Aniket Pujari
According to the annual report of the DGGI, which is the central investigation and anti-evasion arm of the GST wings, the sectors with the highest evasion were online gaming, banking, financial services and insurance and services, followed by iron, copper, scrap and alloys in goods.
The evasion detected in FY24 is double of what was detected in FY23, which was about ₹1 lakh crore, involving cases over 4800.
To discuss the challenges and the road ahead for the DGGI, CNBC-TV18 spoke to Anil Kumar Gupta, Principal DG, DGGI.
Below is the verbatim transcript of the interview.
Q: Monitoring and enforcement have played a critical role in the success of GST in India and an interesting case that came to the fore was that of Infosys. It was in July when DGGI issued a pre-show cause notice to Infosys for alleged evasion of over ₹32,000 crore of IGST between July 2017 and FY2022, out of which ₹3,898 crore worth notice for FY18 was withdrawn. Where are we currently on this demand?
A: In fact, it’s true that the intelligence and investigating arm of any organisation, CBIC, like DGGI, plays a very important and crucial role in ensuring the compliance of GST law, which is the mandate and role of DGGI and also in that process to check black money. So in that role, we, besides booking cases and detecting cases and finding newer modus operandi in which some of the elements or some of the taxpayers, very miniscule who play with the GST law and evade taxes, we book them and bring it to the fore.
DGGI, in fact, besides ensuring compliance with GST law, also in that process educates and brings transparency in the way the GST law is being complied by the taxpayers. Yes, Infosys is a long story. In fact, DGGI has been investigating this case since 2020, and in between somewhere towards the beginning of this current financial year, about February-March, we came to know that state GST is also investigating into this case, and as per the mandate of the GST Council, that when multiple agencies are investigating the same taxpayer, in that process we transferred the case to state GST authorities in April or so.
But later on, there was some high court matter in Karnataka High Court, where Infosys challenged the authority of the state GST authorities, and in that process, there was a dialogue between the state and the center, and again this case came back to us towards the end of July 2024.
But before that, state GST authorities had already issued a DRC-01A, which is a pre-show cause notice to Infosys of about ₹32,000 crore or so, but when the case came to us, we issued the DRC-01, since we are investigating that case, and the issue, in brief, is of import of services made by Infosys from their branch offices for the execution of their export orders.
The matter as stands, now for the remaining years from the financial year 2018-19 onward, the issue is under examination because the circular to which Infosys claims that they are entitled, Circular 210 of the GST Council, which was issued recently after the GST Council meeting on June 23.
Q: What is the current status of this?
A: This demand is pending, Infosys is yet to file a reply for the remaining four years, once they file the reply, only then we will examine it because it is a pre-show cause notice. In the GST law for issuing a show cause notice, you issue a pre-show cause notice and then allow the company or the taxpayer to file a reply.
Once Infosys files the reply, we will examine them and accordingly decide on the matter.
Q: Recently, sources claim that the government is considering amendments in GST Circular 210, which talks about the valuation of the supply of services imported by a related party where the recipient is eligible for full ITC. To make it simpler, for the correction of the interpretation, this circular was issued. It is understood from sources that this circular could be tweaked further to give relief for Infosys. Do you think this is in offing?
A: It is difficult to say what is in the offing and what is in the pipeline because all such decisions are taken by the GST council, the apex decision-making body. What I can say only is that we have suggested, we have also made a reference to the board, giving certain difficulties and implications of Circular 210, which are under examination in the board and once a call is taken, the future course of action of that circular will be decided.
Q: What do you think can be done to give relief to Infosys? Is there an intent within the government to do so, or do you think that the case is strong enough and the government should pursue the case towards plugging this leakage?
