Legal & Regulatory

Gurdeep Sachar moves SC seeking Clarification on Dream11 GST matter, Centre battles it out in HC

Mumbai-based advocate Gurdeep Singh Sachar, who had unsuccessfully filed a Public Interest Litigation (PIL) and Supreme Court appeal against Dream11, has once again moved the apex court seeking clarification on the scope of its order dated 13th December, 2019.

Sachar in his application for clarification has stated that while dismissing the order, the Supreme Court gave permission to the Union of India to file a review petition only on the issue of GST. In his application, Sachar has stated that ‘it would be just and expedient if the said Order dated 13.12.2019 passed by this Hon’ble Court is appropriately clarified/modified so that the even [sic] the first issue whether the activities of Respondent No. 3 (Dream11) amounts to Gambling/Betting can be reviewed at least for deciding the issues of GST.’

Sachar’s plea is slated to come up for hearing before a division bench of Supreme Court comprising Justices Rohinton F. Nariman and S. Ravindra Bhat on 31st January, 2020.

It may be noted that Sachar had originally filed a PIL in the Bombay High Court in April 2019 alleging that online fantasy sports operator Dream11 conducts gambling operations and wrongly pays Goods and Services Tax (GST) only at the rate of 18% on the margin retained by the company, instead of 28% on the face value of bets under Rule 31A of the Central GST Rules.

A division bench of the Bombay High Court comprising of Justices Ranjit More and Bharati Dangre had dismissed Sachar’s petition and ruled in Dream11’s favour on 30th April, 2019.

Sachar as well as the Union of India, State of Maharashtra and activists Varun Gumber and Avinash Mehtrotra had filed appeals/applications against the order of the Bombay High Court.

However, through separate orders, the Supreme Court dismissed Gumber’s petition as well as the central government, Sachar and Mehrotra’s pleas.

While jointly dismissing the central government, Sachar and Mehrotra’s pleas on 13th December, the Supreme Court bench comprising of Justices Nariman and Bhat had allowed the Union of India to file a Review Petition before the Bombay High Court on the limited issue of GST evasion by Dream11 within four weeks.

Accordingly, the Union of India has filed a review petition in the High Court, which had been listed for hearing before the Bombay High Court today, post which a division bench comprising Justices Ranjit More and SP Tavade, while seeming disinclined to revisit the issue of whether Dream11’s game format amounts to gambling or is a game of skill, directed the registry to verify and place the matter before the appropriate court.

The centre’s review plea is expected to come up for hearing in the High Court in February 2020.

Legal & Regulatory

Another PIL against Dream11 pending in Bombay HC

Although the Bombay High Court dismissed a petition alleging that leading fantasy sports operator Dream11 was involved in gambling and Goods and Services Tax (GST) evasion on 30th April, 2019, another PIL filed against the central and state government, Dream11 and its founder directors Harsh Jain and Bhavit Sheth has been pending since 5th April, 2019.

The petition filed by lawyer Pooja Rajendra Pandey alleges that Dream11 has been indulging in tax evasion and has not paid Goods and Services Tax (GST) at the rate of 28% as required under Rule 31A of Central GST Rules.

Pandey’s petition further alleges that Dream11 merely provides an ‘acknowledgement’ to users for entry fees it receives, which is deposited with the company’s escrow agent, while a tax invoice is issued only for the GST paid on the margin/platform fees charged by Dream11.

The PIL further prays that Dream11 be asked to pay all its GST dues including interest and penalties on the face value of the entry fee on past and present transactions.

Pandey’s petition is however still listed as pending on the Bombay High Court website and the defects of the petition are not yet cured. Notably however, the Bombay High Court has already ruled that there is no GST evasion by Dream11 in a later PIL filed on similar grounds by Advocate Gurdeep Singh Sachar.

Ultimately, the matter was appealed to the Supreme Court by Sachar and the Union government. The apex court while dismissing Special Leave Petitions (SLPs) on 13th December, 2019 allowed the Union of India to file a review petition with the Bombay High Court on the limited grounds of challenging the observations giving clean chit to Dream11 on the issue of manner of payment of GST.

