28% tax rate: Notifying CGST amendments without corresponding SGST amendments, creates anomaly and implementation nightmare

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The centre on Friday notified 1st October as effective date for 28% tax rate for online gaming, casinos and horseracing. However, several states are yet to make corresponding amendments to the SGST Laws.

This is probably the first time where the central government has notified changes to GST regime without there being corresponding amendments by state governments.

Sudipta Bhattacharjee (Partner, Indirect Taxes, Khaitan & Co) said the construct of ‘one nation, one tax, one market’ completely falls when only the amendments to the CGST Act are brought into force and the State GST laws remain unamended, more so, since in the context of gaming, the very taxable base for levy of GST is being altered vide these amendments. Bhattacharjee is representing Gameskraft in the Supreme Court on the ongoing Rs 21,000 crore GST matter and several other gaming companies across various High Courts.

He says the present move is completely violative of the celebrated Supreme Court judgment in Mohit Minerals.The Supreme Court in Mohit Minerals said Parliament and the State legislatures possess simultaneous power to legislate on GST and the functions of the GST Council must be understood in the context of such simultaneous legislative power and none hold any ‘unilateral or exclusive’ legislative power.

According to Bhattacharjee, the implementation of the CGST and IGST amendments from 1st October despite corresponding State GST law amendments not being in place appears to be a move to push the States to pass their respective amendments at the earliest and till that happens, there will clearly be an anomaly. It is worth noting Karnataka, a major revenue state promulgated an ordinance after centre notifying effective date under CGST Laws.

Explaining the anomaly, Bhattacharjee says Nagaland and Meghalaya have amended their SGST laws but Sikkim has not. Operators with registration in Sikkim will technically not be liable to SGST but will be liable to CGST for deposits/purchase of hips from players/users located in Sikkim. However, IGST will be applicable for all deposits from customers located outside Sikkim. Whereas operators in Nagaland/Meghalaya will have to charge full tax rate for all customer deposits/ purchase of chips irrespective of whether their users/players are within or outside Nagaland/Meghalaya.

Practically, to be on the safe side, gaming companies in States like Sikkim may still collect the State GST portions from their users from 1st October and keep it separately to be deposited at a later date, he advises gaming operators.

E-gaming companies along with industry association AIGF, have flagged that since many states are yet to pass amendments in their respective State GST (SGST) laws, this notification by the union government in CGST and IGST laws will create confusion.

In a letter to Revenue Secretary Sanjay Malhotra, AIGF sought to know that with around 15 states yet to make changes to their respective State GST laws, what would be GST treatment that ought to be adopted by online gaming companies registered in those states in relation to deposits received from players of those states.