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The Goods and Services Tax (“GST”) legislation has recently completed its sixth anniversary. The 50th GST Council meeting conducted on July 11, 2023 was marked by tax rate changes, availability of exemptions, procedural amendments, etc. It is noteworthy that the GST Council is proactively considering representations and feedback from all quarters of the industry. While the Government has been persistent in its efforts to iron out all creases, bottlenecks continue to exist. It was also expected that several sectors, including online gaming, would get relaxation – that the GST authorities would simplify the law, avoid unnecessary ambiguities, but in reality, it appears that on certain fronts, it has merely focussed on increasing sources of tax collection.

Rate Rationalisation

The Government has tried to remove ambiguity in applicable rates, which troubled honest taxpayers, and gave rise to unnecessary litigations. For various sectors such as medical implants, imitation zari, fish soluble paste, desiccated coconut, biomass briquette, raw cotton, uncooked snacks, etc., it has decided to regularise the issue and offer rate reduction on certain items in the future. This specifically signals GST Council’s receptiveness to industry demands and feedback.

To address the issue of climate change, concessional tax rates have been announced on LD slag to encourage its utilisation. Further, GST exemption has also been declared on various medicines and food items of special medical purposes, which are used to treat rare diseases and on cancer drug ‘dinutuximab’ when procured for personal use. Promotion of private entities in the satellite launching services sector has also been exempted. For food and beverage services in cinema, the tax rate has been notified as 5% when not clubbed with movie ticket.

Business-friendly environment

The GST Council has recommended the issuance of multiple clarificatory circulars or notifications to modify the procedure to ease out compliances that need to be followed by entities. These are in relation to the requirement of issuances of e-invoices, exempting annual returns of small taxpayers, manner of calculation of interest in case of wrongful availment and utilisation of ITC, procedure for verification of difference in ITC, extension of amnesty scheme for non-filer of return (quarterly return for composition scheme taxpayer, annual return, final return, revocation of cancellation of registration, etc.) till August 31, 2023, extension of due dates of GST return in Manipur, allowing manual filing of appeal, no requirement to select payment of GST under forward charge mechanism by goods transport agency every year, etc.

One of the most anticipated concerns of both the taxpayer (especially litigants) and the department was regarding the establishment of GST Appellate Tribunal (“GSTAT”). The GST Council has recommended to notify the Goods and Services Tax Appellate Tribunal (Appointment and Conditions of Service of President and Members) Rules, 2023, by August 1, 2023. It will be an interesting second half innings of the year wherein multiple matters would be appealed post the appointments and establishment of the GST Appellate Tribunal.

Apart from this, the GST Council has also targeted the issue of tax evasion and put various checks and balances in place for specific industries, by implementing various measures, such as the requirement of e-way bill for transport of gold or precious stones, special composition scheme for tobacco, pan masala manufacturers, denial of refund on export of tobacco, pan masala, strengthening the registration process, procedure for recovery of tax where output tax liability declared in GSTR1 is more than GSTR 3B beyond a specific threshold, ITC mismatch resolution, etc.

Tax certainty

Apart from the above, currently taxpayers having offices in multiple states were either cross-charging or distributing credit through Input Services Distributor (“ISD”) mechanism. The GST department has been disputing the manner of credit sharing with its other offices. To reduce ambiguity, the Council has recommended to clarify via a circular that the ISD mechanism is not mandatory and the manner of taxing the internally generated invoice. However, for the future, it has been recommended to make ISD mechanism compulsory for common services procured. This allows the taxpayer to be prepared for the future and substantially reduce litigation surrounding past transactions undertaken by such entities.

Similarly, the industry was also struggling with inimitable challenges (posed by the GST department) related to the rendering of services by a parent company to its subsidiary on mere holding of security. In this regard, it has been clarified that it is not a service taxable under the GST.

It has also been recommended to clarify that replacement of parts or repair services during the warranty period would not require reversal of ITC by the manufacturer. A circular clarifying the tax collection at source liability for an ecommerce operator (“ECO”) in a transaction involving multiple ECOs would also be issued. Also, additional services provided by the director of a company, such as renting of property or any other service provided in his personal capacity, would not be taxable under reverse charge mechanism in the hands of the company.

Impact on Online Gaming Sector

While the aforesaid changes reinforce the progressive nature of the GST regime, the changes recommended for the online gaming sector may have an adverse impact on this sunrise industry.

It has been recommended that online gaming would be taxed at the higher rate of 28% on the face value of the bets. In this regard, it has been proposed to amend Schedule III of the CGST Act, to include online games as actionable claim and for the valuation provision. The aforesaid changes appear to be a step towards increasing the tax collection from the exponentially growing sector. It is also aimed at reducing the controversies surrounding such online games, on it being game of skill or game of chance, to identify the applicable rate of GST, which had become a problematic and subjective fact finding exercise from department perspective. This would have created a fresh wave of litigation.

While the actual amendments are yet to be notified, from the information available in the public domain, it appears that there may still be certain ambiguities, whether any different kind of fee charged by platforms which may be related or unrelated to online games would be exigible at 18% or 28%. Since the changes are expected to be prospective, the taxability for prior period would continue to be litigative. While the Karnataka High Court has taken a progressive decision by negating the charge of tax demand by the revenue authorities to charge online skill games like rummy at 28% GST (Gameskraft case[1]), it is still being challenged before the Supreme Court and the fact finding exercise per game is still keeping the ambiguity alive. The yield and revenue of gaming platforms may be adversely impacted, thereby reducing and impacting its popularity among potential investors. Subsequently, it can also dampen the innovation in graphic and technology sector, which was providing employment to a considerable percentage of the work force. This change may also have counter intuitive impact by reducing inflow of foreign investment in the online gaming industry.


It is anticipated that the GST Council would continue to introduce sweeping changes to transit the GST regime into a simple and straight forward one. Based on its experience and industry feedback, the GST Council has recommended various amendments to the GST legislations to weed out issues related to the treatment of various supplies, tax certainty, availability of credits, simplification of several complicated compliance mechanisms, introduction of amnesty schemes to let go of simple procedural mistakes, etc. While taxpayers continue to expect a more supportive business environment and easier compliance measures, the GST council has made an effort to balance the needs of the industry and the current economic state of the country. Additionally, few specific changes such as the establishment of GSTAT and impact of rates recommended for the online gaming industry will determine the fate of such sectors. Its benefits to the taxpayer and the economy will have to tracked minutely for better implementation.

Overall, in our opinion, there are some significant triumphs and misses. It would be imperative for the GST Council to continue to establish a taxpayer friendly regime and an empathetic GST system, which would not only promote entrepreneurship, but also provide a fertile business environment for established entities, while attracting foreign players to the country.

[1] Gameskraft Technologies v. Director General of Goods Services Tax Intelligence, WP No. 194570/2022 (Kar HC).