Facts of the Case:
A Criminal Public Interest Litigation (“PIL”) was filed against Dream11, a 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”)
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%.
Issues before the High Court:
- Whether the activities of Dream11 amount to ‘Gambling’ / ‘Betting’?
- Whether Rule 31A(3) of CGST Rules should be applicable to Dream11?
High Court ruled in favor of Dream11 and rejected the contentions of the Petitioner. Reliance was placed on the decision of the Punjab & Haryana High Court and the Lakshmanan case to hold that the games played on the Dream11 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.
In respect of the issue on payment of GST, High Court rejected the allegation of the Petitioner that Dream11 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 Dream11’s platform is not in the nature of betting or gambling, 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. 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%.