[Analysis] Key Proposals in the CGST & IGST Amendment Bills, 2023

Table of Contents

1. Proposal to prescribe place of supply of goods where supply is made to unregistered person
2. Proposal to shift customs-based levy to inter-state IGST levy for notified import of goods
3. Amendments proposed in CGST Act for enabling taxability on online money gaming, casinos and horse racing
4. Taxability on online money gaming, casinos and horse racing for offshore entities

1. Proposal to prescribe place of supply of goods where supply is made to unregistered person

A new clause (ca) is proposed to be inserted in Section 10(1) of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) to prescribe the place of supply in the case where the supply of goods is made to an unregistered person. It is provided that the place of supply in such cases shall be the location as per the address of the said person recorded in the invoice issued in respect of the said supply. Where the address of the said person is not recorded in the invoice, the place of supply would be the location of the supplier. The given place of supply would have an overriding effect on clause (a) or clause (c) of the said Section.

This clause is proposed to be introduced to address the situations where goods are purchased over-the-counter in one State and subsequently carried to another State by the recipient. In these cases, certain suppliers were imposing CGST and SGST instead of IGST. Further, there were instances where several tax authorities were issuing directions to charge CGST and SGST instead of IGST in such a situation.

This issue was initially discussed during the 37th GST Council Meeting, wherein it was proposed to provide suitable clarification through a Circular. The intention was to categorize such scenarios under the scope of Section 10(1)(a) of the IGST Act, if the unregistered recipient’s address was provided. However, if the recipient’s address is not available on records, it would fall under Section 10(1)(c) which would be the location (over the counter) where goods are handed to the recipient, which is typically the supplier’s place of business. However, the Council eventually decided to revisit this clarification as it was deemed to be beyond the scope of the relevant provisions governing the determination of place of supply.

Subsequently, during the 50th GST Council Meeting, this issue was revisited, and a recommendation was made to amend Section 10(1) of the IGST Act by introducing the new clause (ca). It is important to note that Rule 46 of the CGST Rules outlines the mandatory details to be included in a tax invoice:

(a) Name and address of the recipient and the address of delivery, along with the name of the State and its code where the recipient is unregistered and the value of taxable supply is Rs. 50,000 or more

(b) However, where the recipient is unregistered and the value of taxable supply is less than Rs. 50,000, the tax invoice must contain the details mentioned in point (a) above if the recipient requests that such details be recorded on the tax invoice

In conclusion, wherever an unregistered recipient provides the details of the address for inclusion on the invoice, the place of supply in such cases would be the location of such address recorded in the invoice. Where address is not recorded on the invoice, the place of supply would be the supplier’s place of business i.e. where the goods are handed over to the recipient, thereby implying that such cases would be considered as intra-state supply, and CGST and SGST would be levied.

2. Proposal to shift customs-based levy to inter-state IGST levy for notified import of goods

Proviso to Section 5(1) of the IGST Act provides for the manner of levy of IGST on the goods imported into India. It provides that IGST on the import of goods is to be levied and collected in accordance with Section 3 of the Customs Tariff Act, 1975 on the value determined under the provisions of the Customs Act and at the point where duties are levied under Section 12 of the Customs Act, 1962. Hence, currently, IGST on import of goods is levied in terms of provisions of Customs law.

The recent proposal to amend the aforesaid provision, through the IGST (Amendment) Bill, 2023, suggests the exclusion of certain notified goods from the levy of IGST in terms of the Customs law provisions. These goods would be notified by the Government, based on the recommendation of the Council, and the taxes on import of such notified goods would be levied and collected as an inter-State supply in terms of the levy provisions of the IGST Act, instead of the Customs law.

3. Amendments proposed in CGST Act for enabling taxability on online money gaming, casinos and horse racing

Based on the suggestions put forth during the 50th and 51st meetings of the GST Council, and with the objective of facilitating the imposition of 28% GST on the transactions pertaining to online money gaming, casinos, and horse racing, significant changes have been proposed under both the CGST Act and the IGST Act. Notably, the proposed amendments involve the insertion of definitions of online money gaming, Virtual Digital Assets (VDAs), specified actionable claims, etc. and changes in the definition of ‘supplier’ to include digital platforms within its scope, thereby influencing their GST obligations.

The aforementioned series of proposed amendments were anticipated in accordance with the suggestions put forth by the GST Council. The term ‘online money gaming’ has been precisely introduced to encompass solely those games wherein the money deposited by a player is at stake, i.e., which are in the nature of actionable claims. Notably, the GST Council in its 51st Council meeting also recommended to bring changes in the valuation rules under the CGST Rules to provide for the manner of valuation of online money gaming and actionable claims in casinos. As per the recommendation, in such cases, the taxable value would be the amount paid or payable to or deposited with the supplier, by or on behalf of the player (excluding the amount entered into games/bets out of winnings of previous games/bets) and not on the total value of each bet placed. Thus, the objective is to tax online money gaming on the full value of bets placed/amount deposited by the players at the rate of 28%. These amendments are yet to be notified by the Government.

Whereas, in the cases where there is no money involved at stake, it would not be covered within the scope of online money gaming. This suggests that such instances would be categorized simply as online gaming and will be considered distinct from online money gaming. Such instances would not be taxed on the full value of bets placed/amount deposited by the players. Instead, tax would likely be taxed on the value of the services i.e. the platform fee charged by the platforms.

Moreover, in line with expectations, there will be no differentiation in taxability between games of skill and games of chance. Also, the levy of GST on online money gaming would not be impacted by whether it is permissible under any other legal framework or not.

Further, the definition of the ‘supplier’ has been amended to include the person who owns, operates or manages digital or electronic platform for supply of specified actionable claims. The person would be treated as a supplier of these actionable claims, regardless of whether the claims are supplied by them or through them. The liability to pay GST would arise on such supplier whether the consideration for such supply is in the form of money, money’s worth, or virtual digital assets.

4. Taxability on online money gaming, casinos and horse racing for offshore entities

Similar to the CGST Act, amendments have been proposed in the IGST Act to enable the taxability of online money gaming for suppliers located in the non-taxable territory. These amendments are discussed in the below table:

Importantly, a distinction has been made between the supply of online money gaming and OIDAR services in respect of discharging tax liability. When OIDAR services are provided by an overseas entity to a non-taxable online recipient i.e. an unregistered person in the taxable territory, they are subject to IGST in the hands of the OIDAR service provider under forward charge mechanism. On the other hand, if these OIDAR services are provided to a registered person, the responsibility to pay IGST shifts to the registered recipient under the reverse charge mechanism. This mechanism shifts the tax payment burden on the registered recipient rather than on the foreign supplier.

Dive Deeper:
Reverse Charge Mechanism under GST

However, no such distinction has been proposed in case of overseas suppliers of online money gaming. The IGST liability would always arise on such overseas suppliers when the supply is made to a person within a taxable territory, whether or not such recipient is registered under the GST law.

Furthermore, in cases where offshore entities fail to comply with the registration and tax payment provisions, the Government will use the Information Technology Act to block access to their websites. It implies that online money gaming have been excluded from the scope of OIDAR services to place more stringent provisions on online money gaming.