Can someone explain me the economics of this?

I think currently they have subsided customer, while still complying with the GST rules.

They’re probably hoping that this GST demand won’t hold in court

What if they switch to only take 10₹ (2.8 tax on this), fee to allow play the match, when user win or lose he gets/pays balance money directly to other users.

5-6 yrs ago I used to play offline "satta" it had similar logic no upfront payment, send or receive money at the to/fro beneficiaries, entirely worked on WhatsApp and Trust.

They are paying GST from their profit margins, instead of passing it to user. (Consider it MRP inclusive of tax)

There is no economics. It's only mental gymnastics.