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.

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.


Government notifies 8-member committee to decide lottery GST rates; panel to submit report by next GST Council meeting

As reported by us earlier, the GST Council in its meeting on 10th January has recommended the formation of a Group of Ministers (GoM) panel to look into the differential GST rates on lottery tickets and tax issues arising from lottery sales.

According to media reports, the central government has now issued a statement that an eight member GoM headed by Maharashtra Finance Minister Sudhir Mungantiwar will look into taxation issues relating to the lottery industry.

The other members of the committee are West Bengal Finance Minister Amit Mitra; Kerala Finance Minister Thomas Isaac; Assam Finance Minister Himanta Biswa Sarma; Punjab Finance Minister Manpreet Singh Badal; Goa Panchayat Minister Mauvin Godinho; Karnataka Finance Minister Krishna Byre Gowda, Arunachal Tax and Excise Minister Jarkar Gamlin.

As per the Terms of Reference (ToR) for the GoM, the panel will see whether the dual tax structure for state authorised and state run lotteries can be continued or whether a uniform rate can be prescribed for both.

It would also suggest whether private persons authorised by the states are misusing the lower rate and getting enriched themselves at the cost of the state and suggest measures to curb it.

The GoM is also likely examine issues related to enforcement including the legal framework, so as to prevent evasion of tax on lottery and suggest appropriate tax rate to address the problem.

The committee is likely to submits its recommendations on whether a change is required in the present taxation structure for lotteries before the GST Council meets again.


Mumbai police arrest lottery centre owner, race course bookies over tax evasion

The Mumbai police raided a Carter Road-based lottery centre yesterday and arrested its owner, Rajesh Jaiswal, for allegedly evading Goods and Services Tax (GST) on lottery tickets by issuing hand-written notes instead of printed receipts.

According to the Mumbai police, Jaiswal would sell the hand written tickets to customers and tell the results over phone, thereby conducting the transaction in cash without paying any tax. A case has been registered by the police under the Lotteries (Regulation) Act, 1998 and Indian Penal Code, 1860.

The crime branch of the Mumbai police had also conducted a raid on seven different online lottery parlours in Mumbai earlier this year for GST evasion and booked the accused for cheating, forgery and selling illegal/unauthorised lottery tickets.

Last week, a similar raid was conducted by the police on bookmakers operating at the Mahalaxmi racecourse in Mumbai for allegedly accepting bets on horse-racing in cash, without paying any license fee or tax to the government. A total of 120 persons were detained by the police and cash worth Rs. 1.41 crores was seized from the licensed betting stalls within the race course.

A case of cheating under the Indian Penal Code, running a common gaming house under the Maharashtra Prevention of Gambling Act and for contravening license conditions under the Bombay Race Course Licensing Act, 1912 was registered.

Out of the 120 persons detained by the cops, 18 were formally arrested and sent to a 2-day police custody. A case was also registered against the Royal Western India Turf Club Ltd. or RWITC, i.e. the Mumbai turf club, which has been granted a license by the state government to operate a race course and accept bets on horse racing within the club.

It is perhaps unprecedented that the police, instead of the GST department, is taking action against alleged tax evaders and booking them for cheating and illegal gambling, instead of action being taken under the Goods and Services Tax law.

Gaming Legal & Regulatory

Seven online lottery parlours raided in Mumbai for GST evasion

Seven online lottery centres were raided at different locations in central Mumbai for alleged evasion of Goods and Services Tax (GST) as per a PTI report.

As per the news report, the Mumbai police crime branch arrested 11 persons for issuing hand-written lottery tickets instead of online lottery tickets printed on government or RBI paper as required under the Lotteries (Regulation) Act and Rules.

“During the raids, police have recovered 11 computers, hard disks, CPUs, five mobile phones and cash worth over Rs 1 lakh. The owners of the online lottery centres used to give hand-written tickets, of the various online lotteries, including Goa’s authorised lottery ‘Lucky Four’, instead of the printed tickets,” an unnamed official involved in the raids told the press.

