PETITIONER

Good Morning to All the dignitaries present here.

The Counsel seeks permission to collectively refer the bench as ‘Your Lordships’. Much obliged Your
Lordships.

I am the first counsel for petitioners in the case of Midas Online Games v. Directorate of GST
Intelligence. I will be speaking for next 15 mins dealing with 1 st and 2nd Issue and my co-counsel will be
dealing with 3rd issue for 12 mins and we reserve 3 mins for rebuttals.
If your lordships are well-apprised of the facts of the facts, the counsel seeks permission to proceed.
The counsel seeks your lordships permission to address the 1 st Issue.

The Counsel will be dealing with the Third issue that is “WHETHER THE WRIT PETITION BEFORE
THE HON’BLE HIGH COURT OF KARNATAKA IS MAINTAINABLE?”

This issue will be dealt in 2 pronged manner,

1st The company has the requisite locus standi to file the present petition as there is a violation of
fundamental right of the Company.

2nd The existence of an alternative remedy is not an absolute bar

Coming to the first prong, the counsel submits that it was in the case of S.P. Gupta v. President of India
where the Supreme Court held that a person has locus standi under Article 226 if there is a violation of
any fundamental or legal rights, when there is failure of principles of natural justice; (iii) where the orders
or proceedings are wholly without jurisdiction or the vires of an Act are challenged.
The counsel argues that Article 14 of the petitioner is violated since there is a discriminate & arbitrary
application of GST provisions by the GST Department. Article 14 guarantees substantive and procedural
equality of law to all including corporations. It was in Ram Krishna Dalmia v. Justice Tendolkar, which
provided that the equal protection clause in it check arbitrary discrimination whether occasioned by the
express terms of the statute or by their improper application through duly constituted agents.
In the present case, Further, there is an unreasonable classification by the GST Department when it
applied § 74(1) for FY 2017-18 and § 73(1) for FY 2018-19. It doesn’t clarify which facts are being
suppressed, or misstated by Midas Online Games.
Further, no adhere was no communication to the company about the quantum of tax, interest, & penalty
due, and no opportunity of a hearing was granted.
Hence, the company has requisite locus standi to file the present writ petition.

Coming to second prong, the counsel submits that existence of alternative remedy is not an absolute bar.
The rule of exhaustion of alternative remedy is a rule of policy, convenience, and discretion rather than of
law. The writ petition cannot be turned down on the negative plea of alternative remedy and it must be
sustained on the basis of the rule “ubi jus ibi remedium and equity.” The power of the High Court to
entertain any question of violation of Fundamental Rights is an original power and it provides an
expeditious remedy than any other court process. Further, it is not within the jurisdiction of the any
tribunal to decide upon the violation of Fundamental rights.

Therefore, it is humbly submitted that the present writ petitions are maintainable under Article 226.

SECOND ISSUE.

If your lordships are satisfied, the counsel seeks permission to move to the second issue. Much obliged.
The second issue is “Whether the claim of GST Payment on the Entire Consideration by the GST
Department is sustainable in law.”
The issue will be dealt in three heads namely.
1st The Games provided by Midas Online Games are Games of skill rather than Game of chances and
thus, it is liable to pay tax @18%.
2nd Midas Online Games is liable to pay tax only on Pooling Fee.
3rd Demand order passed by the Department is outrightly arbitrary, egregious and illegal.

Coming to the first head i.e. Games of company are Games of skill rather than games of chances.
Your lordship, it is known that Midas Online Games deals in Online Gaming like Rummy, poker, fantasy
cricket, horse racing, online lottery. The counsel submits that games of company are games of skill and
this can be substantiated in a four-fold manner.
Firstly, In State of Andhra Pradesh v. K Satyanarayana, the supreme court tested the Game of Rummy for
skill v. chance test and held that Rummy is a game involving a preponderance of skill rather than chance
based on the fact that it requires a certain amount of skill. The fall of the cards needs to be memorized and
its building up requires considerable skill in holding and discarding cards. Thus, Rummy is game of skill.
Secondly, Online fantasy games held by the Courts to be games of skill in Ravindra Singh Chaudhary v.
Union of India. In fantasy games, success depends on knowledge, judgement and attention. There has to
be a mix of players from both the competing teams between whom the real-life matches are being played.
The participant competes with each other against their virtual teams in real and the winners are decided
based on points scored, using statistical data generated by the real-life performance of the players on the
ground. Thus, Online Cricket fantasy is game of skill.
Thirdly, in K.R Lakshmanan v. State of Tamil Nadu, the court held that betting on horse races is a game
of skill and not game of chance. Before placing a bet, one takes into account the inherent capacity of the
rider, capacity of the animal form, fitness of the rider and horse, distance of the race among other factors.
Thus, it can’t be called games of skill.
Fourthly, the Karnataka High Court ruled in Indian Poker Association (IRA) v. State of Karnataka that
Poker is a “game of skill”. Further, in a recent judgement ofVarun Gumber v. Union Territory of
Chandigarh, the court held that playing Online games involves exercise of superior knowledge, judgment
and attention of the participant. Online games require substantial degree of skill and thus, exempted from
the provisions of the Public Gambling Act 1867.

