Show Cause Notices To Gaming Firms Within Legal Boundaries: CBIC Chairman

SUMMARY

Sanjay Kumar Agarwal, said that the issuance of show cause notices to online gaming companies for alleged GST evasions have been carried out in accordance with legal provisions

Agarwal said that the tax demands being made are in strict adherence to the interpretation of the law, reflecting a uniform approach by the tax department

The government is fully prepared for implementing amended GST provisions, effective from October 1, he added

Amid the retrospective tax controversy in gaming segment, Sanjay Kumar Agarwal, chairman of the Central Board of Indirect Taxes and Customs (CBIC), affirmed that the show cause notices issued to online gaming companies for alleged Goods and Services Tax (GST) evasions are in accordance with legal provisions.

He added that the government is fully prepared to implement amended GST provisions, effective from October 1. These amendments include the imposition of a 28% GST on online gaming, casinos, and horse racing, along with the mandatory registration of offshore online gaming platforms.

Reports from earlier this week suggest that online gaming companies may soon face significant tax notices totaling approximately INR 1 Lakh Cr, to be issued by the Directorate General of GST Intelligence (DGGI).

DGGI has already initiated action by sending nearly a dozen pre-show cause notices to various real money online gaming companies, amounting to approximately INR 55,000 Cr.

Meanwhile, gaming unicorn Dream11 is taking a legal course of action in response to show cause notices from tax authorities. The startup’s parent company, Dream Sports lodged a writ petition in the Bombay High Court challenging a show cause notice issued by authorities. This notice alleges GST evasion and failure to pay the mandated 28% GST on the face value of bets.

In another case, DGGI issued a significant INR 21,000 Cr show cause notice to Gameskraft last year. This notice alleged indirect tax evasion related to a betting amount of INR 77,000 Cr between 2017 and June 2022. In response to the notice, Gameskraft had taken the matter to the Karnataka High Court, which had quashed the notice.

However, the situation took a new turn when the Supreme Court stepped in earlier this month. The Supreme Court, responding to a petition filed by the tax department, decided to stay the Karnataka High Court’s ruling.

The gaming industry in India has indeed faced significant challenges following the GST Council’s decision to impose a 28% GST on the full face value of bets for real money gaming earlier this year. This decision has had repercussions on several gaming companies.

For instance, gaming unicorn MPL (Mobile Premier League), web3 gaming startup Hike had to make workforce reductions.

Meanwhile, the Ministry of Electronics and Information Technology (MeitY) has reportedly decided to delay the establishment of self-regulatory bodies (SRBs) for the gaming industry as it awaits clarity on taxation issues.