The Supreme Court further stated that the Bombay High Court would have to hear the review on merits if it was filed within four weeks from 13th December, 2019.

It remains to be seen if the central and state governments file review petitions challenging the order of the Bombay High Court in Sachar’s case or if the court decides to hear Pandey’s PIL on merits.


GST Council Votes to Change Lottery Slab to Flat 28 Per Cent

The 38th meeting of the Goods and Services Tax (GST) council on Wednesday saw a new practice to reach a decision on taxation of state and authorised lotteries. The states, for the first time, voted on the matter, as there were wide differences over whether there should be a single rate or dual rates on lottery. Generally, the council takes consensus-based decisions on such matters.

Earlier, as per the GST Act, two rates were prescribed—12% tax on lottery tickets sold by a state government within the state, and 28% tax on lottery tickets sold by other authorised lotteries (e.g. State lottery tickets sold outside the state’s jurisdictions), as reported by Economics Times.

“The council has decided to impose a single rate of 28% on state-run and authorised lottery,” said Union Finance Minister Nirmala Sitharaman after the council meeting.

The council, for the first time, moved away from the traditional practice of consensus-based decision making that has been followed in the past 37 meetings of the council.

Sitharaman said, “every attempt was made to keep the set tradition alive … Every attempt was made to convince … But, eventually the council was reminded that the rules allow (for voting) and that tradition is not part of the rule book. I took the sense of the house … and we went ahead with the decision to have a vote. So, it is not enforced by the council, or by me as the chair.”

On the matter, 21 states voted in favour of a single rate of 28% tax on lotteries, while 7 states voted against it, as per an official.

“For the success of GST, it’s important that the Centre and states work together and take decisions with consensus as they have been doing till now,” said Pratik Jain, leader of indirect taxes at PwC.

Tax experts say that hopefully the council continue to take consensus-based decisions in the future and that voting on Wednesday was an exception.

Revenue secretary Ajay Bhushan Pandey said that a single rate of GST of 28% will apply on lottery from March 1, 2020. This tax will be charged on the face value of the lottery tickets of state and authorised lotteries. The face value of lottery tickets includes the prize money distributed to the winners and margins of agents, retailers and distributors.

In a meeting three months ago, the GST council tasked an 8-member Group of Ministers (GoM) headed Maharashtra Finance Minister Sudhir Mungantiwar to review the issue of setting a uniform rate on lottery tickets and to get all the members on board with a unanimous decision. There were oppositions on the unified tax rate from the West Bengal and Kerala governments.

Earlier this year, Kerala assembly passed a unified resolution against a single rate of GST on lottery sold by state-run and other state lotteries. It urged the Central government to withdraw the move to bring in a unified rate of GST.

As per lottery distribution conglomerate Sugal and Damani Group and industry veterans, 28% tax on lottery sold by distributors and 12% tax on lottery sold by state governments had crippled the lottery industry and had led to a reduction in terminals and sale of lottery by 70%. 

Sugal and Damani Group and other lottery companies demanded a single GST on lotteries sold by the state and other authorised distributors. However, they suggested a tax of 5% to be levied on the face value of lottery tickets (including prize money for winners) or a tax of 28% to be levied on the difference between the MRP and prize payout.

As per Wednesday’s GST council voting, both State-run and private lottery distributors will now pay the same and the highest slab of GST rate of 28%.


RWITC chairman positive about GST change for horse betting

Newly elected chairman of the Royal Western India Turf Club (RWITC) Zavaray Poonawalla opined that the Goods and Services Tax (GST) regime for betting on horse racing will soon change and tax will be levied on the commission retained by clubs and bookmakers rather than the face value of bets.

Poonawalla while speaking to The Times of India remarked that the Fitment Committee of the GST Council feels that GST should be taxed on the commission/rake rather than face value of bets.

The RWITC chairman added that the issues of horse racing industry could not be taken up due to paucity of time at the previous GST Council meeting in Goa, and only two ministers could speak on the issue.

