Clarification or Reversal: What Gameskraft Means for Regulated Industries

[Pawni and Prikshit are students at Gujarat National Law University, Silvassa.]

On 27 May 2026, in a two-judge bench judgment, the Supreme Court upheld retrospective GST assessments levied against online gaming companies, observing that the Central Goods and Services Tax (Amendment) Act 2023 (2023 Amendment), merely clarified issues that the Central Goods and Services Tax Act 2017 (CGST Act) had all along covered, albeit implicitly. Accordingly, GST claims totalling approximately INR 1.12 lakh crore, or up to INR 2.5 lakh crore inclusive of interest and penalties, would now be legally actionable as far back as July 2017. In this article, we narrow our focus to a question of conceptual importance in this backdrop: whether, in classifying the 2023 Amendment as "clarificatory," the ruling has satisfied the requirements of Indian legal doctrine relating to retrospectivity? Further, it also seeks to comprehend the implications of the ruling for other regulated industries.

When Does Clarification Become Retrospection?

The applicable standard is the one highlighted in CIT v Vatika Township Private Limited (Vatika Township), where the Constitution Bench provided the following rider: “In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous.” This forms the doctrinal fulcrum on which Gameskraft rests. For a statute to be applied retrospectively as clarificatory, there must exist multiple reasonable interpretations of the original provision. Where an amendment nullifies a judicial interpretation of a provision that was on its face clear, that amendment is not clarification; it is alteration.

The 2023 Amendment: Overturning a Court, Not Resolving an Ambiguity

Activities described in Entry 6 of Schedule III to the CGST Act are not considered a supply of goods or services, thus exempting such activity from GST. The phrase "actionable claims, other than lottery, betting and gambling" was revised in 2023 by substituting "specified actionable claims", defined to include online gaming, in place of that carve-out. This brought actionable claims by way of online gaming within the GST net at 28%, assessed on the full value of bets at the entry level under Section 15(5) of the CGST Act, read alongside the newly inserted Rules 31B and 31C of the rules made under them.

In adopting the view that these amendments merely clarify the original ambit of the CGST Act, the Supreme Court endorsed the Government's position. This is difficult to reconcile with the facts. In Gameskraft Technology Private Limited v. Directorate General of GST Intelligence, the Karnataka High Court had found that rummy is a game of skill and that the plaintiff did not supply any actionable claims attracting GST. The High Court invalidated the demand of roughly INR 21,000 crore as illegal and without jurisdiction.

Thus, if a High Court determines that a statutory provision does not impose a particular liability, that determination establishes that the provision was not textually clear in imposing it. The Vatika Township principle prohibits retrospective clarification of clauses that competent courts have interpreted differently. The Karnataka High Court's contrary interpretation shows that the original clause was either silent on the obligation or insufficient to impose it. In 2023, Parliament did not just restate the law as it had always been; rather, it deliberately attempted to fill a statutory void in order to overturn a judicial construction. That is a significant change that introduces new liability, not just a clarification.

The Constitutional Review That Never Happens

The significance of the clarification lies not only in its retrospective application but in the standard of judicial scrutiny it attracts, or, more precisely, the standard it invites for judicial determination. When Parliament enacts an amendment having express retrospective effect, Article 14 is engaged. Courts examine whether retrospective application is arbitrary, whether it violates reasonable expectations derived from prior law, and whether the fiscal burden imposed for a past period bears a rational nexus to any legitimate legislative aim.

A clarificatory amendment escapes this analysis entirely. Because the court accepts the legislative characterisation that the law always meant what the amendment now says, there is no retrospectivity to scrutinise; there is only the original law, now made explicit. The inquiry into whether an online gaming company that relied on the Karnataka High Court's judgment had a legitimate expectation of the pre-amendment position simply does not arise. Whether the 28% levy on full bet value, applied to businesses that had structured themselves around a High Court ruling in their favour, constitutes an arbitrary imposition is never asked.

