The Goods and Services Tax (GST) is never away from the news. Given the sheer sweep of the levy, covering as it does all activities deemed to be supply (be it of goods or services), this is not surprising. But it would also suggest a fiscal legislation which is in a constant state of flux — and that is not a good thing for trade and industry.

Before I get into this, the good news first. GST revenue continues to show robustness. Rs 1,62,712 gross GST revenue was collected in September 2023, a 10 percent year-on-year (YoY) growth. The revenue for the six-month ending September 2023 crossed Rs 9.92 lakh crore, which is up 11 percent YoY. IGST continues to be the major element of the GST revenue kitty. GST revenues in major manufacturing states Telangana, Tamil Nadu, Karnataka grew —as also in Manipur, J&K, which were among the 12 states which grew above the national average of 14 percent.

GST revenue’s performance reflects the economy. The Centre for Monitoring Indian Economy (CMIE) points out that the consumer sentiments have risen by a sharp 4.3 percent in September 2023 as per the Consumer Pyramids Household Survey. The S&P Global India manufacturing PMI for September was 57.5 points — very impressive though down from 58.6 points of the previous month. E-way bills collections are more than 93.4 million indicating buoyancy in economic activity. The Government’s push on capital expenditure has resulted in growth in steel consumption, capital goods production, cement production — all indicators of increased economic activity.

The first quarter (FY24) GDP figures indicate a growth rate of an impressive 7.8 percent, up from the 6.1 percent recorded in the last quarter of financial year 2023. The World Bank has projected India’s FY 24 growth at 6.3 percent. Although it was lesser than RBI’s forecast at 6.5 percent, still considered as very impressive when compared to other countries. India’s growth rate is the second highest among G-20 countries and almost twice the average for emerging market economies.

Also Read: GST Appellate Tribunals to be set up in three months, 48th Council meet to pave way

On the flip side, global crude oil prices have been steadily going up hovering in the region of US $93 per barrel. The current account deficit is still about 1.1 percent of GDP. The Indian Rupee continues to depreciate and is presently at 83.02 against the US dollar. Inflation is well above the RBI’s red line —and could be a factor for the increased GST revenue.

Trade continues to face the challenges of global headwinds. India’s overall exports (merchandise and services combined) in August 2023 has shown a negative growth even after the DGFT revised the June and July export data sharply. The delayed revision of any data is never good and calls into account the very integrity of data.

It is in this background that we should view the developments on the GST side. The issue of levy of GST on the actionable claims supplied in casinos, racecourses and online gaming which was hanging fire for more than two years was given finality in the 51st GST Council meeting. The Council recommended that these activities be taxed at 28 percent on full face value irrespective of whether these activities are a game of skill or chance.

Also Read: All India Gaming Federation writes to finance ministry to suspend GST notification on online gaming: Sources

The Council had also recommended that the law be amended to give more clarity. These amendments were to be brought into effect from October 1, 2023. Though never explicitly mentioned in the press note issued after the Council meeting, these changes were to be applicable from 2017 — when GST was introduced, as they were said to be only clarificatory in nature.

The amendments have accordingly been brought about by the Central Board of Indirect Taxes & Customs (CBIC) through corresponding notifications. The field formations have promptly issued notices — ranging from Rs 28,000 crore (the highest ever notice issued to any company so far) to Rs 20,000 crore. And the notices are bound to keep coming since the time limit under Section 73 of CGST will kick in.

All these notices are bound to be challenged and will result in prolonged litigation. While the decision to blur the distinction between games of skill and chance, or levy GST on the full-face value as against on the platform fee can perhaps be defended, the government will be hard pressed to defend the decision to levy it from 2017 — in effect retrospectively.

The amendments which have been brought in to implement the decision of the council are substantial — new definitions, increase in the scope of specified actionable claims, introduction of new clauses/provisos, new sections, amendments in existing sections.

Another piquant situation which has been created is that all States have not carried out the necessary amendments in their corresponding SGST laws.

Yet another legal standoff possibly awaits. Timsy Jaipuria of CNBC-TV18 has tweeted about a recommendation of the law committee to levy GST on corporate guarantees given by the parent to its subsidiary including guarantees given by directors.

Apparently, this is on the agenda for the forthcoming Council meeting. While there is a 2018 circular (No. 34/8/2018-GST) which states that guarantees given by Central Government/State Government to any entity including PSU’s against consideration is taxable, the problem arises when the guarantee is given in a related party situation without any consideration. The challenge here is arriving at the value to assign to such guarantees. This is a thorny issue and the Council’s decision will have repercussions.

All these legal challenges will have to be juxtaposed in the backdrop of the fact that the GST Tribunal is yet to start functioning. This has been badly delayed. The centre and the states will do well to ensure that the GST Tribunal is up and running. Given the deluge of notices being issued they are bound to have their hands full.

—The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.

Read his previous articles here

(Edited by : C H Unnikrishnan)

First Published:Oct 5, 2023 6:36 PM IST