Nazara Technologies Receives Rs 3 Crore Tax Notice from DGGI

Mumbai, September 30, 2023 - Nazara Technologies Ltd., a prominent player in the Indian mobile gaming and sports media platform industry, finds itself in the spotlight after receiving a tax notice amounting to Rs 3 crore from the Director General of GST Intelligence (DGGI). This development marks the latest episode in a series of tax-related controversies that have engulfed India's burgeoning online gaming sector. The notice, issued on September 27, 2023, includes a tax demand of Rs 2.83 crore, along with interest and penalty charges.

 

Table of Contents

1. Introduction
2. The Tax Demand and Its Basis
3. The Force Majeure Event and Delayed Export Proceeds
4. A Broader Trend in the Indian Gaming Industry
5. Conclusion

 

The Tax Demand and Its Basis

The tax demand levied against Nazara Technologies is rooted in the provisions of the Central Goods and Services Tax Act, 2017, and the Maharashtra Goods and Services Tax Act 2017. Specifically, it is made under section 74(1) of the Central Goods and Services Tax Act, 2017. The notice also encompasses interest charges as per section 50 of CGST and a penalty under Section 122(2)(b) of the Act, in conjunction with Section 20 of the Integrated Goods and Services Tax Act, 2017.

 

The crux of the tax dispute centers on the company's assertion that it had exported services under a letter of undertaking, bypassing the payment of Goods and Services Tax (GST), as per rule 96A of the CGST Rules, 2017. However, the tax authorities argue that due to the non-receipt of export proceeds, which they attribute to a force majeure event, the sale of services cannot be treated as the export of services. Consequently, the tax notice claims that Nazara Technologies is responsible for paying IGST at the rate of 18% on the value of these services.

 

The Force Majeure Event and Delayed Export Proceeds

The company, in its filing, has cited unforeseen circumstances beyond its control as the reason for the delay in receiving the export proceeds. The term "force majeure" refers to events or circumstances that are beyond the control of the parties involved and may absolve them from fulfilling contractual obligations. Nazara Technologies is presumably attributing the delayed export proceeds to such a force majeure event.

 

The company expressed its intent to respond to the show cause notice within the prescribed time limit, in accordance with stock market regulations. This response is expected to include a detailed account of the circumstances surrounding the delayed export proceeds and an argument for why the company should not be liable for the tax demand, interest, and penalties.

 

A Broader Trend in the Indian Gaming Industry

Nazara Technologies joins a growing list of online gaming companies in India that have been served with tax notices in recent times. This includes notable names in the industry such as Dream11, Games24x7, Gameskraft, and Delta Corp. The tax authorities seem to be closely scrutinizing these companies' tax compliance in the rapidly evolving and highly competitive Indian online gaming market.

 

FAQS

 

Q1: What is Nazara Technologies, and what does it do? A1: Nazara Technologies Ltd. is an Indian mobile gaming and sports media platform company. It operates in the online gaming sector, offering a variety of gaming and sports-related content and services.

Q2: What is the tax notice that Nazara Technologies received from DGGI?

A2: Nazara Technologies received a tax notice from the Director General of GST Intelligence (DGGI) for a tax demand of Rs 2.83 crore, along with interest and penalty charges amounting to Rs 3 crore. The notice is based on alleged GST non-compliance.

Q3: Why did Nazara Technologies receive this tax notice?

A3: The tax notice is related to the company's assertion that it exported services under a letter of undertaking without paying GST, citing a specific rule. However, the tax authorities argue that due to the non-receipt of export proceeds, possibly due to a force majeure event, the services cannot be treated as exports, and hence, Nazara Technologies is liable for the GST.

Q4: What is a force majeure event, and why is it relevant in this context?

A4: A force majeure event refers to unforeseen and uncontrollable circumstances that can absolve a party from fulfilling a contract. In this case, Nazara Technologies is citing a force majeure event as the reason for the delay in receiving export proceeds, which is central to the tax dispute.

Q5: Are there other companies in the online gaming industry that have received similar tax notices?

 A5: Yes, Nazara Technologies is not alone in receiving tax notices. Several other companies in the Indian online gaming industry, including Dream11, Games24x7, Gameskraft, and Delta Corp, have also faced tax-related scrutiny recently.

Q6: What is Nazara Technologies' response to the tax notice?

 A6: Nazara Technologies has stated that it will file its response to the show cause notice within the prescribed time limit, as required by stock market regulations. The response is expected to provide details regarding the force majeure event and why the company believes it should not be liable for the tax demand.

Q7: How will this tax dispute impact Nazara Technologies and the online gaming industry in India?

 A7: The resolution of this tax dispute will depend on the legal arguments and evidence presented by Nazara Technologies and the decision of the tax authorities. It highlights the growing regulatory and tax scrutiny in the Indian online gaming industry, which could have broader implications for companies operating in this sector.

 

Conclusion

The tax notice issued to Nazara Technologies has brought the company into the spotlight amidst a broader trend of tax-related scrutiny in the Indian online gaming sector. The company's response to the notice, which is expected to address the force majeure event and its impact on the delayed export proceeds, will play a crucial role in determining the outcome of this tax dispute. As the online gaming industry in India continues to grow, regulatory and tax issues are likely to remain in focus, making it imperative for companies in the sector to navigate the evolving landscape carefully.