2023 (5) TMI 926 - HC - GST

Classification of services - offline/online games such as Rummy - to be classified under SAC 998439 or not - games of chance or skill? - Concept of res extra commercium - Concept of GST and Definition of Business under GST - concept of supply.

Whether offline/online games such as Rummy which are mainly/preponderantly/substantially based on skill and not on chance, whether played with/without stakes tantamount to ‘gambling or betting’ as contemplated in Entry 6 of Schedule III of the Goods and Services Act, 2017?

HELD THAT:- Based on the jurisprudence [1958 (4) TMI 42 - SUPREME COURT], the words “gambling”, “game of chance”, “game of skill” have developed meanings in judicial parlance. Therefore, applying the principle of nomen-juris, the words should be construed in their legal sense, instead of general parlance. While “gambling” or “game of chance” have been held to involve chance as a predominant element, on the other hand “game of skill” has an exercise of skill which can control the chance. The element of chance cannot be completely overruled in any case but what is to be seen is the predominant element. In a game of rummy, certain amount of skill is required because the fall of the cards has to be memorised and the building up of rummy requires considerable skill in holding and discarding cards. Therefore, a game of rummy is a game of skill as held in Satyanarayana [1967 (11) TMI 109 - Supreme Court].

It is concluded as under:

• There is a distinct difference between games of skill and games of chance; games such as rummy, etc. as was discussed in several decisions and particularized in the Division Bench decision of this Court in ALL INDIA GAMING FEDERATION AND ORS. VERSUS STATE OF KARNATAKA AND ORS. [2022 (2) TMI 1368 - KARNATAKA HIGH COURT], whether played online or physical, with or without stakes would be games of skill and test of predominance would apply; the said judgment is a total and complete answer not only to the various contentions urged by the respondents but also covers the issues / questions that arise for consideration in the instant petitions - It was held in the said case that The provisions of Sections 2, 3, 6, 8 & 9 of the Karnataka Police (Amendment) Act 2021 i.e., Karnataka Act No. 28 of 2021 are declared to be ultra vires the Constitution of India in their entirety and accordingly are struck down.
• Though Section 2(17) of the CGST Act recognises even wagering contracts as included in the term business, but that in itself would not mean that lottery, betting and gambling are the same as games of skill.
• The meaning of the terms “lottery, betting and gambling” as contemplated in Entry 6 of Schedule III of the CGST Act should be construed nomen juris in the light of the decisions of the Hon’ble Supreme Court, this Court and other High Courts which do not include games of skill.
• Entry 6 in Schedule III to the CGST Act taking actionable claims out of the purview of supply of goods or services would clearly apply to games of skill and only games of chance such as lottery, betting and gambling would be taxable.
• Taxation of games of skill is outside the scope of the term “supply” in view of Section 7(2) of the CGST Act, 2017 read with Schedule III of the Act.
• A game of chance whether played with stakes is gambling;
• A game of skill whether played with stakes or without stakes is not gambling;
• A game of mixed chance and skill is gambling, if it is substantially and preponderantly a game of chance and not of skill;
• A game of mixed chance and skill is not gambling, if it is substantially and preponderantly a game of skill and not of chance;
• Rummy is substantially and preponderantly a game of skill and not of chance;
• Rummy whether played with stakes or without stakes is not gambling;
• There is no difference between offline/physical Rummy and Online/Electronic/Digital Rummy and both are substantially and preponderantly games of skill and not of chance;
• Online/Electronic/Digital Rummy whether played with stakes or without stakes is not gambling;
• Other Online/Electronic/Digital games which are also substantially and preponderantly games of skill and not of chance are also not gambling;
• The expressions, ‘Betting’ and ‘Gambling’ having become nomen juris, the same are applicable for the purpose of GST also and consequently, the said words, ‘Betting’ and ‘Gambling’ contained in Entry 6 of Schedule III to the CGST Act are not applicable to Online/Electronic/Digital Rummy, whether played with stakes or without stakes as well as to any other Online/Electronic/Digital games which are also substantially and preponderantly games of skill;
• The subject Online/Electronic/Digital Rummy game and other Online/Electronic/Digital games played on the Petitioners’ platforms are not taxable as ‘Betting’ and ‘Gambling’ as contended by the respondents under the CGST Act and Rules or under the impugned show cause notice issued by the respondents.

The impugned Show Cause Notice dated 23.09.2022 issued by the respondents to the petitioners is illegal, arbitrary and without jurisdiction or authority of law and deserves to be quashed - Petition allowed.