52nd GST Council meeting: States flag issue of ‘retrospective taxation’ on online gaming firms

Millet flour in powder form, containing at least 70 per cent millet by weight, will not attract any GST if sold loose, but will face 5 per cent levy if sold in pre-packaged, labelled form, said an official statement. Also, an amnesty scheme has been provided to businesses by extending the time period for filing appeals before the first appellate authorities till January 31, 2024, for demand orders passed by tax officers till March 2023, with an enhanced pre-deposit of 12.5 per cent of the tax demand against 10 per cent at present.

Finance Minister Nirmala Sitharaman said the GST Council has “ceded” the right to impose tax on ENA to the states. “If the states want to tax it, they are welcome to do it. If the states want to leave it, they are welcome to take a call on it. The GST Council is not taking a call to tax it although the right to tax lies here. So, in the interest of states, we have, if I may use the word, ceded, the right to states,” she said.

Sitharaman noted that Delhi’s Finance Minister Atishi raised the issue of tax demand notices being sent to online gaming companies. “Delhi Minster’s concerns were more on the line of taxing them, (how it) will kill a sunrise industry, our youth need this industry and also taking up the issue of notices sent to these companies. We heard her,” she said.

Revenue Secretary Sanjay Malhotra underlined that it is not retrospective taxation, as liabilities from these companies already existed. “There was some discussion on it (GST notices issued), certain members did raise this issue and they were informed that this is not retrospective in any way because this is how the law was earlier. The law has not been amended retrospectively, so these liabilities were already existing… they were already attracting (GST of 28%) by virtue of entry in betting and gambling. So, because the Council has not decided anything for the past, it’s a prospective legislation. Whatever was the law as it existed earlier, it was clarified to them that it is because of this that those notices have gone to them,” he said.

Chhattisgarh Deputy Chief Minister T S Singh Deo said some states like Delhi and Goa raised the issue of online gaming companies receiving a spate of GST demand notices for alleged evasion. “There were discussions on charges (tax demand notice) on these companies retrospectively. Because DGGI is an independent body, there cannot be any interference. The (GST Council) chairperson said she would make clarifications available to DGGI, if required,” Deo said after the Council meeting.

Delhi’s Finance Minister Atishi said tax notices are being sent for a much higher amount than the estimated valuation of the gaming industry. “From October 1, this 28 per cent GST (on online gaming) was to be implemented. But tax notices for the last six years calculated at a much higher rate have been sent to online gaming companies.” she said.

“An industry whose valuation is Rs 23,000 crore, you are slapping a tax notice of Rs 1.5 lakh crore. This is to kill the industry. This shows an unsafe, erratic investment environment in Indian startups,” she said, adding that the Centre has not given any assurances on the taxation liability of gaming platforms and hoped it would be considered going forward.

“A company with a net worth of Rs 4,000 crore cannot pay Rs 16,000 crore as tax. Nowhere does it happen that (when) any new tax is imposed or the rate of taxation is increased, it is done with retrospective effect. Most of the states said this is an anomaly that has to be corrected,” said Goa Industries and Panchayat Minister, Mauvin Godinho, who attended the GST Council meeting.

“Once they realise it is bad in law, they will automatically withdraw the notices… after it has been brought to the notice of the Council. This issue was raised and discussed… decisions which can lead to closure of the industry will never be taken,” he said.

Amended legal provisions and rules for online gaming, horse racing and casinos came into effect from October 1, bringing into effect the 28 per cent GST at face value at entry level, and mandatory registration for offshore online gaming companies in India. As of now, 18 states have brought the required amendments in their state GST laws, Malhotra said.

States also raised the issue of how the cess will continue under GST once it comes to an end in March 2026. Currently, cess is being used to pay off the borrowed amount meant to compensate states during the initial five-year period of GST which ended June 2022.

The other significant recommendation by the Council was regarding the issue of taxation of corporate guarantee, wherein no tax will be levied when no consideration is paid by the company to the director. However, when a corporate guarantee is given by a company to its subsidiary, it will be deemed that the value is 1 per cent of the corporate guarantee. “So, it will attract GST at the rate of 18% on 1% of the total amount guaranteed by the parent company,” Malhotra said.

The Council also gave its nod to cap the maximum age of the GST Appellate Tribunal (GSTAT) president and members at 70 years and 67 years respectively, as against the earlier age limit of 67 and 65 years. The minimum age for appointment would be 50 years. Also, an advocate with up to 10 years of substantial experience in litigation under indirect tax laws would be eligible for judicial membership in the tribunal.

With ENS inputs