Nature of the Game

Fantasy sports games are games which occur over a pre-determined number of rounds (which may extend from a single match/ sporting event to an entire league or series) in which participating users select, build and act as managers of their virtual teams (constituted of real players or teams) that compete against virtual teams of other users, with results tabulated on the basis of statistics, scores, achievements and results generated by the real individual sportspersons or teams in certain designated professional sporting events. The winner of such fantasy sports game is the participant whose virtual team accumulates the greatest number of points across the round(s) of the game. The drafting of a virtual team involves the exercise of considerable skill as the user must first assess the relative worth of each athlete/ sportsperson as against all athlete/ sportspersons available for selection. The user has to study the rules and make evaluations of the athlete’s strengths and weaknesses based on these rules. The online fantasy sport games are offered through the platform require material and considerable skills in terms of ‘drafting’ and ‘playing’ which are the determinative factors in the results of the game and winning outcomes thereby. In such fantasy sports games, the platform provider provides facilities to participate in the game through a software programme and assists the participants by different modes, including FAQs (Frequently Asked Questions), examples, etc.

Whether such transactions constitute Goods, Services or Actionable claims under the Pre-GST regime?

1. Sales Tax Law Implications:In the Federal set-up of the Government, Sales Tax or Value Added Tax (VAT) was earlier charged by the respective State Governments, on the sale or purchase of goods. Every State had their own enactment but the scheme was to charge tax on the sale of goods. For the purposes of levy, goods did not include actionable claims, money, shares and securities, etc.

2. Actionable Claims:The term ‘actionable claim’ is defined under Section 3 of the Transfer of Property Act, 1882 as under;

“‘actionable claim’ means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

(Emphasis supplied)”

While deciding the issue of taxability of lottery tickets under various Delhi General Sales Tax law, Hon’ble Supreme Court in Sunrise Associates v. Government of NCT of Delhi & Ors., 145 STC 576 held that, “The right to participate in the draw is a part of the composite right of the chance to win and it does not feature separately in the definition of the word lottery. It is an implicit part of the right to win, it is not a different right. The separation is spacious since neither of the right can stand without the other. There is no value in the mere right to participate in the draw and the purchaser does not pay for the right to participate. The consideration is paid for the chance to win. There is no distinction between the two rights. The right to participate being an inseparable part of the chance to win is therefore, part of an actionable claim. The only object of the right to participate would be to win the prize. The transfer of the right would thus, be of a beneficial interest in movable property, not in possession. By this reasoning also, a right to participate in a lottery is an actionable claim… The sale of lottery ticket does not involve sale of goods within the meaning of the Sales Tax Acts of the different States. At the highest there is the transfer of an actionable claim which the state sales tax laws have uniformly excluded from the definition of sale of goods.

(Emphasis supplied)”

3. Service Tax Law Implications :
   Under the Finance Act, 1994, the value of taxable services are charged to tax which is called Service Tax. Relevant portions of Section 65B (44) of the Finance Act, 1994 that defines ‘service’ is reproduced as under;

“(44) ‘service’ means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-

(a) an activity which constitutes merely,-

(i) …..

(ii) …..

(iii) a transaction in money or actionable claim;

(b) ….

(c) ….

Explanation 1: ……

Explanation 2: For the purposes of this clause, the expression ‘transaction in money or actionable claim’ shall not include-

(i) ……

(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out-

(a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;

(b) ……”

As per Section 65B (1), “‘actionable claims’ shall have the meaning assigned to it in Section 3 of the Transfer of Property Act, 1882”.

As per Section 65B (15), “‘betting or gambling’ means putting on stake something of value, particularly money with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result maybe determined by chance or accident or on the likelihood of anything occurring or not occurring.”

As per Section 65B (25), “goods means every kind of movable property other than actionable claim and money.”

As per Section 65(105)(zzzzn), “‘taxable services’ means any services provided or to be provided to any person by another person for promotion, marketing, organising or in any other manner, assisting in organising games of chance including lottery, bingo or lotto in whatever form or by whatever name called, whether or not conducted through internet or other electronic network.”