A: This question has two arms. First is whether our case is strong or not, that I will say we only book cases, which are legally sustainable and as per the GST law prevalent at that time. Whatever DGGI has done, it is as per law there is nothing wrong with that. The second aspect is whether the government intends to do any relief to Infosys that is up to the government. The government is considering weighing all pros and cons and Infosys is a premier IT company of India, whether such transactions need to be taxed or not taxed, is the prerogative of the government and whatever the government decides, we will implement accordingly.
We are the implementing arm of the government and the policymaking arm is to decide what the future course is on Circular 210.
Q: Coming to the insurance services. Recently, notices were sent to as many as 20 general insurance companies operating in SEZ units for alleged evasion of about ₹20,000 crore as unpaid dues for services furnished before the employees of industrial units within these zones and their families. Companies such as HDFC Ergo General Insurance, Star Health and Allied Insurance, Cholamandalam, MS General Insurance, etc. were issued notices for IGST dues, alleging misuse of provisions that exempt certain SEZ services under Section 16 of the IGST Act. What is your view on this? Is there an intent in the government to clarify this issue, or again, as I said, are you going ahead with this demand to plug this leakage of ₹20,000 crore, making these insurance companies pay back?
A: Basically, these are the supplies which insurance companies have made to the units located in SEZs and normally a supply to SEZ is exempted and that is what the insurance companies have taken the benefit. But however, when we found and went into detailed investigation of these insurance companies, we found these were not actually supplied to the SEZ units by the insurance company. It was in fact a supply for ensuring the life of the employees and their families, employees of the SEZ units and their families, which is not a supply per se to the SEZ unit, which is exempt. This is clearly a taxable supply for which insurance companies are liable to pay.
Let me place on record that some of the insurance companies are already paying tax on GST on this kind of supply, and we also found that some of the insurance companies, while paying in one case were not paying in another case. As per the GST law, it is a taxable supply and for which we have, our Mumbai unit investigated cases and issued show cause notices to various insurance companies.
Q: We saw the GST Council setting a lot of pending issues. They have settled, for example, for the insurance sector only. 53rd GST Council settled the cases where the GST Council has taken note of the industry representations and clarified in favour of the insurance sector with respect to co-insurance, re-insurance, rec and salvage, etc. Is this matter of IGST dues from the SEZ units covered in this particular clarity or this is separate from what came in the GST Council?
A: What the 53rd GST Council meeting and the circulars thereafter had clarified, this current issue of supplies to SEZ is not covered under those clarifications and was not the subject matter of discussion for those issues which were before the board or the GST council. This is a separate issue, an independent issue, which is not covered in those clarifications of co-insurance, re-insurance and other sectors.
The cases of DGGI, which were also made against all those insurance sectors, co-insurance and re-insurance, were taxable supplies, as per the existing, prevalent GST law applicable at that time. Now, it is a privilege of the government to exempt certain supplies and keep in view the representations of trade and bodies and industries. That is why the council, in its wisdom and has exempted the supplies of co-insurance or re-insurance.
Q: Online gaming is a sector which is yet to get relief. As your report mentioned that it is the largest GST evasion sector from the illegal offshore betting and gambling platforms, that is where the exact leakage is happening that you have highlighted in your annual report. Despite the amendments in the GST law, this is happening. While the local industry has complied with the new amendments, enforcement on offshore remains a challenge. How does DGGI propose to tackle this issue?
A: If you recall, online real money gaming, especially domestic, has been a subject matter of litigation and dispute for quite some time. Before this amendment last year, which on the basis of the recommendation of GST Council, was brought with effect from 1st of October, 2023, whereby making it very, very clear that this online real gaming is taxable as actionable claims at the rate of 28% and the value was also defined as gross revenue. So that made the things clear. But before that, for the past period, DGGI has investigated about 100 odd cases, and some 10-15, more cases are under investigation where we have issued demands of over ₹1 lakh crore, and all those issues are now before the Supreme Court, and all those petitions have been clubbed together. However, by bringing clarity and transparency in the online gaming taxability since October 2023, the revenue of the government has increased four to five times. Earlier, we were collecting about ₹200 crore to ₹250 crore per month. Now roughly about ₹1,300 crore to ₹1,500 crore we are collecting, and by and large, all online real money gaming companies in existence in India are complying with the law, which was amended and brought with clarity last year.
