A division bench of the Bombay High Court (“Court”) in the case of Gurdeep Singh Sachar  v. Union  of India and  others held that Dream  11  is  a  game  of  skill and requires judgment of the users and thus, does not amount to gambling. Further, the Court held that Dream 11 has not violated Rule 31A(3) of Central Goods and Services Tax Rules, 2017 (“CGST Rules”) and is correctly classified under 18% slab.

Background

 A criminal public interest litigation (“PIL”) was filed in the Court alleging that Dream  11,  which  offers  online  daily  fantasy  sports,  conducts  operations  of gambling/betting/wagering   and   should   attract   penal   provisions   of   Public Gambling Act, 1867 (“Act”). The petitioner further stated in the PIL that as per Rule 31A(3)  of the CGST Rules, the  entire  value  of  the bet shall  be considered when the rate of GST is to be applied on any gambling or betting operations. As per the Schedule of GST Rates (“Schedule”), gambling operations are taxed at 28%, however, Dream 11 has only been paying tax at the rate of 18% under “All other services not specified elsewhere” heading of the Schedule, and hence, it is violating the CGST Rules.

Arguments of Petitioner

The petitioner argued that online daily fantasy sports are means of luring people to gamble their money by picking a random team of real-life sportsperson and make quick earning if they win in the games, which amounts to gambling/wagering.

Further,  the  petitioner  stated  that  Dream  11  collects  money  from  all  the  users participating in a daily game and stores the amount in an escrow account. Once the  result  of  the  game  is  declared,  they divide  the  amount  collected  in  escrow account amongst the winners after deducting their commission. Since, Dream 11 is offering gambling and betting, it should be covered under the 28% slab and as per  Rule  31A(3)  of  the  CGST  Rules  should  pay  taxes  on  the  entire  collected amount.

Arguments of Dream 11

Dream  11  relied  on  Punjab  and  Haryana  High  Court  (“P  &  H  High  Court”) judgment  in  the case  of  Varun  Gumber  v.  Union  Territory  of  Chandigarh (“Varun Gumber case”) in which the P & H High Court held that Dream 11 is a game of  skill as the outcome of any game offered on Dream 11 depends on the application of mind, knowledge, experience and skill by the users participating in that game.

They  further  argued  that  the  users  participating  on  Dream  11  do  not  bet  on outcome  of  any  real-life  sport.  They   create  a  team  comprising  of  real-life sportsperson who play in a real life sport and as per their performance the user accumulates points on Dream 11’s platform. Since there is substantial amount of knowledge   and   skill   required   for   participating   on   Dream  11,   it   should   be considered  as  game  of  skill  and  therefore  will be   outside  the  purview  of  Rule 31A(3) of CGST Rules which requires operators of gambling to pay GST on the entire amount collected from the users.

Dream 11 further argued that since there is no gambling involved, they pay taxes on amount collected for providing services to the users at 18% rate.

Order of the Court

The  Court  agreed  with  Dream  11’s  argument  and  reiterated P  &  H  High  Court judgment in the Varun Gumber case and held that the games offered on Dream 11’s platforms are games of skill and not games of chance.

With respect to GST violation the Court stated that Schedule III of Central Goods and Services Act, 2017 (“CGST Act”) provides for exceptions of the term “Supply” in the CGST Act as “actionable claims other than lottery, gambling and betting are excluded from the scope of Supply”.  The Court held that the amount collected by Dream 11 in the escrow account should be considered as an actionable claim and will be excluded from the scope of Supply.

The Court also took note of explanatory note for the entry code 998439 under the CGST Act, which state that role-playing games, strategy games, action games, card games and children’s games will be covered under this code and GST at the rate   of   18%   will   be   applicable   on   such   games.   Since,  Dream   11   requires considerable amount of skill and strategy, it should be covered under this entry code.

The Court held that therefore, Dream 11 has not violated provisions of CGST Act and CGST Rules.

Our Views

Gaming in India has always witnessed constant scrutiny from the courts in India. Be it poker, rummy, horse racing and now online fantasy sports games, all have been judged on the criterion of “preponderantly of skill” introduced by the Hon’ble Supreme Court of India in the case State of Bombay v. RMD Chamarbaugwala, which means that the outcome of the game in question should depend mostly on the skillset of the players playing that game.

Dream  11,  allows  the users to select  a team  of  real-life  sportsperson  and score points  on  the  basis of  performance  of  the  real-life  sportsperson,  was  rightly decided by the P & H High Court in the Varun Gumber case, as a game of skill, since the users have to apply their presence of mind, knowledge, experience and skill in selecting the team for a particular real-life match. The Bombay High Court subscribed to view taken by the P & H High Court and held that Dream 11 is a game of skill.

While there is yet to be any pronouncement by the Supreme Court of India on this matter, so as to determine the law of the land, two concurring decisions from two different High Courts may very well be held strong enough in case there are any further questions raised against Dream 11. Not only has the gameplay aspect of Dream  11  has  been  held  as  legal,  the  Court  has  also  held  that  Dream  11  has followed correct interpretation of GST and is paying under the correct slab i.e., 18%.

It is pertinent to note here that Dream 11 was the first mover in the online fantasy sports in India. Dream 11’s success led to inception of  other such websites and applications which offered fantasy sports to the mass. If the courts were to hold Dream 11’s activity to be illegal, it would bring to a juddering halt, the growing online fantasy sports market in India. If P & H High Court judgment in Varun Gumber case provided support to the online fantasy gaming industry, the Bombay High Court judgment further strengthens the hand of the fantasy sports industry if the judicial battleground is shifted to the Supreme Court in 2020.

While it remains to be seen how the courts in India would judge any new gameplay or  game  style offered by  online  fantasy sports, as  of  now,  any  website offering fantasy sports and following the Dream 11 model should be permissible by the Indian courts.

Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.

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