearing this case on 5May 2025.Opening arguments were presented by the ASG. The points below are highlights of the Revenue assertions:

• TheDisputes can be segregated into three categories: Online Rummy and Fantasy Sports, Casinos, and Turf Clubs. The primary point being that any game involving money is considered gambling, period.
• The DGGI wants GST applied to every rupee that flows through these platforms, not just the small commission that companies take.
• Even though courts have ruled that Rummy requires skill for 70 years, tax authorities claim that adding money changes everything. When you put a stake in any outcome, as per tax rules you’re running a gambling operation.
• Tax authorities are also playing the money card hard. As per their estimates, a 90% drop in tax collections is predicted if gaming companies get their way. To substantiate their claim, they’re pulling out old Supreme Court cases, while insisting that Rule 31A of the GST regulation covers tax collection limitations.

Key submission points presented in defense by Gameskraft

One of India’s top lawyers, Senior Advocate Dr. Abhishek Manu Singhvi argued on behalf of Gameskraft. His strategy was transparent yet impactful. He argued that his client is involved solely in Rummy, which is a generic classification endorsed by 70 years of jurisprudence, which categorizes it as a ‘game of skill’.

This is where it becomes interesting from a business perspective: Gameskraft never actually holds the players’ money; everything is transferred into bank-controlled escrow accounts. The company only charges a small platform fee, and as per their records has already made hundreds of crores in GST payments on their platform fees. Essentially their argument is based upon the tax authority’s assertion of the ₹21,000 crore GST payments and how they arrived at this amount.

Dr. Singhvi calls the entire demand “arbitrary” and warns that accepting the DGGI logic would create a dangerous precedent. He said, “Merely placing stakes cannot metamorphose a game of skill into gambling or betting.” He added, “If skill-based digital businesses can suddenly be reclassified based on monetary involvement, what happens to other sectors.”

Gaming Industry Groups Unite in the Fight

The gaming industry isn’t leaving Gameskraft in their fight alone. Two major industry bodies have jumped in with their own legal teams and arguments.

The All-India Gaming Federation brought in Senior Advocate GopalSankaranarayananon the 4th day of the hearing to make a crucial distinction. His argument implies that these platforms don’t actually ‘play’ the games, they simply provide the technology for platform users to engage with. Think of them as digital venues rather than participants. Under both constitutional law and GST rules, betting and gambling are specifically excluded from actionable claims.

Meanwhile, the E-Gaming Federation hired Senior Advocate Harish Salve to attack Rule 31A directly. Salve’s argument cuts to the constitutional bone: gambling has always been a state matter under Entry 62 of the Constitution. GST operates under Article 246A, which covers different grounds entirely. If the court buys this argument, it could invalidate the entire basis for the tax demand.

Sr. Advocate Harish Salve questioned the constitutionality of Rule 31A of CGST rules. 

• First: Does adding money automatically turn a skill game into gambling? This isn’t just about gaming, it touches any digital platform where users compete for prizes or rewards.
• Second: Should GST hit the entire pool of user money, or just what platforms earn? This question affects business models across the digital economy. If gross taxation wins, many platforms might become financially unviable.
• Third: Is Rule 31A even constitutional when applied to gaming platforms? This leads into fundamental questions about how GST authority extends into different business sectors.
• Fourth: Can current GST frameworks properly distinguish between skill and chance? The answer here could influence how regulators approach emerging digital business models for years to come.

Implications for India’s Gaming and Digital Start-Up Ecosystem

If the Revenue is successful, retroactive tax claims could have a severe impact on the gaming industry. Companies that believed they were following regulations might suddenly face devastating financial repercussions. Many platforms would be compelled to overhaul their business models or exit the market entirely.

On the other hand, if Gameskraft wins, it would solidify the legal basis for skill-based digital enterprises. This could spur growth by eliminating the regulatory ambiguity that has loomed over the industry.

International investors are also closely observing the situation. India’s standing as a hub for digital innovation is partly reliant on its approach to cases like this. The arbitrary reclassification of well-established business models does not exactly promote trust in regulatory stability.

Supreme Court Verdict Currently Awaited

The Supreme Court has issued a stay order on all proceedings related to GST show-cause notices issued to online gaming companies, including Gameskraft, pending the final disposal of the main case. The court is yet to deliver a final judgement on whether online gaming should be taxed as gambling or as a normal service. During the 22 May 2025 hearing, the Apex court stated that the main matter was ripe for final hearing and as such, these were tagged for final disposal. At present, the Supreme Court is hearing the case and final judgment is awaited.

Conclusion

The Gameskraft vs GST and subsequent cases will determine whether India’s gaming sector continues its impressive growth or gets buried under compliance costs and regulatory uncertainty. For the millions of fans who play these games and the companies that serve them, the Supreme Court’s decision will mark either the start of a new era of clarity or the beginning of a regulatory nightmare.

The stakes go beyond gaming, too. How the court handles the intersection of traditional tax law and digital business models will influence policy decisions across India’s entire digital economy. Success here could establish India as a leader in digital regulation. Failure might push innovation elsewhere, where regulatory frameworks better understand the realities of modern digital business.