As far as your second part of the question, which is offshore online gaming, as per the amendment, once they are providing any taxable services in India, they were also required to take registration, simple registration in India, but none of the offshore gaming companies have taken registration so far. It’s about a year now since this amendment came, and it’s a big challenge for us to really investigate all those offshore gaming company, it’s a big menace. Besides the taxation issue, revenue issue, which we are not able to collect, it’s a social issue, also because the Indian citizens and consumers, they do not know whether they are playing on a legal platform or illegal platform. It has many implications, and for which we feel multi-agency cooperation and interaction is required by various agencies to tackle this menace, especially MeitY, ED. ED is also investigating few cases of online gaming. We are also investigating offshore. We have taken few steps. We have engaged with gaming associations in India, taken their viewpoint, and we are in touch with them. And similarly, we are taking action against offshore gaming identities, also by way of blocking their URLs and APIs.
Q: DGGI in its annual report also flagged that online money gaming is a high risk industry for tax evasion, money laundering, cyber fraud, juvenile delinquency, etc, various social economic issues are attached to the sector. As you mentioned blocking of the websites is also part of the action. Recently, you recommended blocking 167 websites and called for an interdepartmental committee with representatives from ED RBI, Consumer Affairs Department was also part of it. You said that this may be set up. Has this committee been set up?
A: This offshore online gaming issue has been discussed in many platforms and forums in the past one year or so. In our internal meetings with MeitY, DoT, even the Central Economic Intelligence Bureau, which is the body coordinating with various law enforcement agencies, so in those meetings, this issue has been on the agenda and discussions have taken place, and we are hopeful that in the times to come, we’ll find a way out to tackle this issue. What I want to emphasise is that no single agency can tackle this issue, because it is a multifarious issue, and we are roping in the dark because these offshore gaming companies are not compliant, and they keep on changing their URLs, domains very fast. We block, and they come up with 100 more. It’s a challenging thing.
Q: Does DGGI also engage with industry or industry associations to seek inputs to improve the understanding of the new age emerging sectors such as gaming?
A: Yes, we have been very, very open and transparent. On many issues, especially in gaming, we have been engaged with the Gaming Federation Association in India. We had one meeting in November 2023 and followed by another meeting in April 2024 where we threadbare discussed with the representatives of all the gaming federations in India about the challenges, issues they face, and we sought their cooperation, and they have been cooperating with us in supplying a lot of information. We are working together as far as the gaming industry is concerned. What I would like to say that we have changed our approach during the last one year or so. We have been engaging with other associations, also, like on foreign airlines, foreign shipping lines, insurance sector, etc.
Q: The tax demands that have been issued by DGGI have been in the news recently to multiple sectors, like insurance, foreign airlines, shipping lines, online gaming, etc. How is DGGI dealing with the industry-wide issues compared to the issues with the individual companies or taxpayers?
A: I would say that the government by itself is engaging with all industries and associations, and the government itself is trying hard to bring transparency and clarity to all these issues. What is the mandate of DGGI? DGGI is to ensure compliance with GST law as per the mandate, and we are mandated to bring out whatever lacunas or pitfalls that the taxpayers, by intention or unintentional, are using to not pay the appropriate, proper tax which is payable.
Q: Harassment is a major issue or an allegation that investigating agencies like you often face. What is your comment on that?
A: During the last one year or so, we have done a lot of introspection, and we are very harsh on any extortion or harassment done by our officers. We have strengthened our grievance redressal mechanism within the DGGI. We have issued our guidelines for investigation. We were the first agency to issue guidelines for investigation, keeping in view the ease of doing business, so that the genuine taxpayers are not put at any inconvenience while doing investigation.
