What are the rates applicable under GST, and how are they decided?

The Goods and Services Tax (GST) in India is a comprehensive indirect tax implemented under a framework established by the Constitution (One Hundred and First Amendment) Act, 2016. Here’s an overview of the applicable rates, provisions in the Constitution, and landmark cases related to GST:

GST Rates in India

GST rates are categorized into multiple slabs, determined based on the nature of goods and services. These rates are:

1. 0% – Essential items such as fresh vegetables, fruits, bread, educational services, and healthcare.
2. 5% – Basic necessity goods like packaged food, sugar, tea, and rail transport.
3. 12% – Intermediate goods and services such as processed food, medicines, and fertilizers.
4. 18% – Standard rate for most goods and services, including consumer durables, IT services, and restaurants (without alcohol).
5. 28% – Luxury goods, demerit goods, and sin items such as cars, tobacco products, and air conditioners.
6. Cess – Additional compensation cess is applied to luxury and demerit goods to compensate states for revenue loss during GST transition.

Rates are reviewed periodically by the GST Council, chaired by the Union Finance Minister and composed of state finance ministers.

Constitutional Provisions for GST

Key Articles in the Indian Constitution:

1. Article 246A:
   • Grants both Parliament and State Legislatures the concurrent power to make laws regarding GST, except on goods like petroleum and alcohol.
2. Article 269A:
   • Deals with GST on inter-state trade and commerce.
   • Revenue from inter-state supplies is apportioned between the Union and the States.
3. Article 279A:
   • Establishes the GST Council, which recommends rates, exemptions, and thresholds.
4. Article 366(12A):
   • Defines GST as a tax on the supply of goods or services (or both) except alcohol for human consumption.
5. Article 368:
   • The Constitution was amended to create the GST framework, including repealing certain entries in the Union and State lists.

Landmark Cases Related to GST

1. Mohit Minerals Pvt. Ltd. v. Union of India (2022):
   • The Supreme Court ruled that GST Council recommendations are not binding on the Union and States. This affirms the cooperative federalism model of GST.
2. Union of India v. VKC Footsteps India Pvt. Ltd. (2021):
   • The Supreme Court upheld the validity of the formula for calculating refund of unutilized Input Tax Credit under GST, clarifying the rights of taxpayers.
3. Calcutta Club Ltd. v. Commissioner of Service Tax (2019):
   • The Supreme Court held that services provided by clubs to their members are not subject to GST, following the principle of mutuality.
4. State of Karnataka v. M.K. Agro Tech Pvt. Ltd. (2020):
   • Clarified the classification and taxability of products under GST, addressing the disputes regarding GST rates.
5. Skill Lotto Solutions Pvt. Ltd. v. Union of India (2021):
   • The Supreme Court upheld the levy of GST on lottery, betting, and gambling, considering them as “actionable claims.”

How GST Rates Are Decided

The Council periodically revisits GST slabs based on economic data, compliance levels, and feedback from industries and states.

Role of GST Council:

The GST Council (Article 279A) plays a pivotal role in deciding GST rates.

Decisions are made by a three-fourths majority, with the Union Government holding one-third of the votes and State Governments holding two-thirds.

The Council ensures that rates balance revenue generation with affordability for consumers.

Factors Considered:

Revenue-neutral rates for governments.

Impact on inflation and economic growth.

International best practices.

Sector-specific demands and representation from stakeholders.

Review Mechanism:

The Council periodically revisits GST slabs based on economic data, compliance levels, and feedback from industries and states.