Gambling and Betting -a Game of chance or skill?

Gambling and Betting -a Game of chance or skill?

Author:- Aarti Khanduri, a 3rd year student of DAV (PG) College,Dehradun, Uttarakhand

Introduction-

“Everyone gets lucky once in a while, but no one is consistently lucky.” Doyle Frank Brunson, Poker Hall of Fame Inductee

The ancient Indian epic, the Mahabharata, tells the story of a great war between two factions of a royal family; a war that started with a game of dice, and which ultimately has devastating consequences. In the Mahabharata, the game of dice is a metaphor for the allure and dangers of gambling. It serves as cautionary tale, highlighting the negative consequences of addiction to games of chance while also imparting profound philosophical teaching regarding duty and righteousness, and the importance of self-control, ethical conduct and fair play.

 If we talk about the online gaming then it is very clear that gambling laws in India are said to be extremely complicated and open-ended with vague words used which lead to difficulty in easy interpretation. The primary reason for this drawback is that governing laws are extremely outdated which were formed before the independence of India. The Public Gambling Act of 1867 is a central law that prohibits running or being in charge of public gambling house.

However, after India’s independence and the constitution coming into effect in 1950, betting and gambling were made a part of Entry 34 of the state government in India will have the power to constitute laws regarding betting and gambling laws for their respective states. 

Is gambling Legal in India?

Gambling is the risking or staking of money or any other valuable security which may be referred to as “stakes” on an event that does not have a certain outcome with the main intention of winning more money or the good of a material value. The gambling requires three essentials to be fulfilled, these are consideration or money to be put on stake, the risk taken, and the price or outcome of putting the money at stake. The outcome of gambling is often immediate, for example rolling dice, spinning a roulette wheel etc. The outcome of gambling could also be long-term for example a future sports contest.

What is Betting?

Betting is a part of gambling. Gambling is a general term and includes betting. Betting as a term validates the activity of gambling. In the modern day and age, betting has become an agreement between two persons, where one predicts an outcome and places a bet and the other person forfeits the bet or pays up the agreed money to the other person. According to the Public Gambling Act (1867), all kinds of gambling in India are illegal.

Whether online betting is a crime?

As of now there is no strict laws that makes online betting an illegal activity. For example, IPL Betting is going through online. If the betting company’s county allows online gambling then you are doing it legal.

Games of skill Versus Games of Chance

In the Indian legal framework, a game is classified as a game of skill if it is predominantly determined by skill, whereas a game reliant largely on luck is considered a game of chance.

The Supreme Court of India (SC) has clarified the term “mere skill”, specifying that games in which success relies more on skill than on chance will not be classified as gambling, but will be recognized as games of skill.

In the case of State of Andhra Pradesh v K. Satyanarayana & Ors. and State of Bombay v R.M.D. Chamarbaugwala, the SC specifically tested the game of rummy based on the principle of skill versus chance and held that rummy is a game of skill, unlike three-card games such as “Teen Patti Flush”, which is a game of chance. While the SC has stated that any game involving the shuffling and dealing of cards contains an inherent element of chance due to the unpredictable distribution of the cards in the shuffled deck, it ruled that rummy is a game of skill as it requires a certain amount of skill particularly in memorizing the sequence of falling cards and strategically holding or discarding cards to build a strong hand. Such competitions are akin to business activities, protected by Article 19(1)(g) of the Constitution of India, 1950 (the “Constitution”) pertaining to the right to practice any profession or carry out any occupation.

In 2005, the Madras High Court, in the case of Manakadu Elainger Nala Sports, Narpani Mandram v State of Tamil Nadu, ruled that games such as chess and carom, even when involving payment of club fees, i.e., payment of consideration, did not amount to gambling as the games were predominantly games of skill rather than chance. As such, they were classified as games of skill and exempted under the Public Gambling Act, 1867.

In India, the States have the exclusive power to regulate betting and gambling, under Entry 34, List II of the Constitution. As such, there is no set or fixed law regulating the gaming sector, and this applies to online gaming too. However, recently the central government has also imposed certain responsibilities on gaming entities via amendments to the Information Technology Act, 2000 and the Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021.

Due to the varying legal positions adopted by different states, largely influenced by political considerations, the legal landscape for gaming in India is constantly evolving. Some states have gone as far as to classify certain online gaming platforms as “common gambling houses”, even if they are providing games of skills, an interpretation at odds with the position taken by other states. As a result, the distinction between games of skill and games of chance is usually assessed on a case-by-case basis by the respective state.

Why in news?

