Recovery of tax dues from gaming firms after SC order: CBIC chairman

Central Board of Indirect Taxes and Customs chairman Vivek Johri.  (Photo: Gireesh Chandra Prasad)
Central Board of Indirect Taxes and Customs chairman Vivek Johri.  (Photo: Gireesh Chandra Prasad)

Summary

  • The GST Council’s decision to clarify that online gaming platforms attract 28% GST seeks to make clear the legislative intent of the tax regime applying to these entities, Central Board of Indirect Taxes and Customs (CBIC) chairperson Vivek Johri said in an interview

NEW DELHI : Goods and services tax (GST) authorities will attempt to recover the tax demands made to a few online gaming platforms, including Gameskraft Technologies Pvt. Ltd only after the Supreme Court (SC) gives its final verdict on the tax dispute, Central Board of Indirect Taxes and Customs (CBIC) chairperson Vivek Johri said in an interview.

The GST Council’s decision to clarify that online gaming platforms attract 28% GST seeks to make clear the legislative intent of the tax regime applying to these entities, Johri said.

CBIC has referred around two dozen chartered accountants to the self-regulator of the accounting profession, Institute of Chartered Accountants of India (ICAI), for disciplinary action for their alleged involvement in the registration of fake entities to deal in bogus input tax credit, Johri said. The official also explained that the GST Council would further look into clarifying the taxability of sedans, which otherwise meet the criteria of vehicles in the 22% cess bracket, although they are not referred to as utility vehicles. Edited excerpts:

In the case of online gaming firms, when a large tax demand is issued, it could pose financial stress on the company, given that it may not be in a position to recover from its past customers any extra tax amount to pay to the government. Also, if the company goes insolvent, the liquidation proceeds could be abysmal. Can the Centre take a pragmatic view on the retrospective application of the 28% tax on online-gaming firms?

Look, there are two parts to this. The amendment, which the GST Council has approved, makes our intention, which was always there, abundantly clear because the entry in question in Schedule 3 (of Central and State GST laws) did not specifically refer to online gaming, horse racing, to casinos. There was a doubt raised whether these activities are covered by that entry or not. The online gaming industry, in particular, had made out a case that the entry applies only to actionable claims that are generated in betting and gambling. And it was their case that because online games, in their view, did not involve betting and gambling, they were not covered. They also made that distinction between games of skill and games of chance. And they said many of these are games of skill, and therefore, the tax does not apply to them. That was not the legislative intent. The legislative intent was to cover all these activities.

Within that entry, it was our view that these activities, because they involve putting money at stake and winning a certain amount or an open-ended amount based on the outcome of an event that is not known when you are betting, were activities that amount to betting and gambling. So, there was this confusion the industry had raised, or doubt the industry had raised about the applicability of this entry to them. Now, it is to very explicitly state our intent that the Council has approved the amendment to the law. With respect to past cases, the matter is before courts, and we have a decision in the Gameskraft matter in the Karnataka high court. We are planning to file a special leave petition in the SC very soon. So, we will await the outcome of that in that case and then decide on the future course of action.

So will the tax recovery be pursued?

Recovery will happen after this case attains finality. So, we will await the outcome of the SC decision. Because there is a high court decision that is in the favour of the industry, it may be premature to go for recovery at this stage. So, we will await the outcome.

How many online gaming firms have received demand notices?

I think show-cause notices have been issued to three or four. But investigations were initiated against a much larger number.

GST authorities have detected around 40,000 fake entities under the drive against fake entities that pass on bogus input tax credits (ITC). Are professionals like accountants and company secretaries involved in these, and will any action be taken against them?

We have come across cases where these professionals, particularly chartered accountants, were either directly involved or were assisting or abetting in the generation of fake invoices for the sake of passing on fake ITC. Now in some cases, we have also made arrests, and in all these cases, we have informed ICAI, giving details of these persons, and we expect the investigation of these cases under their mechanism for disciplinary action and see what action needs to be taken against them. Close to 24 chartered accountants have been detected in these cases.

The GST Council’s clarification in the case of automobiles brings all utility vehicles meeting the criteria of large displacement engines, length and ground clearance under the 22% cess bracket, even if they are not called sport utility vehicles. Is the Council looking at including sedans which meet these criteria in the same bracket of cess?

Under the current definition (of utility vehicles), sedans don’t fit in because the entry specifies ‘utility vehicles’, and sedans are normally not described as utility vehicles. But you do have sedans that meet all three criteria that have been prescribed for the high (22%) cess to apply. There was a discussion on this in the Council. And one of the states had made the suggestion that it may be worthwhile to rationalize the entry so that it covers all the vehicles that meet these requirements and is not confined to a particular segment. That has been assigned to the fitment committee to look at. As and when we get a recommendation from them, we will take it to the Council.

The proceeds of the GST cess, meant to repay market loans raised by the Centre to give liquidity support for states during the pandemic, have been growing. Was there a need for an increase in cess on some of the utility vehicles?

We have not increased the cess. There was some lack of clarity. If you recall, the earlier entry (definition of a class of vehicles for levy of 22% cess) referred to ‘sports utility vehicles’, but there were other utility vehicles which met the criteria but because of the use of the term ‘sport utility vehicles,’ they were not getting covered. And you know they could be in the same price range and meet these three criteria. So when the fitment committee was asked to examine this, the idea was to treat at par all types of utility vehicles, for example, multi-utility vehicles or crossover utility vehicles. There was a point of view that they may not be covered because the entry only talks about ‘sports utility vehicles.’ That is why we clarified it. So it is not a new imposition. It is a clarification of an existing position.

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