Is Dream11 a gambling & betting site? This GST ruling settles the case
Tencent-backed Dream11 offers an online fantasy game, wherein players can create different virtual sports teams, comprising as many players in real life cricket teams.
According to a report by KPMG and the Indian Federation of Sports Gaming (IFSG), the user base of fantasy gaming platforms crossed 70 million Indians in 2018 and participants spent around $1.73 billion (Rs 11,880 crore) last year. However, for many such gaming sites tantamount to betting or gambling and many prefer to stay away.
Gurdip Singh Sachar, an advocate, recently filed criminal public interest litigation (PIL) against the Dream 11 Fantasy Pvt Ltd.
Tencent-backed Dream11 offers an online fantasy game, wherein players can create different virtual sports teams, comprising as many players in real life cricket teams. The user has to select players from both the competing teams between whom the real life match is being played, based on its knowledge and skill.
The users/ participants compete against such virtual teams created by other users/ participants. The winners are decided based on points scored, using statistical data generated by the real-life performance of the players on the ground.
The users are required to pay acknowledgement amount (i.e. the amount at stake), which is kept in an escrow account and later on distributed as price money upon conclusion of game. In addition, the users are required to pay a platform fee, for which the Dream 11 issues a GST tax invoice and discharging GST liability.
The contention in the case was that the petitioner alleged that such activities of Dream 11 amounts to gambling/ betting and consequently, the Company should be paying GST on the entire acknowledgement amount (i.e. amount at stake) as prescribed under specific rules for betting/ gambling under GST [Rule 31A(3) of CGST Rules, 2018].
On careful consideration, the Bombay High Court dismissed Sachar’s contention that such fantasy games/ contests are merely game of chance or accident notwithstanding involvement of substantial skill. The judges held that the result of the contest offered by Dream11 is not at all dependent on winning or losing of any particular team in the real world game.
Thus, no betting or gambling is involved in such fantasy games. Success in Dream11'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.
The Court also highlighted that the said issue has been already decided by the Punjab & Haryana High Court in Dream 11’s case itself, wherein it was held that such contests are game of skill and not game of chance (by placing reliance on landmark Supreme Court judgment in case of K. R. Lakshmanan (Dr.) vs. State of T.N.,(1996) 2 SCC 226)
“The Bombay High Court reaffirms the earlier decision by other High Courts that online fantasy games, such as Dream11, involve exercise of skills of participants based on superior knowledge & judgment and is not merely game of chance. Accordingly, these games should not be treated as betting/ gambling under GST,” said Harpreet Singh, Partner, KPMG India.
In view of the above, the Bombay High Court concluded that the contests/ games carried out by Dream 11 do not amount to betting or gambling. Accordingly, the acknowledgement amount would qualify as an actionable claim, which is neither considered as supply of goods nor services under GST [Schedule III of CGST Act]. This means Dream11 is correct in discharging GST at 18% on the platform fee.
The ruling is important since in April this year the indirect tax department has started questioning fantasy gaming companies to ascertain if the methodology used by these platforms to calculate and pay goods and services tax (GST) was correct. The contention was again if GST is applicable on the total transaction value or the net commissions (revenues) of these gaming firms.
“The decision has also rightly held that acknowledgement fee (which is pooled and subsequently distributed as price money) shall not be eligible to GST as it would qualify as actionable claim, which is outside the ambit of GST in case the contests/ games involve substantial exercise of skill,” adds Singh.