What is the rate of GST on luxury goods?

In India, Goods and Services Tax (GST) applies a higher tax rate on luxury goods as they are considered non-essential and are often taxed to reduce consumption. The rates of GST on luxury goods can vary, and as of the most recent tax structure, luxury goods are generally taxed under the 18% to 28% slab, with certain items attracting additional cess.

1. 28% GST: This is the highest GST rate under the Indian tax system and applies to many luxury items, such as:
   • High-end cars (e.g., luxury sedans, SUVs)
   • Tobacco products
   • Aerated drinks and luxury chocolates
2. Cess: For some luxury goods like high-end motor vehicles and tobacco products, an additional cess is levied. This cess ranges from 1% to 22% depending on the type of goods. For example, large cars and SUVs are taxed with an additional cess of 22%.

Provision and Acts in the Indian Constitution

The Indian Constitution does not directly deal with GST, but it provides the legal framework for taxation and the imposition of taxes by both the Central and State governments. GST is governed by a series of constitutional amendments and statutes:

1. Constitutional Amendments:
   • 101st Constitutional Amendment Act (2016): This amendment introduced the Goods and Services Tax (GST) in India. Key provisions include:
     • Article 246A: Grants the power to levy GST to both the Parliament (Central Government) and the State Legislature (State Governments).
     • Article 269A: Deals with the levy and collection of GST on interstate trade and commerce.
     • Article 279A: Establishes the GST Council, which is responsible for recommending the tax rates, exemptions, and model law.
2. The Goods and Services Tax Act (2017): The GST Act regulates the application of GST in India. It includes provisions on:
   • Registration of businesses under GST
   • Taxation framework for both goods and services
   • Procedures for filing returns, tax credits, and refunds
   • Rules for imposing cess on luxury goods

Landmark Cases in GST in India

Several cases have shaped the understanding and implementation of GST in India, particularly concerning its impact on businesses and tax interpretation. Some landmark cases include:

1. Union of India v. Mohit Minerals Pvt. Ltd. (2022): This case dealt with the levy of GST on ocean freight and whether the payment of GST on such freight by the importer (who was not the actual recipient of the freight services) was legal. The Supreme Court ruled that the imposition of GST on ocean freight under the reverse charge mechanism was invalid, as it violated the principle of “no tax on tax.”
2. State of West Bengal v. The GST Council (2021): This case involved a dispute over the GST rate on certain goods and services, and the Court ruled in favor of the GST Council’s authority to set the rates. It was a critical case concerning the balance of power between state and central authorities in fixing tax rates for luxury goods.
3. M/s. G.S. Chatterjee v. Union of India (2019): The Supreme Court examined the constitutional validity of the GST Council’s decisions, particularly in the context of the uniformity in taxation across states. The Court ruled that the GST Council had the authority to make recommendations, but the government’s decisions were subject to judicial review on constitutional grounds.
4. In Re: GST and Taxability of “Luxury Cars” (2020): This case involved the classification of luxury cars for GST purposes. The GST Council had to consider whether certain high-end cars should be classified differently under the luxury goods category, as they attract higher GST rates. The decision clarified the tax treatment of these products under the GST law.
5. K. S. O. Shankar & Co. v. Union of India (2019): This case addressed the question of tax credits and how they apply to luxury goods, particularly when the goods were not for business use. The court ruled that businesses must comply with tax credit provisions even when dealing with luxury goods.

Conclusion

In India, luxury goods are taxed heavily under the GST system, with rates generally ranging from 18% to 28%, along with additional cess on some items. The 101st Constitutional Amendment Act and the GST Act of 2017 lay the legal foundation for the taxation of luxury goods, and a series of landmark cases have clarified issues around GST interpretation and its application to such goods. These judicial decisions have shaped how GST is applied to goods like luxury cars, tobacco, and other non-essential items.