The mechanism is therefore this: a directly enacted retrospective amendment must justify itself under Article 14 by demonstrating that it is neither arbitrary nor a violation of settled reasonable expectations. The Finance Act 2012, which inserted Explanation 5 to Section 9(1)(i) and Explanation 2 to Section 2(47) of the Income-tax Act 1961, to overturn the Supreme Court's decision in Vodafone International Holdings BV v. Union of India, attracted exactly this scrutiny and was ultimately repealed by the Taxation Laws (Amendment) Act 2021 following sustained criticism on retrospectivity grounds. A provision characterised as clarificatory carries no such burden. Parliament can thus, via the clarificatory route, impose retrospective tax liability for periods going back nine years without satisfying any constitutional standard of reasonableness, provided the court accepts the characterisation. 

Essentially, Gameskraft accepts that characterization without applying the Vatika Township brake, and in doing so, it effectively insulates the 2023 Amendment from the review that the Vodafone retrospection faced.

What Gameskraft Means for Due Diligence?

Gameskraft revises one presumption in transactional due diligence: a tax or regulatory position upheld by a High Court is not necessarily settled, because Parliament may characterise a subsequent reversal as clarification and the Supreme Court may accept that characterisation retrospectively. Here are three forward-looking illustrations.

Virtual digital assets

Section 115BBH of the Income Tax Act 1961 taxes VDA gains at 30% but leaves unresolved whether staking rewards, DeFi yields, and NFT transactions fall within its scope. Assessee have contested broad tax authority assessments of such transactions, and the matter is pending before multiple tribunals and High Courts. If those courts rule in favour of assessees, a subsequent clarificatory amendment stating that such activities were always covered would, on the Gameskraft approach, impose liability retrospectively from April 2022 without Article 14 scrutiny based on a reading courts had expressly rejected.

Buy now pay later product

The RBI's 2022 circular restricting non-bank prepaid payment instruments from extending credit lines created significant uncertainty about whether BNPL structures operating through PPI wallets constituted regulated lending under the Reserve Bank of India Act 1934, and courts have entertained that interpretive question. A clarificatory amendment stating that such structures always constituted regulated lending would, on the Gameskraft approach, impose retrospective compliance liability, including penalties for unlicensed lending, on entities that had structured themselves around a contrary regulatory understanding, without any proportionality review of that burden.

Account aggregators

The classification of data-sharing by account aggregators as a taxable supply for GST purposes has not been settled under the GST framework, despite operational definitions in the RBI (Account Aggregator) Master Directions 2016; those directions address data-sharing for regulatory purposes but do not determine its character as a supply of service under GST. A clarificatory amendment to their tax position would replicate the Gameskraft problem in a sector that has operated under this ambiguity for years.

Therefore, while the danger is not retrospective clarification per se, Gameskraft renders judicial validation as an insufficient protection against retrospective liability. As a result of such interpretation, a position upheld by a High Court may still be rewritten as Parliament's original intention, without any constitutional review of the burden that rewriting imposes.

Towards a Corrected Approach

Gameskraft does not raise the question of whether clarificatory amendments are constitutionally permissible. They are, and this article does not argue otherwise. The issue is the absence of any rigorous gatekeeping before the label is applied. A consistent test, in line with Vatika Township, would require a court to give retrospective effect to an allegedly clarifying amendment to ask two questions before accepting the characterisation. 

First, was the original provision reasonably capable of the interpretation that the amendment now adopts, or was that interpretation precluded by the text? Second, before the amendment was enacted, had any competent court concluded otherwise? If the answer to either question is adverse to the Government, the amendment should be treated as substantive, with retrospective application permitted only through express language subject to Article 14 scrutiny.

When applied to Gameskraft, both questions yield adverse outcomes. The original Entry 6 was sufficiently silent to justify the Karnataka High Court's interpretation, and the court had firmly adopted a contrary interpretation before the 2023 Amendment. The correct characterisation was thus a substantive change, and retrospectivity could only have resulted from express language subject to constitutional scrutiny. Until the Supreme Court adopts a test of this nature, regulated businesses will remain exposed to the current legal understanding, which may be retroactively changed in accordance with Parliament's original meaning.