Apart from booking those involved in running the lottery terminals for GST evasion and violation of tax laws, an offence was registered under section 294A of the Indian Penal Code (IPC), 1860 for illegally selling lottery tickets. The accused were also booked under sections 420 (cheating and dishonestly inducing delivery of property), 465 (forgery), 468 (Forgery for purpose of cheating), 471 (using as genuine a forged document) of IPC and under sections 4(a) and 7(3) of the Lotteries (Regulation) Act, 1998.

Lottery distribution companies have protested against the 28% GST on face value of lottery tickets which they claim will make the business unsustainable. In September this year, India’s leading lottery distribution companies were raided in Punjab for GST evasion. The charges leveled against them at the time included payment of tax at a lesser rate and non-filing of returns.

Legal & Regulatory Poker

After dramatic last minute intervention by Salman Khan’s lawyer, Bombay HC does not mention the word ‘poker’ in order

Exclusive The order of the division bench of the Bombay High Court declining The Spartan Poker’s head of operations, Nasir Patel’s plea to quash a gambling FIR against him has been released online.

The order dated 28th March, 2018, passed by a division bench of Justices RM Savant and Sarang Kotwal states:

It is alleged that the Petitioner herein is one of the accused who was found playing the game of “Cards”. We have perused the F.I.R. which gives the description as to how the said game is played. On such perusal, we find that in the said game, as described in the F.I.R., there is no element of skill and it appears to be purely a game of chance and the winner is chosen on the basis of cards, which are received by him on distribution in the said game and the winner also receives the prize in cash on the said basis.

Having regard to the said aspect, prima facie, we find that the ingredients of the offence under the Prevention of Gambling Act, 1887 is made out.

Interestingly, however, the judges in their verbal observations had mentioned the game of poker and not the game of ‘cards’ during the course of the hearing. It is understood that Senior Counsel Amit Desai (who was also actor Salman Khan’s lawyer in the Bombay High Court in the famous hit and run case) mentioned the matter before the bench on Monday, 2nd April, and urged the bench to change its observations, particularly regarding the game of poker.

The court appears to have partially accepted Desai’s plea and refrained from referring to the game of ‘poker’ in the order. However, the court refers to the description of the game in the FIR against Patel. It may be noted that the FIR mentions that the game of poker was being conducted in the premises and therefore the order of the High Court contains an indirect reference to the game of poker.

Online poker operators and poker enthusiasts can take solace from the fact that the order directly and categorically does not declare poker to be a game of chance, although question marks still prevail over the game’s legality.

Legal & Regulatory Poker

Bombay HC rules poker to be a game of chance

In a surprising ruling, a division bench of the Bombay High Court ruled that playing the game of poker amounts to gambling and is a game of pure chance, as per a report in DNA.

A division bench of the High Court comprising of Justices RM Sawant and Sarang Kotwal observed that poker cannot be a game of skill as a player simply gets the cards according to chance and the player who gets better cards wins.

According to media reports, the bench further noted: “We have perused the description of the game, we find that it is not a game of skill but of pure chance. Prima facie we find that a case under the gambling act has been made out.”

The court accordingly  refused to quash the FIR under the Maharashtra Prevention of Gambling Act filed by the Goregaon police against The Spartan Poker head of operations, Nasir Patel, who was allegedly found playing poker in a private apartment in 2016. The High Court had earlier stayed filing of chargesheet against Patel on the grounds that the copy of the petition served by Patel’s lawyer on the public prosecutor was not legible.

Patel in his petition has made a threefold argument seeking quashing of the FIR which names him as an accused. The first argument raised by him is that the game of poker was being played amongst friends in a private premises for entertainment purposes only, without any money or stakes.

Secondly, he pleaded that no license or permission is required for playing poker in a private premises amongst friends and that there was no law or rule violated in playing the game of poker. The third argument raised is that poker is a game of skill, exempt from the ambit of gambling under the Maharashtra Prevention of Gambling Act.

