In a major relief to the online gaming industry, the Jaipur bench of the Rajasthan High Court stopped the Director General of GST Intelligence (DGGI) and Union of India from taking coercive action to recover Goods and Services Tax (GST) from MyTeam11 Fantasy Sports Private Limited for allegedly misclassifying their supply instead of an actionable claim involving gambling and betting.
In an order dated 18th January 2023, a division bench of Chief Justice Pankaj Mithal and Justice Shubha Mehta noted that several decisions of the Rajasthan High Court, including in Chandresh Sankhla v. State of Rajasthan & Others have noted that in respect of services offered by a similar company Dream11, that the activity of fantasy sports is not amounting to gambling and betting but is a game of skill and that the matter is no longer res integra.
The bench also noted that the view taken by the Rajasthan High Court in Chandresh Sankhla had not been disturbed by the Supreme Court, and Special Leave Petition (SLP) filed against the order was also dismissed by the apex court.
The court also noted in 1996, the Supreme Court in Dr. KR Lakshmanan v. State of Tamil Nadu & Another had ruled horse racing to be a game of skill and outside the ambit of gambling and betting.
Based on the above points, the Rajasthan High Court noted:
In view of the totality of the facts and circumstances of the case, we are prime facie satisfied that some of the games offered by the petitioners online have already held to be games of skill rather than that of chance or of betting/gambling. Thus when the matter is so settled by various Courts, the issuance of the impugned show cause notice is nothing but an abuse of the process of law.
The court further proceeded to direct the GST authorities not to take any coercive action to recover any amount from the petitioners pertaining to the show cause notice alleging that they are indulging in gambling/betting activities, provided the petitioners reply to the said show cause notice. The bench also admitted the matters for a final hearing and asked the GST authorities to file a counter affidavit within one month.
It may be noted that the GST authorities are conducting investigations against various online skill-based gaming companies claiming that they are involved in gambling and betting. Last year, a whopping Rs. 21,000 crores show cause notice was issued to Gameskraft Technologies (the parent company of RummyCulture) on the same ground of conducting gambling/betting, which has been challenged by the company in the Karnataka High Court.
A single judgment of the Karnataka High Court had reserved judgment in the matter on 17th November 2022 after hearing extensive arguments stretching almost twenty hours from both sides. A final decision on the matter is expected within the next few days.
Additional Solicitor General of India (ASG) N. Venkatraman had, during the Gameskraft proceedings court proceedings in Karnataka High Court, claimed that the department would be investigating hundreds of online gaming companies on the grounds that they are not skill games but rather involved in gambling and betting. It remains to be seen whether the department will issue similar show cause notices to other gaming companies and what the final judgment of the courts will be in the pending matters.