An Exercise in Smoke and Mirrors: Imposing a “Goods” Tax on Actionable Claims

[Anushka PS is a third-year student pursuing the BA/LLB (Hons.) course from the National Law School of India University, Bangalore]

The imposition of tax in the gaming industry is an issue that has long plagued both stakeholders and academics alike. With the Parliament tabling an amendment to the Central Goods and Services Tax Act, 2017 (the ‘CGST Act’) to precipitate the levy of 28% goods and services tax (GST) on online real money games, concerns regarding its incidence have only been aggravated. Of particular importance is the decision to tax the “face values” of the amounts paid by users, as against solely the platform fees or the gross gaming revenue. Such “face value” has two primary components – a fee collected for platform use, that is, the platform fee, and an amount pooled into an escrow amount, which forms part of the prize money in the case of real money games. The prize money is transferred to the winner of the real money game. Consequently, the latter has been deemed an “actionable claim” by the Bombay High Court in Gurdeep Singh Sachar and by the Karnataka High Court in Gameskraft Technologies owing to it conferring a right upon players to claim prize money upon winning.

The Problem

Such characterization of prize money as an actionable claim raises a pertinent issue. The judiciary has repeatedlydistinguished “actionable claims” from “goods” in cases involving the applicability of goods tax statutes. Article 336(12) of the Constitution of India circumscribes the definition of “goods” to “materials, commodities and articles” and any tax statute positing a definition foraying beyond this is immediately arraigned as being unconstitutional (see H Anraj, Sunrise Associates or Skill Lotto). Even the CGST Act adhered to this scheme until recently. Schedule III of the CGST Act specifically excluded actionable claims from the purview of supply and, consequently, of taxation. Yet, the forthcoming amendment seeks to conflate actionable claims with goods by introducing “specific actionable claims” within the scope of supply. Further, such claims have been purported to include online money gaming vide the newly introduced clause 102A.

In this post, I argue that the Indian judiciary has consistently excluded actionable claims from the constitutional definition of goods. I further argue that even if prize money as an actionable claim could potentially be included within the definition of goods, the imposition of GST solely on the prize money in online gaming as against all actionable claims generally, is susceptible to constitutional claims on account of hostile discrimination and violation of Article 14.

Actionable Claims are Rights, Not Concrete Goods

Section 2(1) of the CGST Act confers upon actionable claims the same definition assigned to it by section 3 of the Transfer of Property Act. According to section 3, an actionable claim essentially means a claim to an unsecured debt or a beneficial interest in movable property not in the claimant’s possession which civil courts utilized as affording grounds for relief to the claimant. In H Anraj, the Supreme Court held that a lottery ticket was an actionable claim on account of it being “a right to a prize upon the payment of a price.”

The issue in this case was whether Article 246(3), which conferred upon states the power to tax the sale of goods, could be applied to the sale of lottery tickets. While the Court ultimately decided in the affirmative, it did so by adopting a convoluted strategy of splitting the lottery ticket into two components – a saleable element and an actionable claim. While the former was liable to taxation, the latter was conclusively declared exempt from it. This was because the definition of goods in Article 366(12) did not comprehend inchoate claims to property.

A five-judge bench of the Supreme Court in Sunrise Associates reaffirmed this finding. However, it found that the sale of lottery tickets would be susceptible to taxation. This was because an actionable claim when sold and purchased “like a good” attained a different quality, so as to fall under Article 366(12)’s inclusive definition of a good. Here, it is pertinent to note that the Court did not undermine its interpretation of an actionable claim as referring to a “right.” It merely utilized a functional definition of a good – that which was treated like a good would be taxed as one. This judgement’s inclusion of actionable claims within Article 366(12) is therefore restricted to instances where actionable claims are themselves being sold and purchased like goods with intrinsic value.

Similarly, courts have held various other rights in movable property to be actionable claims. In Bharti Airtel, recharge vouchers were declared actionable claims since they created a “right to receive telephone services.” Courts have also termed actionable claims rights to arrears of rent, to provident funds, to reward points earned by customers under loyalty programmes, to profits from profit-sharing agreements and so on.