Undoubtedly, actionable claims were not subject matter of levy of tax under the Finance Act, 1994. However, the service portion of the actionable claim was subject to levy on account of Explanation 2 appended to Section 65B (44), i.e., any activity carried out for a consideration in relation to, or for facilitation of a transaction in money or actionable claim. Hence, for the purposes of Section 65(105)(zzzzn), the portion of the monetary consideration received was subject to tax in the case of game of chance, lottery, etc. In other words, the value of the services for assisting in organising games of chance was subject to tax under the Service Tax regime. Hon’ble Supreme Court of India in Union of India v. Martin Lottery Agencies Ltd., in Civil Appeal No. 3239 of 2009, dated 05th May, 2009 while deciding a question and approving Hon’ble Sikkim High Court’s judgment held that, the activity of the distributor of lottery ticket or promotion and marketing of lottery ticket for their clients would be exigible to Service Tax. In the said judgment, it was also held that, it is not the entire face value of ₹ 100/- which is subject to tax. It is only the commission or the service rendered for promoting and marketing the lottery ticket for the client, i.e., ₹ 30/- which would be subject to tax. The same view was taken by Hon’ble Kerala High Court in P. Murleedharan v. Union of India, Writ Petition No. 19625 of 2009, dated 19th August, 2011. In Future Gaming Solutions India Pvt. Ltd. v. UOI, 67 VST 58 Hon’ble Sikkim High Court held that, “The power to tax on lotteries or in betting and gambling is not available under any of the Entries of List I of the Seventh Schedule to the Constitution. However, such power is germane to and emanates from Entry 62 of List II in the Seventh Schedule, meaning thereby that the residuary power to enact a law imposing a tax on lotteries would not be available to the Parliament. Applying the principles of pith and substance the power to levy tax on lotteries being a game of chance and includes in the expression betting and gambling in Entry 62, List II, the State Legislature has the exclusive legislative competence and jurisdiction of Parliament to levy such a tax in exercise of its residuary power under Entry 97 of List I read with Article 248 of the Constitution stands excluded….. Therefore, the activity of bulk purchases of lottery ticket by the purchaser from the State Government on full payment on a discounted price is a natural business transaction…. Where the transaction is purely that of sale and purchases from which the component of services cannot be clearly segregated and is undiscernible, no service tax is payable. Therefore, the activity of the purchaser cannot be construed to be service rendered to the State Government to fall within the purview of service tax in the absence of any element of service in such activity.”

4. Sale of Goods Versus Tax on Service Component on Goods:Under transactions in the nature of lottery, betting, gambling, wagering, online gaming, online fantasy sports, it was the service portion which was subject matter of levy of service tax under the Finance Act. The remnant portion undoubtedly constituted of goods and being actionable claims, was not subject to levy under the local Sales Tax laws including VAT for the simple reason that, actionable claims were excluded from the subject matter of tax, i.e., goods. Hon’ble Supreme Court in B. R. Enterprises v. State of U.P., 120 STC 302 held that lotteries are form of gambling. Gambling activities are in their very nature and essence extra commercium. In lottery there is an element of chance and no skill. In Sunrise (supra) Hon’ble Supreme Court held that, sale of lottery ticket does not involve sale of goods within the meaning of Sales Tax Acts of the different States. At the highest there is the transfer of an actionable claim which the State Sales Tax laws have uniformly excluded from the definition of sale of goods. However, the service rendered by the platform provider or the ticket distributors were subject to tax under the Finance Act as Service Tax. In short, the service portion was subject to levy as detailly discussed in paragraph 3.

When the transaction consisted of both goods and services components, then the question came up as to whether goods component could be taxed under the local tax laws and whether the service component could be taxed under the Finance Act as Service Tax? Hon’ble Madras High Court in AGS Entertainment Pvt. Ltd. v. UOI, 65 VST 88 relying upon various judgments of Hon’ble Supreme Court, viz., Association of Leasing & Financial Services Companies, 35 VST 549 (SC), Bharat Sanchar Nigam, 3 VST 95 (SC), Federation of Hotel & Restaurant Association of India, 74 STC 102 and Tamil Nadu Kalyanamandapam Association, 135 STC 480 (SC) held that, “Two different activities could properly be regarded as two different matters for taxation. In other words, there could be two enactments each in one aspect conferring the power to impose a tax upon goods. The legislation cannot be held to be vitiated, merely because there is an element of overlapping in that both sales tax and service tax become leviable on the same assessee in respect of the same goods. There are two aspects, namely, the transfer of the right to use the goods or the permission to use the goods or enjoyment, which operate in different fields and merely because there is overlapping on certain aspects, it would not lose the distinctiveness of each of the aspects.”

In view of the above discussions, it is clear that, the service component of the actionable claim was subject matter of levy under the Finance Act whereas, other than service components were in the nature of actionable claims and hence, were not subject to levy under the local tax laws in respect of transactions of lottery, fantasy sports gaming, betting, wagering, gambling, etc.