He added that the matter has been referred to the Group of Ministers (GoM) panel, which would also be looking into similar concerns of tax on face value being imposed on the casino and lottery industries and would probably meet next month to discuss the issue.

Poonawalla added that the turf clubs, who had made several representations on this issue to the government in the past, would once again apprise the ministers of West Bengal, Maharashtra and Tamil Nadu, who are members of the GoM and have allowed licensed race courses in their respective states, about the negative impact of the current regime of charging GST on the face value of bets on the sport of horse racing, which employs lakhs of people.

Business Gaming

GST council refers demand for lottery, casino rate cut to GoM

The Goods and Services Tax (GST) Council in its meeting held in Goa on Friday did not accede to demands made by the casino and lottery industries for reducing the applicable tax rates or change the manner in which GST should be applicable.

According to details emerging after the GST Council meeting, the issue of setting a uniform rate on lottery tickets has been referred back to a eight member Group of Ministers (GoM) panel formed earlier this year, headed by Maharashtra Finance Minister Sudhir Mungantiwar, that is reviewing the GST rates applicable on the sale of lottery tickets.

The GoM formed earlier this year could not form a consensus on the applicability of a uniform tax rate for lotteries, due to opposition from the West Bengal and Kerala governments, has been tasked with trying to get all member states onboard and has been requested to meet at the earliest and submit its recommendations to the GST Council.

Further, according to Goan daily Herald, the casino industry also made a representation to the GST Council submitting that the 28% tax rate is high and demanded hat the central government bring down the GST rates from 28% to 12% on gross earnings.

According to the Goan daily, Union Finance Minister Nirmala Sitharaman and most other GST Council members reportedly rejected the demand  keeping in view the sentiments of the people of Goa.

According to the news report, the council thereafter decided to refer the matter to the Group of Ministers (GoM) for consideration.

Commenting on the issues faced by the casino industry, who claim that the wording of the valuation rules requiring GST to be paid on the face value of bets is not feasible, Goa Chief Minister Pramod Sawant noted, “There was some issue on GST on gross revenue, which has now been handed over to the Group of Ministers for further discussion. It is for the GST council to decide.”


Withering lottery industry once again implores govt to relax GST rates

The current Goods and Services Tax (GST) structure of 28% tax on face value of lottery tickets sold through lottery distributors and 12% tax on face value of lotteries sold directly by state governments has crippled the lottery industry, according to leading lottery distributor conglomerate, Sugal and Damani Group.

Industry veterans believe that the GST Council’s decision has led to reduction of lottery terminals and sales by almost 70%, and in case the governments fails to reconsider its decision, it would result in loss of thousands of jobs and diminishing turnover, resulting in even lesser tax collections.

They point out that effective overall tax incidence of service tax and lottery tax was 6.71% on the face value in the pre-GST era whereas now it is nearly 28% on the face value including prize money that is a whopping 300% increase in the tax incidence.

According to Kamlesh Vijay Group CEO of Sugal & Damani, “To sort out the differences in the views among the state’s the GST Council had constituted an eight-member Group of Ministers earlier under the Chairmanship of Maharashtra Finance Minister Sudhir Mungantiwar to look into various issues relating to GST on lottery and in the last meeting and the council decided to seek legal opinion from Attorney General on the issue.

One of the main impending issues is the differential tax treatment of lotteries between State government run and State government authorized lottery. Currently 12% GST is being charged on lotteries run by State Governments (a lottery not allowed to be sold in any State other than the organizing State) directly, while a 28% tax rate is being levied on the lottery tickets authorized by state governments (a lottery which is authorized to be sold in State(s) other than the organizing State also). This huge difference in the tax rate on the same commodity acts as a tariff barrier for smaller states like Goa, Sikkim, Arunachal Pradesh etc. when their tickets are sold in other bigger States like West Bengal or Kerala.

A counterproductive move was recently done by Kerala legislative assembly by passing a unanimous resolution urging the Central Government to withdraw the move to bring uniform GST rate on lottery. ”

Sugal & Damani and other lottery companies are consequently demanding that a single GST rate and structure be levied for state-run lotteries sold through distributors or directly through the state government machinery.

