40 online gaming companies likely to receive notices for GST evasion: Govt officials

40 online gaming companies likely to receive notices for GST evasion: Govt officials

Following a recent development in the Indian gaming industry, it has been reported that approximately 40 online gaming companies may soon receive show-cause notices from the Goods and Services Tax (GST) authorities. This action is being taken in response to allegations of tax evasion. The trigger for this move was a Supreme Court ruling that stayed a Karnataka High Court judgment. The High Court had previously quashed a GST notice issued against Gameskraft Technology Private Limited (GTPL) for alleged tax evasion amounting to Rs 21,000 crore.

The Supreme Court’s stay order was issued on September 6, 2023, effectively putting the Karnataka High Court’s decision on hold. The High Court had made its judgment in May 2023, which has now been overridden by the Supreme Court’s intervention.

This development highlights the increasing scrutiny of tax matters in the online gaming sector in India. The GST authorities appear to be taking a proactive stance to investigate potential tax evasion cases, with GTPL’s case being just one example. It remains to be seen how these actions will unfold and how the affected gaming companies will respond to the upcoming show-cause notices from the GST authorities.

The show-cause notice issued to Bengaluru-based online gaming company Gameskraft Technology Private Limited (GTPL) is noteworthy for its scale, as it represents the largest such claim in the history of indirect taxation in India. This notice, which alleged tax evasion amounting to Rs 21,000 crore, was initially issued by a GST intelligence unit in September 2022.

GTPL is just one of several online gaming companies currently under investigation by the Directorate-General of Goods and Services Tax Intelligence (DGGI) for suspected tax evasion. It is estimated that there are approximately 40 companies in total that are subject to this investigation.

While the GST authorities had been working on sending notices to other online gaming companies, they faced obstacles due to a Karnataka High Court order. However, with the recent Supreme Court ruling staying the High Court’s judgment, it is expected that a wave of show-cause notices will now be issued to these companies.

This indicates that the GST authorities are determined to pursue potential tax evasion cases in the online gaming sector using a similar principle as was applied in the GTPL case. The situation underscores the increased scrutiny of taxation matters in the online gaming industry and the government’s efforts to address potential revenue losses through tax evasion.

The decision to hold back show-cause notices by the GST authorities was influenced by the fact that the activities of Gameskraft Technology Private Limited (GTPL) and other gaming companies were considered identical. These companies were allegedly involved in promoting online betting through money games and were suspected of evading payment of the 28 percent Goods and Services Tax (GST) between 2017 and June 30, 2022.

This uniformity in activities among the gaming companies led the GST authorities to temporarily suspend their pursuit of show-cause notices, pending the outcome of legal proceedings. However, with the recent Supreme Court ruling that stayed the Karnataka High Court’s decision regarding GTPL, it is likely that the authorities will resume their actions against the other companies. The allegations of tax evasion and the promotion of online betting through money games have raised significant concerns, prompting the GST authorities to take a closer look at these gaming companies’ financial activities and tax liabilities.

According to Additional Solicitor General N Venkatraman, the Central Board of Indirect Taxes & Customs (CBIC) had decided to temporarily halt the issuance of at least 35 show-cause notices to various online gaming companies following the Karnataka High Court’s judgment.

However, despite this pause, the department has taken action by sending out three show-cause notices to specific gaming companies:

1. Gameskraft Technology Private Limited (GTPL) received a show-cause notice alleging tax evasion of a staggering Rs 21,000 crore, making it the most substantial such claim in the history of indirect taxation in India.

2. Two other gaming companies were issued show-cause notices, each alleging tax evasion amounting to Rs 3,000 crore. These notices are part of the broader investigation into potential tax evasion within the online gaming industry.

These show-cause notices are indicative of the authorities’ efforts to scrutinize and address potential tax irregularities and revenue losses within the online gaming sector. The legal proceedings and outcomes of these cases will be closely watched as they have significant implications for the industry and indirect taxation in India.

The legal proceedings surrounding the show-cause notices issued to online gaming companies are expected to continue. According to a senior government official, show-cause notices will indeed be issued to other companies as well, and the Supreme Court has allowed for this action to proceed. The Directorate-General of Goods and Services Tax Intelligence (DGGI) is actively pursuing its investigations against these companies.

The case involving Gameskraft Technology Private Limited (GTPL) began when the company received the show-cause notice in September 2022. In response, GTPL approached the Karnataka High Court, which, in May 2023, quashed the show-cause notice. The High Court also made an observation that the department was selectively choosing its arguments.

Following this, the Directorate of Revenue Intelligence of GST appealed against the High Court’s judgment in the Supreme Court. As a result, the legal battle has escalated to the highest court in India, where the Supreme Court has intervened, and its recent decision has paved the way for the issuance of show-cause notices to other companies and the continuation of investigations. These legal proceedings are significant as they will determine how tax matters related to online gaming are handled and could set important precedents in the industry.