Mumbai/New Delhi, May 28 -- In a major setback for online gaming firms, the Supreme Court on Wednesday upheld the constitutional validity of the 28% goods and services tax (GST) levy on online gaming and rejected challenges against retrospective tax demands worth over Rs.1.5 trillion. The ruling is expected to have far-reaching implications for the sector, with lawyers representing gaming firms warning of widespread insolvencies, and raising questions over the constitutional validity of a central law banning online gaming, since the verdict treats it as betting and gambling, a state subject. The verdict, delivered by a bench of Justice J.B. Pardiwala and Justice R. Mahadevan, dismissed a batch of petitions filed by online gaming companies, casinos, turf clubs and industry bodies challenging GST notices and the legal framework governing taxation of online gaming. The petitioners-including Games24x7, Head Digital Works, Play Games24x7 Pvt. Ltd, Baazi Networks Pvt. Ltd and the E-Gaming Federation, among others-had challenged the tax demands issued by the Directorate General of GST Intelligence (DGGI), arguing that the 28% GST on online gaming should apply only prospectively, from 1 October 2023, after the amendments approved by the GST Council came into effect. The government had argued that the amendments had merely clarified the existing legal position and did not introduce a fresh levy, which made the earlier tax demands valid. The Supreme Court accepted this position. The three-judge bench led by Justice Pardiwala held that online gaming, fantasy sports and similar real-money games involving pooled stakes and prize structures amounted to betting and gambling, and that such activities create "actionable claims" that are taxable under the GST framework. The court also held that online gaming operators are not merely intermediaries facilitating transactions between users, but themselves constitute suppliers of actionable claims. Rejecting one of the industry's central arguments, the bench ruled that GST cannot be restricted only to platform fees or gross gaming revenue. Instead, amounts staked by users constitute consideration and prize pools, and winnings and payouts cannot be excluded while determining taxable value....