They suggest that the tax rate should either be 5% of the face value of the lottery ticket or 28% of the margin retained by the lottery distributors/state government, i.e. MRP of the lottery ticket minus prize payout.

Private lottery companies have consistently protested and demanded a relaxation in the taxation structure for the industry, without finding much favour with the GST Council, due to strident opposition from the Kerala government.


DGGI reportedly issues show cause notice to Sikkim & Goa casinos for alleged GST evasion

According to a report in the Times of India today, casino operators in Goa and Sikkim are said to have evaded Goods and Services Tax (GST) to the tune of a whopping Rs. 6,500 crore.

According to the news report, a covert operation was launched by officers belonging to the Hyderabad team of the Director General of GST Intelligence (DGGI), based on an anonymous tip-off received in March 2019, wherein department officers conducted undercover surveys on five casinos in Goa and one in Sikkim over the course of two months.

The GST officials, after conducting extensive inquiry have come to the conclusion that casinos in the country have undervalued GST transactions by paying tax on the net revenues instead of the face value of the bet.

They also claim that the casinos have undervalued transactions by splitting casino and non-casino services.

DGGI Hyderabad zone chief Balaji Mazumdar told TOI that the inspection carried out by the department was very successful.

Officials also claim that show cause notice has been issued to the casinos to respond to the allegations of violating GST provisions.

Tax experts however believe that the computation of tax on the face value of bet runs contrary to logic and can be challenged in courts on various grounds.

Legal & Regulatory

GST Council seeks Attorney General’s opinion on dual tax rate for lotteries

The Goods and Services Tax Council (GST) in its 35th meeting held on 21st June, 2019 once again failed to arrive at a consensus on whether a standard rate of GST should be charged on state-run and state-sponsored lotteries and it was decided that the Attorney General of India should give his opinion on whether a dual tax structure for lotteries can be continued.

An official press release issued by the government about the GST council meeting states that the ‘Group of Ministers (GoM) on Lottery submitted report to the Council. After deliberations on the various issues on rate of lottery, the Council recommended that certain issues relating to taxation (rates and destination principle) would require legal opinion of Learned Attorney General.’

The timelines by which the Attorney General will submit his opinion and whether the issue will be decided in the next GST Council meeting remains to be seen.

Currently, 12% GST is being charged on lotteries sold by state governments directly, while a 28% tax rate is being levied on the face value of lottery tickets authorised by state governments but sold through private lottery distributors.

The Kerala legislative assembly and state finance minister TM Thomas Isaac have staunchly opposed any move to reduce the 28% tax currently applicable on lotteries sold by the private distributors on behalf of the state government, claiming that any move to reduce taxes on private companies would encourage ‘lottery mafia’ in Kerala.

Read more about taxes and laws on gambling in India.

Legal & Regulatory

Bombay HC rules fantasy sports to be a game of skill, approves Dream11’s format and manner of payment of GST

A division bench of the Bombay High Court comprising of Justices Bharati H. Dangre and Ranjit More in a recent Public Interest Litigation (PIL) filed by one Gurdeep Singh Sachar, ruled that the daily fantasy sports games offered by Dream11 depends upon the user’s skill and judgment and is undoubtedly a game of skill.

The PIL was filed by Sachar, a Mumbai-based resident, who claimed that fantasy games are luring people to play games of chance through their hard earned money and are amount to different forms of gambling.

Sachar further contended that Dream11 was allegedly evading Goods & Services Tax (GST) by violating Rule 31A of the Central GST Rules and not paying 28% GST on the total value of deposits.

The court in its judgment dated 30th April, 2019 rejected both the contentions made by Singh.

In its order in Gurdeep Singh Sachar v. Union of India & Others, Justice Ranjit More, speaking on behalf of the bench noted that the Punjab and Haryana High Court in its 2017 order of Varun Gumber v. Union Territory of Chandigarh has already held, after detailed examination, that activities conducted by Dream11 do not amount to gambling.