Whether such transactions constitute Goods, Services or Actionable claims under the post-GST Regime?

1. Levy Provision:As per Section 9 of the Central Goods and Services Tax Act, 2017 (CGST Act), there shall be levied a tax called Central Goods and Services Tax on all inter-state supplies of goods or services or both on the value determined u/s. 15 as per the Rate Notification notified by the Government on the recommendations of the Council. The supply of goods and services is subject matter of levy of tax.

Goods as defined u/s. 2(52) means, “[E]very kind of movable property other than money and securities, but includes actionable claim, growing crops, grass and things attached to or forming part of land which are agreed to be severed before supply or under a contract of supply.

(Emphasis supplied)”

Services as defined u/s. 2(102) means, “[A]nything other than goods, money or securities, but includes activities relating to the use of money or its conversion by cash or by any other mode………”

Actionable claims as defined u/s. 2(1) shall have the same meaning as assigned to it in Section 3 of the Transfer of Property Act, 1882.

As per Section 2(17), “[B]usiness includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for a pecuniary benefit……

(Emphasis supplied)”

As per Section 2(108), “[T]axable supply means a supply of goods or services or both which is leviable to tax under this Act.

(Emphasis supplied)”

As per Section 15(1), “The value of supply of goods or services or both shall be the transaction value which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.”

The above charging provision and its related definitions make it apparent that, CGST will be charged on the taxable supply of goods and services on the value as determined by Section 15 of the CGST Act. Actionable claims are included in the definition of goods. Hence, supply of actionable claims is subject to tax, unless it is specifically excluded or exemption is provided. Similarly, supply of taxable services are subject to tax on the transactional value determined by Section 15 of the Act and the rate applicable will be as per the notified rates published by the GST Council. However, such supplies should be in the course or in the furtherance of business.

Entry 62 of List II (State List) in Seventh Schedule of the Constitution of India, which conferred the power to levy taxes on luxuries including taxes on entertainment, amusement, betting and gambling has now been taken out from the State’s power by the Constitutional 101st Amendment Act, 2016. Thereby, Central Government has been empowered to levy tax on such transactions under Entry 97 of List I (Union List).

2. Meaning of Supply: Section 7 of the CGST Act provides the concept of supply which includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of or in the furtherance of business.

There are three Schedules that are appended to the CGST Act. Schedule I deals with the activities without consideration, but are subject matter of levy without consideration. Under Schedule II, there are certain transactions which are even though not in the nature of goods or services, are deemed to be treated as supply of goods and supply of services and similarly, some classes of goods are treated as supply of services. Schedule III deals with activities and transactions although in the nature of supplies of goods and services but, for the purpose of the CGST Act, they are excluded from the ambit of supply of goods and services, so as to not levy tax.

The term ‘wager’ is included in the definition of business. Hence, the meaning of the term ‘wager’ is worth understanding. The Law Lexicon, P. Ramanatha Aiyer, 2004 Reprint Edition defines ‘wage’ as, “The giving of a security for the performance of anything.” In the same book it is specified that, “There is no distinction between the expression gaming and wagering used in the English Statutes and in the earlier Indian Acts and the expression by way of wager in Section 30 of the Contract Act.” Hence, in view of the said meaning the giving of a security for the performance of anything against a price consideration is also in the course of business.

3. Relevant Entries in the Schedules:Entry 5 of Schedule II deals with supply of services although the transactions are in the nature of immovable property or the transactions involve goods but, for the purposes of the CGST Act, they are deemed to be treated as supply of services. Clause (c) and (d) of Entry 5 is relevant for our purpose which is reproduced as under:

“(c) [T]emporary transfer for permitting the use or enjoyment of any intellectual property right;

(d) [D]evelopment, design, programming, customisation, adaption, upgradation, enhancement, implementation of information technology software.”

Schedule III deals with transactions or activities which are actually supply of goods and services but for the purposes of the CGST Act are not considered or treated as supply of goods or supply of services and such activities or transactions are not subject matter of tax. Entry 6 of Schedule III is relevant for our purpose. Entry 6 reads as, “actionable claims other than lottery, betting and gambling.”

In view of the above, the platform of information technology software for such online fantasy sports games is nothing but temporary transfer or permission to use the intellectual property right in the nature of information technology software. Undoubtedly, goods include actionable claims for the purposes of the CGST Act, but by virtue of Schedule III, other than lottery, betting and gambling all other remaining actionable claims are excluded from levy of tax. Hence, what is subject matter of levy of tax is the lottery, betting and gambling and no other actionable claim.