Thus, it is rightly concluded that Games by the company are games of skill. Hereby, it is humbly
submitted that since the games organised by the company are Games of skill, they will not be subjected to
Rule 31A of CGST Rules. The online skill-based gaming industry currently pays tax @18% on the
platform fee under HSN 998439. Thus, Midas Online Games is liable to pay tax @18% only on the
Admission fee.

Coming to the second head i.e. MIDAS ONLINE GAMES IS LIABLE TO PAY TAX ONLY ON THE
ADMISSION FEE.
It will be dealt in a three-fold manner-
Firstly, there is no taxable event in the instant case since the actionable claim on pooling fee is neither
supply of goods nor supply of services. As per § 7, there should be supply of goods for consideration in
course of furtherance of business for a taxable event to occur under GST Act. It is proved in the above
submissions that games organised by Midas Online Games are not in the nature of gambling. The
actionable claims of these games will fall under Entry 6 of III Schedule in § 7(2) which says actionable
claim of such activities can neither be considered as supply of goods nor supply of services and are
clearly exempted from levy of any GST as held by the court in the case of Gurdeep Singh Sachar v.
Union of India. Since there is no supply of goods or services by the company in the instant case, there
will be no tax leviable as per GST Act.

Secondly, a tax can be levied only on the basis of consideration. The expression „consideration‟ in §
2(31) of the Act reads as any payment made whether in money or otherwise in respect of or in response to
goods or services or both. It implies that supply of either goods or services is must for consideration. As
proved in the above submissions that actionable claims of Games organised by the company are neither
supply of goods nor supply of services as per § 7(2) read with Entry 6 of Schedule III. Thus, the pooling
fee is clearly out of the purview of the expression „consideration‟ and “taxable event‟.
Thirdly, Rule 31A(3) of CGST Rules has no application in the instant case since it is not applicable on
games of skill, it being other than betting and gambling. Thus, it follows that the company is liable to pay
tax only on the admission fee that they receive and not for the entire amount.

Coming to the third head i.e. THE DEMAND ORDERS PASSED BY THE DEPARTMENT are OUTRIGHTLY
ARBITRARY, ILLEGAL AND VIOLATIVE OF ARTICLE 14.
The counsel submits that firstly, the manner of issuance of demand orders violates Article 14 of the
petitioner. E.P. Royappa v. State of T.N. is the seminal case where arbitrariness was developed as a
distinct doctrine on which an executive action could be struck down as violative of rule of law contained
in Article 14. If any executive action is per se arbitrary, it will be violative of Article 14.
In the present case, there has been discriminatory and arbitrary application of GST provisions by the GST
department. It is apparently arbitrary of the GST department to allege different grounds for demanding
tax for different FYs without any determining principle in place. It is wholly irrational and unreasonable
proposition that the company was evading tax in FY 2017-18 by suppressing facts while from FY 2018-
19, it stopped evading tax & switched to short payment of tax. Thus, the demand order by GST
Department are outrightly arbitrary and violative of Article 14.
Further, there can be no suppression in the instant case since the company had a bona fide belief that it
is required to pay tax only on the admission fee. It is the numerous high court rulings and GST provisions
that led it to believe that no tax is to be paid on actionable claims.

Secondly, there is an apparent disregard of the procedure in the instant case, which goes to the root of
the law. The principle of reasonableness requires that the procedure must be “right, just, and fair” and
not arbitrary, fanciful or oppressive. A duty is enjoined upon the proper officer under § 74(3) to make a
communication to the taxable person about the quantum of tax, interest and penalty. This is to give him
an opportunity to make payment on his own. In the present case, no adequate opportunity was granted
to the petitioner to make payment on its own.

Thirdly, the counsel submits that SCN and demand orders are devoid of legislative authority in the
instant case. As per § 73 and § 74, the proper officer is required to issue SCN and demand orders to the
taxable person and the “proper officer” is the Superintendent of Central Tax according to the circular of
the Central Board of Excise & Customs. 48 However, in the instant case, the office of the Director
General of GST Intelligence has issued the show cause notice and statements to the company. Thus, the
demand orders issued by GST department are unlawful, arbitrary, and violative of Article 14 and hence
the Company does not owe any debt to the GST Department.