Bombay High Court: Fantasy sports gaming is not gambling; GST inapplicable on pooled amounts!
Recently, the High Court of Bombay (“High Court”) in the case of Gurdeep Singh Sachar v. Union of India,1 following the judgment of the High Court of Punjab and Haryana (“P&H High Court”) ruled that no betting or gambling is involved in the fantasy games operated by Dream11 as their result is not dependent upon winning or losing of any particular team in real world on any given day. It further ruled that Goods and Service Tax (“GST”) is not applicable on the entire deposit received from the player but only on the consideration which is payable / collected for the supply of goods or services or both within the platform.
The case before the High Court of Bombay stems from a Criminal Public Interest Litigation (“PIL”) filed against Dream11. Dream 11 is fantasy sports platform based in India that allows users to play fantasy cricket, hockey, football, kabaddi and basketball. The PIL alleged that Dream11 was carrying out illegal operations of gambling/betting/wagering in the guise of Online Fantasy Sports Gaming (“OFSG”) and hence should be penalized under the Public Gambling Act, 1867 (“Act”). The PIL also alleged that Dream11 was in violation of the Central Goods and Service Tax Act, 2017 (“CGST Act”) read with Rule 31A of Central Goods and Service Tax Rules, 2018 (“CGST Rules”).
Section 7 of the CSGT Act provides that certain activities under Schedule III of the CGST Act shall neither be treated as a supply of services, or supply of goods, and would therefore be exempt from the levy of GST. Schedule III lists “actionable claims, other than lottery, betting and gambling” as one such activity. Rule 31A of the CGST Rules determines the value of supply for the calculation of GST in the case of lottery, betting, gambling and horse racing. As per this rule, the value of supply of an actionable claim in the form of chance to win in betting, gambling (…) is “100% of the face value of the bet or the amount paid into the totalizator.” It was on this basis that the Petitioner contended that the entire amount paid by the player would be the basis of calculation for GST which for betting, gambling or lottery is currently applicable at the rate of 28%.
Contentions of t he Petitioner
The contentions of the Petitioner primarily revolved around the following:
Contenti ons of Dream11
Dream11 contended the following:
Issue s before the High Court
The High Court ruled in favor of Dream11 and rejected the contentions of the Petitioner. Reliance was placed on the decision of the P&H High Court and the Lakshmanan case to hold that the games played on the Dream 11 platform were games of skill and not games of chance. The court ruled that if the result of the game/contest is determined merely by chance or accident, any money put on stake with consciousness of risk and hope to gain, would be 'gambling' or 'betting'. Since that is not the case in case of fantasy games played on the Dream 11 platform, the same does not amount to gambling or betting. It rejected the argument of the Petitioner that the result would depend largely on extraneous factors such as, who amongst the players actually play better in the real game on a particular day, which according to the Petitioner would be a matter of chance, howsoever skillful a participant player in the online fantasy game may be.
In respect of the issue on payment of GST, the High Court rejected the allegation of the Petitioner that Dream 11 has evaded GST by erroneous classification of the games played on their platform. It held that only if their OFSG is 'gambling' or 'betting', there is a scope to infer the possibility of any tax evasion. It further ruled that the amounts pooled by the players in the escrow account is an ‘actionable claim’ as the same is to be distributed amongst the winning participating members as per the outcome of a game. As discussed above, under the CGST Act, ‘actionable claims’ other than lottery, betting and gambling are neither considered to be ‘supply of goods’ nor a ‘supply or services’, and are hence exempt from the levy of GST.
Since OFSG on Dream 11’s platform is not in the nature of betting or gambling, the High Court ruled that money pooled in by the players cannot be subject to GST. It further rejected the argument of the Petitioner that the money so deposited by the players should fall under the definition of consideration and hence taxable to GST. The scope of definition of 'consideration' extends only in relation to “the supply of goods or services or both”. Since, the said activity or transaction relating to the actionable claim qua the amounts of participants pooled in escrow arrangement, for which only acknowledgement is given, is neither supply of goods nor supply of services, the same is clearly out of the purview of the expression 'consideration'. The Bombay High Court further agreed with Dream 11’s view that GST is payable only on the consideration which is payable / collected for the supply of goods or services or both within the platform at the rate of 18%.
However, the important question that needs consideration is what if the platform does not maintain an escrow account? Whether or not GST should be applicable in that case? It is quite clearly understood that the money that belong to the players is not considered revenue of the platform and are accordingly calculated and disclosed in the balance sheet. Therefore, by implication, there should be no requirement to maintain a separate escrow account for the purposes of exemption from GST on such amounts. However, this question remains unanswered.
1 Bombay High Court, Criminal Public Interest Litigation Stamp No.22 Of 2019.
2 Shri Varun Gumber v. Union Territory of Chandigarh and Ors., CWP No. 7559 of 2017.
3 K. R. Lakshmanan v. State of Tamil Nadu, AIR 1996 SC 1153.