4. Classification of the impugned transactions as per the Rate Notifications

5. a) Rate Notifications (Supply of Goods): Neither actionable claims nor betting or gambling were classified under the Schedule Entries of goods. However, lottery is classified under Serial No. 242 of Schedule II, subject to tax at the rate of 12% and in view of Explanation 1, the valuation has to be made 100/112 of the face value of the ticket in case of lottery run by the State Government. In case of lotteries authorized by the State Government, Serial No. 228 of Schedule IV, subject to tax at the rate of 28% on the value determined as per Explanation, i.e., 100/128 of the face value of the tickets is applicable. Therefore, betting and gambling being taxable were subject to tax under the residuary entry Serial No. 453 subject to tax at the rate of 18%. Subsequently, an amendment was brought by Notification No. 6 of 2018 (Central Tax Rate) dated 25th January, 2018 wherein Serial No. 229 was brought in Schedule IV which is subject to tax at the rate of 28% and the entry reads as, “Actionable claim in the form of chance to win in betting, gambling or horse racing in race club.”

6. b) Rate Notifications (Supply of Services):Tariff Entry 99.84 (relevant portion) present in (ii) of Serial No. 22, Notification No. 11 of 2017, Central Tax (Rate), dated 28th June, 2017 reads as, “Telecommunications, broadcasting and information supply services………”

Explanatory Note appended to the said Tariff Entry reads as under;

“998439 Other on-line content n.e.c.

This service code includes games that are intended to be played on the Internet such as role-playing games (RPGs), strategy games, action games, card games, children’s games; software that is intended to be executed on-line, except game software, mature theme, sexually explicit content published or broadcast over the Internet including graphics, live fees, interactive performances and virtual activities; content provided on web search portals, i.e., extensive databases of Internet addresses and content in an easily searchable format; statistics or other information, including streamed news; other on-line content not included above such as greeting cards, jokes, cartoons, graphics, maps

Note: Payment may be by subscription, membership fee, pay-per-play or pay-per-view.

This service code does not include:

– software downloads, cf. 998434

– on-line gambling services, cf. 999692

– adult content in on-line newspapers, periodicals, books, directories, cf. 998431”

Tariff Entry 99.96 (relevant portion) present in (iiia), (iv) and (v) of Serial No. 34 of Notification No. 11 of 2017, Central Tax (Rate), dated 28th June, 2017 reads as under;

“(iiia) Services by way of admission to entertainment events or access to amusement facilities including casinos, race club, any sporting event such as Indian Premier League and the like.

(iv) Services provided by a race club by way of totalisator or a license to bookmaker in such club.

(v) Gambling.”

Explanatory Note appended to the said Tariff Entry published by Central Board of Indirect Taxes and Customs (CBIC) on 12th June, 2018 clarifies that, 99.96.92 consists of the following services;

“99.96.92 Gambling and betting services including similar online services

This service code includes:

1. on-line gambling services

2. on-line games involving betting/ gambling

3. off-track betting

4. casino and gambling house services

5. gambling slot machine services

6. other similar services”

The service component of the amount taken from participants is subject to levy as supply of services under Tariff Entry 99.84.39 as online games as explained in the Explanatory Note as above. (Does not include online gambling services). Hence, it is subject to tax at the rate of 18%. The balance portion being actionable claims towards such online gaming (which is not betting or gambling) have to be treated as unclassified actionable claims and not subject to tax. Therefore, the valuation rule provided under Rule 31A of the Central Goods and Services Tax Rules (CGST Rules) is not applicable as the same is applicable to lottery, betting and gambling.

