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December 23, 2020

Online games sent by an email or link to customers in India will attract 18% GST

by CA Shivam Jaiswal in GST

Supply of online games sent by an email attachment or via a secure link to customers in India will attract goods and services tax at 18%.

GST is a unified, destination based indirect tax. It is imposed on the value added to goods as well as services at each stage of the supply chain. The purpose behind implementing GST was to create a unified market in the country. Therefore, many indirect taxes were subsumed and the tax compliance was reduced to achieve this purpose. The GST rate in India for various goods and services is divided under 4 slabs; these are 5% GST, 12% GST, 18% GST, and 28% GST. However, there are some products that do not carry any GST rate. Therefore, many issues arise under GST regarding the applicability of GST Rates.

Let us refer to the case of Amogh Bhatawadekar (AAR Maharashtra) where issue raised was how much GST did Supply of games online attracted?

Facts of the Case:

  • The applicant was a proprietor supplying digital goods, in the subject case ‘online gaming’ and had not obtained GSTIN because he was of the opinion that the services rendered by him is export of e-goods (Digital Goods).
  • Applicant has submitted that, in electronic commerce, digital goods were described as goods, which were stored, delivered and used in electronic format and shipped electronically to the consumer through email or downloaded from the Internet.
  • Applicant submitted that Digital goods were products and services that were completely delivered using information technology i.e., they did not involve an exchange of physical things.
  • Applicant contacts the suppliers of digital products requesting a list of digital products that are available with them.
  • Digital Goods were then sent to the applicant by Email or Instant message service and payout was issued.
  • These received digital goods were assessed and stored on Cloud Servers for dispatching to customers of the applicant.
  • Customers visited the Website of the applicant online and made payments to the applicant, after which Digital Goods were then delivered by cloud server to customer by Email.
  • Applicant had submitted that their Suppliers were located abroad.
  • Suppliers were contacted by Email or instant Message service. The Payments were received from customers using PayPal.
  • The purchase of these digital goods was made online by the applicant’s customers.
  • Once, payment was received, the merchant provided the customer with a digital item as an e-mail attachment or would provide a secure link where the item could be downloaded.
  • No invoice was raised for delivering digital said goods, which had limited life.
  • According to petitioner, their services were covered under HSN Chapter Nos. SAC 99841 to 99846 and not liable to GST or IGST, being stored on/ received on CLOUD servers which are usually located abroad and delivery/supply of the e-goods to customers is done from the CLOUD server itself.
  • It was therefore fully outside India and not liable to GST, being export of services.

Observations of AAR on whether “e goods” are “goods” or services as per GST Act:

  • In the subject case the e-goods, referred to by the applicant were ‘online gaming’, as stated by him during the course of Final Hearing.
  • Section 2(17) of the IGST Act, 2017, defined ‘online information and database access or retrieval services’ (OIDAR) as “services whose delivery is mediated by information technology over the interne/ or an electronic network and the nature of which renders their supply essentially automated involving minimal human intervention and impossible to ensure in the absence of information technology and includes electronic services such as online gaming.”
  • Therefore, e-goods (in this case online gaming) would be considered as services under the GST Laws.

Observations of AAR regarding classification of the said services

From the submissions made by the applicant, AAR found that the subject services i.e. online gaming fell under SAC 998439. All services covered under 9984 attracted a GST rate of 18%.

Observations of AAR on whether RCM is applicable on procurement from foreign supplier & supply from out of India

  • AAR found that there was a supply of OIDAR services to the applicant from suppliers based abroad.
  • The nature of OIDAR services were such that it could be provided online from a remote location outside the taxable territory.
  • A similar service provided by an Indian Service Provider, from within the taxable territory, to recipients in India would be taxable.
  • In cases where the supplier of such service was located outside India and the recipient was a business entity (registered person) located in India, the RCM would get triggered and the recipient in India who is a registered entity under GST will be liable to pay GST under reverse charge and undertake necessary compliances.
  • If the supplier was located outside India and the recipient in India was an individual consumer not registered under GST Laws, in such cases also the place of supply would be India and the transaction is amenable to levy of GST.
  • In such case the individual should obtain registration and pay GST under reverse charge.

Therefore, the GST Authority for Advance Rulings (AAR – Maharashtra bench) held that supply of online games sent by an email attachment or via a secure link to customers in India will attract goods and services tax at 18%.

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