From criminality to clarity
The Supreme Court’s May 2026 judgment on the goods and services tax (GST) for online gaming has been debated largely as a fiscal question — a staggering Rs 2 lakh crore (roughly $20 billion) retrospective demand on an industry that hardly exists. But the more corrosive dimension of this episode is not the size of the demand. It is the criminal character the tax department has attached to it. The overwhelming majority of show cause notices against gaming companies were issued under Section 74 of the Central GST Act. This is not a routine provision for recovering tax that was short paid. Section 74 is reserved for cases involving fraud, wilful misstatement, or suppression of facts — conduct that is deliberate, concealed, and dishonest. Invoking it is an accusation, not an accounting exercise. And it is an accusation that sits uneasily against the documented record.
Consider what that record shows. For a decade before GST, gaming companies paid service tax on gross gaming revenue (GGR) — the platform fee they actually earned — and continued the same practice after 2017. In 2018, the industry wrote to the government and the GST Council, disclosing precisely how it was computing its liability and asking whether there was any difference of opinion. It received no response.
Between 2021 and 2023, the GST Council’s own publicly published minutes studied global practice, acknowledged that Indian companies were paying tax on GGR, noted this as international best practice, referenced the Supreme Court and high court judgments underpinning that approach, and contemplated changing the regime prospectively. In 2023, the law was amended to tax deposits instead, and the industry complied. This is the opposite of suppression. A taxpayer who repeatedly discloses its methodology to the very body that administers the tax, whose practice is recorded and examined in official minutes, and whose returns are filed and audited in the open, cannot sensibly be accused of concealing facts. Suppression requires something hidden. Here, nothing was.
Yet the Supreme Court holding that the 2023 amendment was merely “clarificatory” has retroactively transformed a transparent, contested interpretation of law into presumptive fraud dating back to 2017. The consequences of that transformation are severe and personal. Section 74 carries extended limitation periods, steeper penalties, and opens the door to prosecution. Because the retrospective demands dwarf the assets of the companies involved, more than 400 startup founders — and directors nominated by global investors to their boards — face the prospect of personal liability for what was, at worst, a good-faith reading of an ambiguous law that the government itself took six years to resolve.
This should alarm anyone who does business in India, in any sector. If openly disclosed, judicially supported, officially examined conduct can be recharacterised years later as wilful evasion, then no interpretation of tax law is safe, and no compliance officer’s sign-off means anything. The distinction between the honest taxpayer and the fraudster collapses. The remedy need not be sweeping. The GST Council has the power under Section 11A to regularise past industry practice, as it has done for shipping, airlines, insurance, and information technology. At a minimum, the government should convert notices from Section 74 to Section 73 — treating this as a dispute over tax short paid, not a crime — and let each case be adjudicated on its merits. India can debate how much tax was owed. What it cannot afford is to criminalise transparency itself.
Source : https://www.financialexpress.com/opinion/from-criminality-to-clarity/4287766/