The Restricted Scope of Taxable Claims under the CGST Act

Prize money involved in lottery, gambling and betting games has been taxed under the erstwhile CGST Act due to their specific inclusion within “goods” as mentioned in section 2(52) read with Schedule III Entry 6. In Teesta Distributors, the Calcutta High Court allowed the imposition of GST on the prize money collected by a lottery gaming platform. The Court sanguinely relied upon the legal framework outlined above to arrive at its conclusion without much reference to the constitutionality of such taxation.

A constitutional challenge was instituted in Skill Lotto Solutions. Predictably, the petitioners’ arguments were three-fold: first, they contended based on established precedent that actionable claims were exempt from the constitutional definition of goods; second, they argued that the prize monies collected via lotteries, betting or gambling, being actionable claims were consequently exempt from GST; and third, they argued that the selective imposition of GST on prize money collected from these three activities to the exclusion of others was an exercise in hostile discrimination and violative of Article 14. In response to these contentions, the three-judge bench interpreted Sunrise Associates in an overly-broad manner to hold that all actionable claims were included within Article 366(12)’s “goods”. Simply put, the bench ignored the limited functional test applied in Sunrise Associates. Thereby, it concluded that section 2(52) and Entry 6 of Schedule III were not unconstitutional.  With regards to the Article 14 contention, the Court observed that the Government could make reasonable classifications in furtherance of a legitimate aim – the legitimate aim here being the need to combat gaming addiction and interest in curbing acts that undermined public policy.  The existence and judicial affirmative of various gambling legislation indicate the legitimacy of such objectives. The decision in Skill Lotto has also served to justify the continued imposition of a 28% GST on gambling activities.

The Court’s reasoning leaves no doubt that the legitimate objective extends only to gambling which retains the propensity to cause social issues. Further, in recent cases like Gameskraft, Gurdeep Singh Sachar, Varun Gumbar and Ravindra Singh Chaudhary, the High Courts have categorically stated that actionable claims in games of skill are still excluded from the scope of GST.  Nevertheless, the GST Council has still relied upon Skill Lotto to propose taxation on actionable claims in all online games involving prize money. The proposed amendment sought to be made to the CGST Act is further predicated upon these recommendations. This highlights the sharp inconsistency and confusion pervading the field. Misinterpretation and overreliance seem to be the norm.

The Constitutional Shortcomings of the Proposed Amendment

As illustrated above, the amendment seeks to include “specific actionable claims” (including prize money from online gaming, lotteries, betting, horse racing, casinos and gambling) within the scope of supply so as to attract GST of 28%.  This amendment is susceptible to a constitutional challenge similar to the one instituted in Skill Lotto – the classification between specific actionable claims and other general actionable claims seems hostile, discriminatory and violative of Article 14, given its detrimental impact on online real money games (by resulting in double taxation, emboldening illegal sites, and even impacting MeitY’s efforts at boosting the online gaming industry via its Guidelines). There seems to be no stated legitimate objective to this classification. Minister Nirmala Sitharaman has observed that a uniform tax on all components of the amounts paid by players would “increase transparency” in an opaque field. Yet others speculate that the tax is intended at taxing international players who play from outside India and players who use digital forms of consideration like cryptocurrency and so on. However, justifications have not been provided for these reasons and there seems to be no cogent reason to treat online gaming on par with its gambling counterparts.

Therefore, it is evident that this amendment results in a scenario prone to constitutional challenge. Further, the entire amendment seems to be predicated solely upon an erroneous interpretation of the judgment in Sunrise Associates. Additionally, the established jurisprudence on the exclusion of actionable claims from the constitutional definition of goods has been disregarded.


This post has sought to accomplish three objectives: first, it has demonstrated that the judiciary has consistently distinguished actionable claims as defined by section 3 of the Transfer of Property Act from “goods” as defined in Article 366(12) of the Constitution. Second, it has shown that lotteries and other gambling activities, despite being actionable claims, have been taxed under the GST due to the presence of a legitimate state objective justifying such taxation. Third, it has argued that the proposed amendment to the CGST Act intending to extend the application of CGST to actionable claims collected by all online gaming services, is susceptible to claims of Article 14 violations, given the lack of a legitimate objective buttressing it. In all, given the amendment’s faulty legal basis, the challenge is likely to be weighty.

Anushka PS

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