5. Whether 99.84.39 is a Special Entry and will prevail over any other General Entry: Wherever two competing entries are available in the Schedule Entry, i.e., special entry and general entry, then the impugned product and its classification is a greater task. The normal rule is that each entry enumerating the goods should be given its natural or normal meaning as understood by those who deal with those and that if there are two entries where one entry is broader and covers an entire class of goods and the other entry covers some of the goods out of the said class, the latter entry should be considered as special entry in respect of those goods. Sometimes if the goods are falling in two entries, which are subject to tax at two different rates, the theory of specific entry will prevail over general entry. For e.g. gold/silver plated idols frames will fall under both, gold entry, which is subject to tax at 3% as well as under frame or metal entry, which is subject to a higher rate. In such circumstances the specific entry will definitely be the entry of articles of gold and silver which is required to be adopted. Similarly, a carpet which is fit into the car as per the specifications and design given by the car manufacturer; would be an accessory of cars and shall fall under the specific entry of accessories of cars rather than being classified under the general entry of carpets. However, in such circumstances, one has to look into the interpretation given in the General or Specific Explanatory notes to the HSN, (WCO). Hon’ble Supreme Court in the matter of M. P. Agencies v. State of Kerala (2015) (7 SCC 102)has held that, “As per the said Rules of Interpretation, where the commodities have been given HSN numbers, the same meaning would be given for classification under the Customs Tariff Act, 1975 and judgments applicable to corresponding entries in Customs Tariff Act- Where commodities are not assigned with any HSN number, they are to be interpreted as understood in common or commercial parlance- In case of inconsistency between meaning of commodity without HSN number and commodity with HSN number, commodity without HSN number should be interpreted by including commodity in that entry, which has been given HSN number.”

The principle laid down as above, clearly states that if the HSN number is clear, then it is necessary to adopt the meaning for determining the purpose of tax rate, otherwise they are to be interpreted as understood in common or commercial parlance or the other necessary rules of commodity classification. In the matter of Mayuri Yeast India Pvt. Ltd. v. State of UP and Another (2008) 14 VST 259 (SC) it was held that, “If there is a conflict between two entries one leading to an opinion that it comes within the purview of the tariff entry and another the residuary entry, the former should be preferred.”

In view of the above, the specific entry being 99.84 and the Explanatory Notes appended to it clearly leans towards the said entry, the same is a specific entry and will prevail over other general and residuary entries. Moreover 99.96.92 in fact deals with gambling and betting services. As explained above, the impugned transaction is not online gambling services and therefore, the scope of the said entry is out of our purview and when a specific entry is available in the tariff along with the Explanatory Notes provided by CBIC, the same is binding due to Section 165 of CGST Act.

6. Whether Online Fantasy Sports Games constitute as part of Gambling:Online fantasy sports consists of a skill game for which participants have to acquire knowledge in the respective sports and the players therein. Therefore, they are not to be treated as gambling. Hon’ble Punjab High Court in Shri Varun Gumber v. Union Territory of Chandigarh, CWP No. 7559 of 2017 extensively considered the nature of online fantasy sports game and after considering the judgments of Hon’ble Supreme Court held as under;

“In view of the finding rendered by the Hon’ble Supreme Court aforementioned, it leaves no manner of doubt that on the scope and ambit of the term game “mere skill” in the context of the present case, in other words, the Hon’ble Supreme Court has held that :- “i) the competitions where success depends upon the substantial degree of skill are not gambling; and ii) despite there being an element of chance, if a game is preponderantly a game of skill it would nevertheless be a game of “mere skill”. It has been found that horse racing like foot racing, boat racing, football and baseball is a game of skill and judgment and not a game of chance. The aforementioned finding squarely applies to the present case. Even from the submissions and contentions of respondent-company and factual position admitted in writ petition, I am of the view that playing of fantasy game by any participant user involves virtual team by him which would certainly requires a considerable skill, judgment and discretion. The participant has to assess the relative worth of each athlete/sportsperson as against all athlete/sportspersons available for selection. He is required to study the rules and regulations of strength of athlete or player and weakness also. The several factors as indicated above submitted by the respondent – company would definitely affect the result of the game. Admittedly, the petitioner himself created a virtual team of a Cricket Match between two countries as indicated in the website by choosing 11 players out of total players, who were to play for two countries collectively and after forming a virtual team of 11 players as per his own selection, knowledge and judgment, which is thoughtful. Will, he join various leagues for the leagues selected by him and after registration which was declared before participating, was not about possibility of winning or losing like horse riding not every better is winner. The respondent company’s website and success in Dream 11’s fantasy sports basically arises out of users exercise, superior knowledge, judgment and attention. I am of the further view that the element of skill and predominant influence on the outcome of the Dream 11 fantasy than any other incidents are and therefore, I do not have any hesitation in holding any sports game to constitute the game of “mere skill” and not falling within the activity of gambling for the invocation of 1867 Act and thus, the respondent company is therefore, exempt from the application of provisions, including the penal provisions, in view of Section 18 of 1867 Act. Equally so, before I conclude, I must express that gambling is not a trade and thus, is not protected by Article 19(1)(g) of Constitution of India and thus, the fantasy games of the respondent -company cannot said to be falling within the gambling activities as the same involves the substantial skills which is nothing but is a business activity with due registration and paying the service tax and income tax, thus, they have protection granted by Article 19 (1)(g) of Constitution of India.”

