#4 – Another win for Dream 11: Welcome to the age of "Legal" online fantasy sports in India
A division bench of the Bombay High Court ("Court") in the case Gurdeep Singh Sachar v. Union of India and others held that Dream 11 is a game of skill and 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.
Originally published 3 January 2020
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