The Rajasthan High Court on Friday (16th October) dismissed a writ petition filed in the nature of a Public Interest Litigation against Dream 11 Fantasy Private Limited, alleging that the game being played on the platform is nothing else but "betting" on the cricket team.
Further, it was alleged in the PIL that online fantasy sports games are games of chance, thereby constituting illegal act of gambling/ betting
The Bench of Chief Justice Indrajit Mahanty and Justice Mahendar Kumar Goyal observed that,
"Since the result of fantasy game depends on skill of participant and not sheer chance, and winning or losing of virtual team created by the participant is also independent of outcome of the game or event in the real world, we hold that the format of online fantasy game offered by respondent No.5 is a game of mere skill and their business has protection under Article 19(1)(g) of the Constitution of India, as repeatedly held by various Courts and affirmed by the Hon'ble Supreme Court."
Averments in the PIL
It was alleged that the private-respondent No.5 is not paying GST under proper classification, which should be @ 28% and only pays 18% GST that too on the amount received from a participant and retained by it, which effectively amounts to evading GST on balance 80% amount, which is transferred towards the winning amount for the game.
The petitioner referred to Section 65-B(15) of the Finance Act, 1994 for definition of "betting or gambling", Section 2(13) of the CGST Act for definition of "consideration" and rule 31-A of the Central Goods and Service Tax Rules, 2018 (for short 'the CGST Rules').
The petitioner also referred to Circular No. 27/01/2018- GST dated 04.01.2018 issued in respect of horse racing and on such basis alleges that GST should have been payable on 100% of the amount received.
According to the petitioner, out of every `100/- received by the private respondent No.5 from the participants, `80/- are set aside in an escrow account for the common price pool and same is distributed amongst the winners and on such sum no GST is paid which, is being paid on the remaining amount retained as Platform Fee i.e. `20/-. The petitioner also alleges that even on the said actionable claim amount of `80/- kept in the escrow account and distributed amongst the winners, GST should be payable by the private respondent No.5, that too @ 28%.
In substance, the present PIL sought action against the private respondent No.5 – Dream 11 by raising two issues, namely:-
(1) Whether online fantasy sports games offered on Dream 11 platform are "gambling/betting"?
(2) Whether respondent No.5-Dream 11 is wrongly classifying its virtual online game under the wrong entry for GST and, therefore, violating Rule 31(A) (3) of the CGST Rules, 2018 in order to evade GST?
While citing the Apex Court's ruling in the case of State of Bombay Vs. R.M.D. Chamarbaugwala & Anr., AIR 1957 SC 699, wherein it was held that the games of skill are distinguishable from gambling and enjoy protection under Article 19(1) (g) of the Constitution of India, the HC said that competitions which involve substantial skill are not gambling activities and such competitions are business activities entitled to protection guaranteed by Article 19(1) (g) of the Constitution of India.
Further, the Court concluded that the fantasy games offered by respondent No.5 is not determined merely by chance or accident, but the skill of the participant determine the result of the game having predominant influence on the outcome of the fantasy game.
The Court observed that whether any particular team in the real world match wins or loses, is also immaterial as the selection of virtual team by the participant involves choosing players from both the teams playing in the real world.
The Court also noted that offering the fantasy games of Dream-11 involving substantial skills is a business activity and not wagering having protection granted by Article 19(1)(g) of the Constitution.
Court also agreed to the submission of respondent No.5 that the fantasy sports formats like that of Dream-11 are globally recognized as a great tool for fan engagement, as they provide a platform to sports lovers to engage with their favorite sports along with their friends and family. This legitimate business activity having protection under Article 19(1)(g) of the Constitution contributes to Government Revenue not only vide GST and income tax payments, but also by contributing in increased viewership and higher sports fan engagement, thereby simultaneously promoting even the real world games.
Lastly, the Court was of the view that the issue whether the fantasy games played on the platform of respondent No.5 are or are not gambling/betting activities is thus closed and decided in favour of respondent No.5.
On the second issue, the Court cited the Bombay HC's ruling in the case of Gurdeep Singh Sachar v. Union of India [Judgment dated 30th April 2019 in Criminal P.I.L. No. 16 of 2019] and said,
"The Bombay High Court was pleased to dismiss the said PIL holding that the online fantasy cricket of respondent No.5 was a game of mere skill, as distinguished from a game of chance. The Dream-11 fantasy game does not involve risking money or playing stakes on the result of a game or an event, hence, the same did not amount to gambling/betting. The Bombay High Court also held that respondent No.5 is correctly paying 18% GST by classifying its services under entry 998439 and is not liable to pay GST @ 28% as applicable to 'online gambling services' under entry 999692 and that Rule 31-A(3) of the CGST Rules, 2018 was not applicable as the said actionable claim as per Schedule III and Section 7(2) of the Act, are not considered as 'supply of goods' or 'supply of services' and, therefore, the authorities have rightly not taken steps against Dream-11."
However, the Court though it appropriate to leave the said second issue for the GST authorities to consider in accordance with law.
The Court was of the considered view that PIL has been filed without any real public interest, without disclosing the relevant facts and without proper research.
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