The decision of Karnataka High Court in Gameskraft Technologies (P.) Ltd. v. Directorate General of Goods Services Tax Intelligence has saved the online gaming industry. The High Court held that games of skill are not to be covered under the expression ‘betting and gambling’ in Entry 6 of Schedule III of CT Act. This was a huge relief for the online gaming industry, which are into organizing the games with skill. Examples can be rummy, cricket and various other games which involve skill rather than chance.

However, on the other hand, the recent decision of GST Council to bring tax on the face value instead of the service fee has rattled the industry. What is furthermore troublesome is the approach of the Council towards these games. The Council has earlier constituted a Group of Ministers (GoM) to study and propose the tax implications on Casinos, Race Courses and Online Gaming. The GoM has submitted its report as part of the 47th GST Council Meeting. The report was taken into consideration during the 50th GST Council Meeting and tax was brought on the complete bet value.

On one hand, the Karnataka High Court and various other Courts have held that games involving skill does not fall under the ambit of expression ‘betting and gambling’ as appearing in Entry 64 of List II of Seventh Schedule to Constitution of India. Applying the same analogy under the GST laws, the Courts (Karnataka High Court in Gameskraft and Bombay High Court in Gurdeep Singh Sachar v. Union of India) held that games of skill does not fall under the ambit of ‘betting and gambling’ as appearing in Entry 6 of Schedule III to CT Act, thereby becoming actionable claims whose supply is treated neither supply of goods nor supply of services. However, as stated earlier, the way the GST Council looks at the above is in complete contradiction.

With the above background, we shall proceed to examine in this article, the various hues of the issue by analyzing the judgment of Karnataka High Court in Gameskraft and take key pointers as to how the law surrounding the gambling and betting vis-à-vis GST is to be interpreted.

Before dealing with the core issue, a few aspects dealing with the scheme of GST to the extent it is relevant to article is worth discussing.

A stark difference between the erstwhile indirect taxation regime to the current GST regime is the definition of ‘goods. Earlier, the actionable claims are not included in the definition of ‘goods. They used to be outside the ambit of definition of ‘goods. Under the GST laws, the definition of ‘goods’ specifically includes ‘actionable claim’. Though, the definition of ‘goods’ specifically include ‘actionable claim’ in its ambit, the supply of all the actionable claims are not categorized as supplies under GST laws. This is evident from reading of Entry 6 of Schedule III to CT Act, which lists, ‘actionable claims, other than lottery, betting and gambling’ as activities or transactions which shall be treated as neither supply of goods nor supply of services. Hence, supply of actionable claims (Other than lottery, betting and gambling) are neither supply of goods nor supply of services.

From the above, it is evident that lottery, betting and gambling are classified as ‘actionable claims’ and thereby brought to tax. In this article, we shall deal only with the betting and gambling, since the issues surrounding the lottery and its valuation are settled by Honorable Supreme Court in Skill Lotto Solutions (P.) Ltd. v. Union of India.

The core issue before the High Court is whether offline/online games such as ‘Rummy’ which are mainly/preponderantly/substantially based on skill and not on chance, whether played with/without stakes amounts to ‘gambling or betting’ for the purposes of GST laws?

Gameskraft Technologies Private Limited (for brevity ‘Gameskraft’) is an online intermediary company who runs technology platforms that allows users to play skill based online games against each other. The platform has over 10 lakh users from across India. A search and seizure action were undertaken on Gameskraft which led to issuance of intimation to pay tax of Rs 2,09,89,31,31,501/- (I have to take help of Google to put the above amount in words – close to Rs 2,100 Crores). The said intimation was the subject matter of the writ proceedings before the High Court. An interim order of stay was granted by High Court. Thereafter, a show cause notice under Section 74(1) was issued to Gameskraft, which were again challenged before the High Court in writ proceedings. All India Gaming Federation and E-Gaming Federation have joined as intervenors supporting Gameskraft before the High Court.

Conclusion

The rise of the market for online gaming in recent years and the lack of a central law to regulate the online gaming industry have created a huge hazard in society. Betting and Gambling being on the state list empowers the state to make laws on the same, and this leads to different interpretations on the same subject, creating a haphazard situation in society.  Now it’s high time for the Central government to shift the subject of betting and gambling to the union list and make an umbrella legislation to regulate the whole gaming industry.

There should be limited time on gaming applications for the users to play these online games, which helps the players not get addicted to the same, and some guidelines should be issued for the children playing these games.  There is also some authority to look into the financial aspects involved in the gaming industry.