The court also referred to the fact that Gumber filed a Special Leave Petition (SLP) in the Supreme Court against the order of the Punjab and Haryana High Court which was dismissed.

The order further mentions that the Supreme Court order of Dr. KR Lakshmanan v. State of Tamil Nadu & Another, which held that games involving a substantial degree of skill fall outside the definition of gaming and gambling, has been relied upon by the Punjab and Haryana High Court in its 2017 order.

The Bombay High Court subsequently notes that the view it has taken is not different from the reasoning of the Punjab and Haryana High Court. The court observed:

There is no merit in the submission that the result of their fantasy game/contest shall be considered as merely by chance or accident notwithstanding involvement of substantial skill. The petitioner claims that the result would depend largely on extraneous factors such as, who amongst the players actually play better in the real game on a particular day, which according to the petitioner would be a matter of chance, howsoever skillful a participant player in the online fantasy game may be. The petitioner has lost sight of the fact that the result of the fantasy game contest on the platform of respondent No.3, 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 their fantasy games. Their result is not dependent upon winning or losing of any particular team in real world on any given day.

On the issue of alleged GST evasion, the court noted that Rule31A of the Central GST rules applied only to ‘gambling’ or ‘betting’ services, where 28% GST is payable on the face value of the bets.

The court referred to Schedule III of the Central Goods and Services Act, 2017 which states that ‘actionable claims, other than lottery, gambling and betting’ are excluded from the scope of supply.

The court reasoned that the amounts pooled by the players for entering a contest in the escrow account of the company is an actionable claim that is to be distributed to the winning players and consequently can neither be considered as supply of goods or supply or services and is thus excluded from the definition of supply.

On the issue of rate at which the GST has to be charged, the court noted that under entry code 998439 (other online content n.e.c.), explanatory notes suggest that role-playing games, strategy games, action games, card games and children’s games etc. are covered under this category, which would also cover Dream11’s format and fantasy sports gaming, for which 18% GST is applicable.

The court in its concluding remarks while dismissing Sachar’s PIL observed:

It is seen that the entire case of the Petitioner is wholly untenable, misconceived and without any merit. It can be seen that 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. It is undoubtedly a game of skill and not a game of chance. The attempt to reopen the issues decided by the Punjab and Haryana High Court in respect of the same online gaming activities, which are backed by a judgment of the three judges bench of the Apex Court in K. R. Lakshmanan (supra), that too, after dismissal of SLP by the Apex Court is wholly misconceived.

Read more about betting and gambling laws in India.


Kerala assembly passes resolution against uniform GST for lotteries, deadlock in GoM over lottery tax rate

The Kerala legislative assembly passed a unanimous resolution urging the Central Government to withdraw the move to bring uniform Goods and Services Tax (GST) rate on state-run lottery and other state lotteries.

As per news reports, the legislative assembly passed the resolution moved by state Finance Minister Thomas Isaac after a discussion over it on the floor of the House.

“The Centre’s move is to reduce the tax on lotteries run by intermediaries and bring it on par with the state-run lotteries. This will affect thousands of lottery agents and sellers in Kerala.

This move will affect the tax revenue of the state, as well as the Centre,” Isaac said.

Currently, 12% GST is being charged on lotteries sold by state governments directly, while a 28% tax rate is being levied on the face value of lottery tickets authorised by state governments but sold through private lottery distributors.

Private lottery companies have made several representations against this discriminatory and high rate of tax, and claimed that the taxation structure would cripple and destroy their business. 

In a related development, it has been reported that the eight member Group of Ministers (GoM) headed by Maharashtra Finance Minister Sudhir Mungantiwar, that had been tasked by the GST Council to study the differential tax rates on lotteries, has so far, failed in its efforts to recommend a uniform tax rate for lotteries.

According to media reports, the panel failed to reach a consensus after representatives of West Bengal and Kerala opposed  the idea, citing loss to state governments.

The GST Council is slated to discuss the issue on 21st June, although a decision on the issue is unlikely, given the lack of consensus on the issue.

Read more about Kerala State Lotteries – Taxes, prices and prizes.