[Varun Soni is a recent graduate from the National Law School of India University, and an incoming associate at AZB and Partners]
In Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited, a Constitution Bench of the Supreme Court grounded the rule against retrospective tax liability in a simple proposition by making the following observation: “(o)ur belief in the nature of the law, is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset.” The court unambiguously held that a proviso that supplies a missing component of a fiscal levy for the first time cannot be treated as clarificatory merely because it suits the Revenue to call it so.
Twelve years later, the Supreme Court, in DGGI v. Gameskraft Technologies Private Limited (2026 INSC 595), cited Vatika Township with approval, extracted its declaratory statute passage at length, and then proceeded to reach a conclusion that sits in considerable tension with it. The dispute traces back to a September 2022 show cause notice demanding roughly Rs 21,000 crore in GST from Gameskraft, calculated at 28% of the full face value of stakes placed on its platform between 2017 and 2022. The Karnataka High Court quashed the notice in May 2023, holding that online rummy was a game of skill falling outside the scope of GST on the full stake value. Only the levy on platform fees was permitted. This ruling was carried in appeal by the Revenue to the Supreme Court. The Court held the 2023 amendments to the CGST Act, and Rules to be clarificatory and explanatory in nature, and therefore retrospective in operation as regards the pre-October 2023 period. The reasoning that gets the two-judge bench to this conclusion leaves a gap large enough to sustain a further round of litigation.
This post sets out that gap in five stages. It first identifies the two-limbed standard that Vatika Township establishes for treating an amendment as genuinely clarificatory. Second, it examines the four structural gaps that the Gameskraft assessees pointed to in the pre-October 2023 GST framework, namely the statutory basis for rule 31A(3), the absence of GST Council consensus on the taxability of online gaming, the work done by the section 2(105) deeming fiction, and the Revenue’s own administrative practice before September 2022. Third, it turns to the proceedings of the GST Council’s Group of Ministers on Casinos, Race Courses and Online Gaming, and argues that this record bears a close structural resemblance to the Chief Commissioners’ Conference minutes that Vatika Township itself treated as dispositive. Fourth, it evaluates the Supreme Court’s reasoning in Gameskraft against this standard and identifies where that reasoning falls short. Finally, it concludes by setting out an argument that remains open for future adjudication.
The Vatika Township Standard
To evaluate the current challenge, we must first look closely at the exact holding in Vatika Township. Vatika Townshiparose from a batch of appeals concerning the levy of a surcharge on undisclosed income assessed following search and seizure proceedings under section 132 of the Income Tax Act, 1961, wherein the search had been initiated before the Finance Act, 2002, came into force. At issue was a proviso to section 113 of the Income Tax Act, inserted by that Finance Act, which for the first time specified that surcharge on block assessments would be levied based on the Finance Act of the year in which the search was initiated. The question before the Constitution Bench was whether this proviso was clarificatory of a pre-existing liability or substantive in creating a new one. The Revenue argued the former, but the Court unanimously held the latter and consequently held that it could only be applied prospectively.
The reasoning operated on two levels. The first was doctrinal. A levy without a determinable rate is not a levy at all. Drawing on the four-component test from Govindasaran Gangasaran v. Commissioner of Income Tax, the Court held that a tax charge is legally cognisable only when (i) the taxable event, (ii) the person liable, (iii) the rate, and (iv) the measure of value are simultaneously ascertainable with precision. Before the proviso, the rate component in section 113 block assessments was indeterminate. Assessing officers were split across four possible reference dates, some levied nothing, and for several years, the applicable surcharge under the Finance Act was zero. An amendment that supplies the missing rate does not clarify the law; it completes it for the first time. The second level of reasoning was interpretive. Clauses in the same Bill used clarifying language where retrospectivity was intended. Even the CBDT Circular No. 8 of 2002, issued after the Finance Act was passed, described the section 113 amendment as prospective while describing other amendments in the same Act as clarificatory. Taken together, this evidence made the legislative intent clear for the Court. Consequently, Suresh N. Gupta, in which a two-judge bench of the Supreme Court had held the proviso to be clarificatory, was overruled.
The standard that emerges from Vatika Township is therefore two-limbed. First, for an amendment to be genuinely clarificatory, the liability it describes must have been legally cognisable under the prior framework, i.e., all four components of the charge must have been ascertainable, even if imperfectly expressed. Second, the Court will examine institutional behaviour, such as administrative acknowledgements of ambiguity, the treatment of contemporaneous amendments, and official circulars, as evidence of whether the position was truly settled before the amendment was enacted.
What the Assessees in Gameskraft Had to Establish
The question to be answered in Gameskraft regarding the retrospective nature of the levy was ‘whether, before 1st October 2023, the GST framework already supported a valid charge on the full face value of stakes placed on online gaming platforms, or whether the 2023 amendments introduced that charge for the first time’. A perusal of the pre-amendment framework reveals four structural gaps.
The first concerned rule 31A(3), the valuation rule inserted in January 2018 on which the Revenue relied to justify charging GST on the entire stake amount. The assessee argued that rule 31A was inserted under the general rule-making power in section 164, without the specific notification required under section 15(5), which is the provision empowering the Government to prescribe a valuation methodology for notified classes of supply notwithstanding the ordinary transaction value rule in section 15(1). If the valuation rule lacked the correct statutory parent, the measure of value for this specific class of supply was not validly prescribed, and on the Vatika Township test, one of the four essential components of the charge was missing.
The second gap, and the most significant, was the absence of any contemporaneous indication that the GST Council itself treated the existing framework as capable of taxing online gaming. If the levy was traceable in the pre-amendment statute, the body responsible for GST policy would have had little reason to spend over a year deliberating what rate to apply, how to value the supply, what would be the place of such supply, and whether the existing law covered the field at all. The proceedings of the GST Council’s Group of Ministers (GoM) on Casinos, Race Courses and Online Gaming bear a close structural resemblance to the very evidence Vatika Township itself treated as dispositive. The minutes of the 47th and the 50th GST Council meetings will be examined in detail in the next part.
The third gap concerned section 2(105), the definition of “supplier.” The 2023 amendment inserted a proviso deeming online gaming companies to be suppliers of actionable claims arising from organised gaming arrangements. A deeming provision is most readily explained as resolving a position that was not otherwise free from doubt. If gaming companies were already, indisputably, suppliers under the pre-amendment definition, the proviso would have had little work left to do. That inference is not conclusive on its own. Deeming language is also used, and has been upheld as clarificatory, where a settled position is merely restated to rectify an obvious omission (see Government of India v. Indian Tobacco Association) or to clear up a doubt as to the meaning of the existing provision (see CIT v. Podar Cement (P) Ltd). But read against the GoM proceedings as discussed below, the timing of this particular fiction is difficult to characterise as an exercise of that kind. It was inserted in the same legislative exercise in which the Council’s own deliberative body was recording, in real time, that supplier-status, valuation of the supply, and its skill-or-chance classification remained contested amongst policymakers. A provision drafted to resolve questions that the law and the lawmakers have not yet settled is doing different work from one drafted to tidy up residual or to rectify an obvious omission.
The fourth gap was administrative. For the entire period from 2017 to 2022, the Revenue had accepted GST on the net platform fee from Gameskraft itself, treating online gaming as a supply of services. This position was abandoned for the first time in September 2022 by the issuance of a show-cause notice without any intervening change in the governing rule. Under the Vatika Township standard, this uniform practice should be given weight as evidence that the rule was not understood at the time to be capable of supporting the demand now being asserted.
[To be continued]
– Varun Soni
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