His lawyer Ram Mani Upadhyay also submitted that the game of poker has been recognised by the High Courts of Karnataka and Calcutta. The public prosecutor on the other hand relied on the order of the single judge of the Gujarat High Court that ruled poker to be a game of chance that fell within the ambit of the Bombay Prevention of Gambling Act.

A copy of the order and the exact ruling of the court has not been published yet. The decision of the court is however certainly going to be a huge setback for poker in India as it comes months after the Gujarat High Court’s judgement (which is now in appeal before a division bench of the same court).

Legal & Regulatory

Maharashtra to bring law against online gambling

The Maharashtra government is planning to introduce a new legislation to curb the menace of online gambling and betting, as per a statement given by Minister of State for Home Dr. Ranjit Patil in the legislative council yesterday.

Patil made the remarks while responding to a debate in the legislative council on the alleged online gambling and betting racket run by Game King India Private Limited and its founder Ramesh Chaurasia.

Opposition leader Dhananjay Munde alleged that Chaurasia has set up 500 illegal gambling parlours in Mumbai and is the mastermind of a Rs. 5,000 crore illegal gambling business, which has operations in seven states and 15 countries.

Patil on the other hand stated that Chaurasia was operating the parlours under the garb of video game parlours, for which he had obtained permissions from relevant local authorities.

“Seven cases have been registered against him by our police. Once the Computer Emergency Response Team (CERT) report is in, we will shut this website and arrest him at the earliest,” Patil said. “The Indore Police took one-and-a-half year to arrest him, but we will not take that long.”

The contours of the new legislation and the timelines for introduction of a Bill on the issue have not been specified by the state government. It is not immediately clear if the state government will follow through on its assurance to the legislature and start the process of drafting a new law.

It also remains to be seen whether the new law that is set to be drafted by the state government would exempt games of skill like online rummy and poker from its ambit or like Telangana, would ban all games of skill played for stakes.

Legal & Regulatory

Bombay High Court stays filing of chargesheet against The Spartan Poker head of operations

The Bombay High Court while hearing a petition seeking quashing of gambling charges against The Spartan Poker head of operations, Nasir Patel, asked the state government and police to refrain from filing a chargesheet in the poker-related matter until further hearing is conducted by the court.

The division bench of the High Court comprising of Justices Sandeep K Shinde and RM Savant also noted the Assistant Public Prosecutor’s qualm that the copy of Patel’s petition served upon his office was not readable. The bench adjourned the matter to 30th January, 2018 and asked Patel’s lawyers to serve a legible copy of the petition to the Assistant Public Prosecutor before the next date.

Patel filed the petition seeking quashing of a FIR filed against him under Sections 4(A) and 5 of the Maharashtra Prevention of Gambling Act. According to Patel’s petition, the police raided a private premises in Goregaon (West) on 8th September, 2016 where the game of poker was being conducted.

Patel in his petition has made a threefold argument seeking quashing of the FIR which names him as an accused. The first argument raised by him is that the game of poker was being played amongst friends in a private premises for entertainment purposes only, without any money or stakes.

Secondly, the petition states that no license or permission is required for playing poker in a private premises amongst friends and that there was no law or rule violated in playing the game of poker. The third argument raised is that poker is a game of skill, exempt from the ambit of gambling under the Maharashtra Prevention of Gambling Act. It has been submitted that the game of poker has been recognised by the High Court of Karnataka.

Reacting on the partial relief granted by the Bombay High Court, Amin Rozani, Managing Director of The Spartan Poker said, “We at The Spartan Poker and Indian Poker Championship have always stated that increasing the acceptability and legitimacy of the sport of poker is our primary objective. The order of the High Court is one more step towards the same. Hopefully we will be able to get success in the case in the coming months. We believe that ‘good things are happening in poker’.