Hon’ble Bombay High Court in Gurdeep Singh Sachar v. Union of India, Criminal PIL Stamp No. 22 of 2019 dated 30th April, 2019 held as under;

“In respect of the first issue, after considering the very same activities of the respondent No.3 at considerable length, it has already been held by the Punjab and Haryana High Court that the activities performed by the respondent No.3 do not amount to ‘gambling’, even as per the Public Gambling Act, 1867. The respondent No.3 refers and relies on the findings contained in the said judgment. Admittedly, SLP filed there against has been dismissed. The Punjab and Haryana High Court has categorically held that these are games of skill and not games of chance. Various judgments have been referred and relied upon in the said judgment. There is no reason to take a different view……

It is evident that the expressions ‘betting’ or ‘gambling’ were used interchangeably in Section 65B(15) of the Finance Act, 1994. Again the test applicable was whether it was a game of chance or game of skill. Only if the result of the game/contest is determined merely by chance or accident, any money put on stake with consciousness of risk and hope to gain, would be ‘gambling’ or ‘betting’. 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 skilful 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. In these circumstances, there is no plausible reason to take a contrary view than that taken by the Hon’ble Punjab and Haryana High Court, which judgment has already been upheld by the Hon’ble Supreme Court in the SLP filed against the respondent No.3 itself. Moreover, the said issue is also covered by a judgment of 3 Judge Bench of the Hon’ble Supreme Court, to which detailed reference is made in the order of the Hon’ble Punjab and Haryana High Court. It is thus clear that the activity of the respondent No.3 do not amount to ‘gambling’ or ‘betting’ or ‘wagering’ even if the definition contained in Finance Act, 1994 is taken into consideration.”

In view of the above, it is apparent that, online fantasy sports games are games of skill and not gambling.

7. Valuation of Service Component of Online Fantasy Sports Games:The levy provision, i.e., Section 9 of the CGST Act directs that, tax shall be levied on the supply of goods or services or both on the value determined u/s 15. As per Section 15 the value of supply of goods or services or both shall be the transaction value which is the price actually paid or payable for the said supply of goods or services or both where the supplier or the recipient of the supply are not related and the price is the sole consideration of supply.

Consideration as defined u/s. 2(31) in relation to supply of goods or services or both includes, “[A]ny payment made or to be made whether in money or otherwise in respect of, in response to or for the inducement of the supply of goods or services or both…”

Undoubtedly, the price received in online gaming services and in online fantasy sports, two price components are involved, one for the services or the facilities provided by the organiser and the other one is towards the prize money where some person(s) lose and some person(s) gain. The first part is categorised as supply of services and the consideration if specified specifically, the same is subject to tax. The balance portion, i.e., the prize money depends upon an event and is an actionable claim and the same is not subject to tax.

Hon’ble Bombay High Court in Gurdeep Singh Sachar (supra) held that, “The scope of definition of ‘consideration’ extends only in relation to “the supply of goods or services or both”. Since, the said activity or transaction relating to the actionable claim qua the amounts of participants pooled in escrow arrangement, for which only acknowledgement is given, is neither supply of goods nor supply of services, the same is clearly out of the purview of the expression ‘consideration’. Since the CGST Act itself do not allow the imposition of Tax on such ‘actionable claim’ in relation to the Online Fantasy Sports Gaming of the respondent No. 3, it being other than lottery, betting and gambling, the said Rule 31A(3) of CGST Rules 2018 cannot be read in such a manner so as to override the parent CGST Act. The said Rule 31A(3) reads as under :-

“31A. Value of supply n case of lottery, betting, gambling and horse racing.-

(3) the value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator.”

Since the actionable claim in the Online Fantasy Sport Gaming of the respondent No. 3 are amongst such actionable claims as per Schedule III and Section 7(2) of the Act, which are not considered as ‘supply of goods’ or ‘supply of services’, Rule 31A has no application. Moreover, actionable claim referred to in Rule 31A is limited to only activities or transactions in the form of chance to win in “lottery” or “betting” or “gambling” or “horse racing in a race club”. Thus, Rule 31A which is restricted only to such four supplies of actionable claim, has no application in this case.”

In view of the above, in every online fantasy sports game, there is clear and separate amount taken from the participants towards service charges and the same is subject to tax as supply of services and not the entire amount deposited by the participants.