2019 (6) TMI 1008 - HC - GST

PIL against the company organizing online Fantasy games - gambling or betting - actionable claim - game of chance or game of skill - supply of services or not - alleged conducting illegal operations of gambling/betting/wagering in the guise of Online Fantasy Sports Gaming - violation of Rule 31A of CGST Rules, 2018 - HELD THAT - No betting or gambling is involved in their fantasy games. Their result is not dependent upon winning or losing of any particular team in real world on any given day - It is thus clear that the activity of the respondent No.3 do not amount to gambling or betting or wagering even if the definition contained in Finance Act, 1994 is taken into consideration. The allegation of the petitioner regarding GST evasion or erroneous classification - the activities mentioned in Schedule III under the CGST Act are not taxable as the same are neither supply of goods nor supply of services. The entry in schedule III relevant for the instant case is Entry 6 which includes actionable claims, other than lottery, betting and gambling. Admittedly, there is no dispute that the amounts pooled 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. But, as held hereinabove since the activities of the respondent No.3 do not amount to lottery, betting and gambling, the said actionable claim would fall under Entry 6 of the Schedule III under Section 7(2) of CGST Act. Therefore, this activity or transaction pertaining to such actionable claim can neither be considered as supply of goods nor supply of services, and is thus clearly exempted from levy of any 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 - Since the actionable claim in the Online Fantasy Sport Gaming of the respondent No.3 are amongst such actionable claims as per Schedule III and Section 7(2) of the Act, which are not considered as supply of goods or supply of services , Rule 31A has no application. Moreover, actionable claim referred to in Rule 31A is limited to only activities or transactions in the form of chance to win in lottery or betting or gambling or horse racing in a race club . Thus, Rule 31A which is restricted only to such four supplies of actionable claim, has no application in this case. The authorities have therefore not taken any coercive steps against the respondent No.3. No case for issuing any directions is made out. It is seen that the entire case of the Petitioner is wholly untenable, misconceived and without any merit. It can be seen that success in Dream 11 s fantasy sports depends upon user s exercise of skill based on superior knowledge, judgment and attention, and the result thereof is not dependent on the winning or losing of a particular team in the real world game on any particular day. It is undoubtedly a game of skill and not a game of chance. Petition dismissed.

Summary

Issues Involved:
1. Whether the activities of the respondent No. 3 amount to 'Gambling' or 'Betting'.
2. Whether there is any merit in the allegation of violation of Rule 31A(3) of CGST Rules, 2018 and erroneous classification.

Detailed Analysis:

Issue 1: Whether the activities of the respondent No. 3 amount to 'Gambling' or 'Betting'

The petitioner, a public-spirited advocate, sought criminal prosecution against respondent No. 3, Dream 11 Fantasy Pvt. Ltd., alleging that their online fantasy sports gaming operations constitute illegal gambling/betting under the Public Gambling Act, 1867. The petitioner argued that these fantasy games lure people to spend money for quick earnings, which often results in losses, thus amounting to gambling. However, the respondent No. 3 countered that this issue had already been adjudicated by the Punjab and Haryana High Court, which held that Dream 11’s fantasy sports are games of skill, not chance, and thus exempt from the penal provisions of the Public Gambling Act, 1867. This judgment was upheld by the Supreme Court. The Bombay High Court agreed with the previous rulings, stating that the activities of Dream 11 do not amount to gambling or betting, as success in these games arises from the user's exercise of superior knowledge, judgment, and attention, making them games of skill.

Issue 2: Whether there is any merit in the allegation of violation of Rule 31A(3) of CGST Rules, 2018 and erroneous classification

The petitioner alleged that Dream 11 evaded Goods and Services Tax (GST) by not paying tax on the entire amount staked by players, which should be classified under Rule 31A(3) of CGST Rules, 2018, similar to horse racing. The respondent No. 3 argued that their activities are predominantly games of skill and thus fall outside the purview of Rule 31A(3), which applies to gambling and betting. The court noted that the amounts pooled in the escrow account are actionable claims, which, under Schedule III of the CGST Act, are neither supply of goods nor services and thus exempt from GST. The court found no merit in the petitioner’s claim that the entire deposit received from players is taxable, as the actionable claims related to Dream 11’s fantasy sports do not amount to betting or gambling. The court also upheld the classification of Dream 11’s platform fees under entry 998439, which covers online games intended to be played on the internet, and excludes online gambling services, thus justifying the 18% GST rate applied by Dream 11.

Conclusion:

The court concluded that the activities of Dream 11 do not amount to gambling or betting and are predominantly games of skill. Consequently, the allegations of GST evasion based on erroneous classification were also dismissed. The petition was found to be wholly untenable and misconceived, and thus, the criminal PIL was dismissed with no order as to costs.