GST Council and Fiscal Federalism: Who Decides India’s GST Rates

This article examines this question through Articles 246A, 269A and 279A of the Constitution, the relevant GST legislation, and the Supreme Court’s decision in Union of India v. Mohit Minerals Pvt. Ltd. The article highlights the distinction between the Council’s policy recommendations, primary legislative power and delegated legislative action. It argues that while the GST Council is the principal forum for Union-State fiscal coordination and rate policy, its recommendations do not constitute primary legislation or override the constitutional powers of Parliament and State Legislatures. The GST framework therefore represents a model of cooperative federalism in which tax harmonisation is achieved through institutional consultation while legislative authority remains constitutionally distributed between the Union and the States.

1. Introduction

The introduction of the Goods and Services Tax in 2017 represented one of the most consequential changes to India’s fiscal constitution since Independence. Through the Constitution (One Hundred and First Amendment) Act, 2016, the traditional distribution of taxing powers between the Union and the States was substantially reorganised to accommodate a common tax on the supply of goods and services. The constitutional amendment inserted Articles 246A, 269A and 279A and introduced a new institutional relationship between the Union and the States in the field of indirect taxation. Article 246A confers simultaneous legislative power upon Parliament and State Legislatures in relation to GST, subject to Parliament’s exclusive competence over inter-State supplies. Article 269A establishes the constitutional framework for inter-State GST, while Article 279A creates the GST Council.

The GST Council is particularly significant because tax rates, exemptions and several structural aspects of GST are ordinarily preceded by its recommendations. Section 9 of the Central Goods and Services Tax Act, 2017, for instance, provides that CGST on intra-State supplies is levied at rates notified by the Government on the recommendations of the Council. Similar statutory mechanisms operate throughout the GST legislation.

This arrangement creates an apparent constitutional paradox. If the Council recommends a rate, who actually decides it? Is the Council effectively exercising legislative power, or is it performing a constitutional coordinating function whose recommendations are subsequently translated into enforceable law? The Supreme Court”s decision in Union of India v. Mohit Minerals Pvt. Ltd.¹ answers this question by drawing a critical distinction between the primary legislative power of Parliament and State Legislatures and the delegated power exercised by the executive. The judgment consequently provides the starting point for understanding the relationship between GST rate-making and fiscal federalism.

2. The Constitutional Design of GST: From Taxing Powers to Shared Fiscal Governance

The constitutional conception of GST cannot be understood merely by reading the GST Acts. Its legal foundation lies in the Constitution itself. Prior to the 101st Constitutional Amendment, the Union and States exercised distinct taxing powers over different aspects of economic activity. The GST framework altered this arrangement by creating a special constitutional field of taxation. Article 246A begins with a non-obstante clause overriding Articles 246 and 254 and provides that Parliament and, subject to clause (2), the Legislature of every State have power to make laws with respect to GST imposed by the Union or by the State. In relation to inter-State supplies, Article 246A(2) confers exclusive legislative power upon Parliament.

The significance of Article 246A is that Parliament and State Legislatures do not derive their GST legislative competence from the GST Council. Their authority flows directly from the Constitution. The Council therefore cannot be regarded as a superior legislative institution standing above the Union and State legislatures. This constitutional allocation becomes particularly important when considering whether a recommendation made by the Council can compel a legislature to enact a particular rate or exemption.

Article 269A complements this arrangement by dealing with the levy and collection of GST on supplies in the course of inter-State trade or commerce. The tax is levied and collected by the Government of India and apportioned between the Union and States in the manner provided by Parliament by law on the recommendations of the GST Council. The constitutional provision consequently recognises both central administration of inter-State GST and the federal sharing of its proceeds.

Article 279A completes the institutional framework. The GST Council consists principally of representatives of the Union and the States and is constitutionally entrusted with making recommendations concerning rates, exemptions, model laws, principles of levy and apportionment of IGST, place of supply and other matters relevant to GST. The Council is also constitutionally required to be guided by the need for a harmonised structure of GST and the development of a harmonised national market.

This architecture reveals the constitutional philosophy behind GST. The Constitution does not simply transfer the power of indirect taxation from the States to the Union. Nor does it leave every State free to determine its own GST policy. Instead, it creates a mechanism through which the Union and States are expected to deliberate upon a common fiscal framework. GST therefore represents a movement from separately exercised taxing powers towards institutionalised fiscal cooperation.

3. The GST Council and the legality of GST rate-making

The question of who determines GST rates becomes clearer when the constitutional framework is read together with the statutory provisions. Section 9(1) of the CGST Act provides for levy of CGST on intra-State supplies at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendations of the GST Council. The language is important. The provision does not state that the Council itself levies the tax. It contemplates a recommendation by the Council followed by a notification issued under statutory authority.

The same structure is visible in the IGST framework. Section 5 of the Integrated Goods and Services Tax Act, 2017 authorises levy of integrated tax on inter-State supplies and contemplates notification of the applicable rate by the Government on the recommendations of the Council. The statutory scheme therefore establishes an important institutional sequence: the Council formulates a recommendation; the legislature supplies the statutory authority; and the executive exercises delegated power within the boundaries of that legislation.

This distinction is fundamental to the constitutional principle of legality in taxation. A taxpayer’s liability must ultimately be founded upon law. A recommendation, however influential, does not by itself constitute an enforceable demand against an assessee unless the constitutional and statutory framework provides the necessary legal mechanism for giving it effect.

The practical functioning of GST confirms this distinction. The GST Council may recommend a reduction or increase in the rate applicable to a commodity or service. The recommendation is then followed by amendments to the relevant rate notifications under the CGST, IGST or corresponding State GST framework. The notification, rather than the press release announcing the Council’s decision, becomes the immediate legal instrument determining the operative rate.

This is not merely a technical distinction. It determines when a taxpayer’s liability changes, whether a notification falls within the scope of delegated authority, and whether the executive has acted consistently with the parent statute. It also preserves the constitutional separation between recommending policy and exercising legislative or delegated legislative power.

Consequently, the expression “the GST Council decides GST rates” is accurate only as a description of the Council’s dominant role in the policy formulation and recommendation process. As a matter of constitutional law, the Council does not itself enact the tax.

4. The Voting Structure of the GST Council: Federal consensus by design

Article 279A(9) of the Constitution adopts a distinctive voting mechanism for the GST Council. The vote of the Central Government carries one-third of the total weighted votes, while the votes of all State Governments collectively carry two-thirds. A decision requires at least three-fourths of the weighted votes of members present and voting. The structure therefore makes unilateral decision-making difficult and places negotiation between the Union and the States at the centre of GST policy-making.

The arrangement reflects the federal character of the GST framework. The Union cannot independently determine the Council’s position, while the States collectively cannot ordinarily secure the required majority without sufficient participation from the Union. The mechanism was accordingly designed to facilitate harmonisation through consultation rather than through unilateral fiscal control.

In Union of India v. Mohit Minerals Pvt. Ltd., the Supreme Court examined this institutional structure while considering the constitutional status of the GST Council. The Court recognised the Council as an important forum for Union-State deliberation, but clarified that its existence and voting mechanism do not confer upon it an independent legislative power superior to Parliament or State Legislatures.

The distinction is fundamental. Consensus within the GST Council does not itself amount to primary legislation. The Council’s recommendations operate within the constitutional framework of Articles 246A and 279A and acquire legal effect through the legislative or delegated statutory mechanism applicable to the particular measure. The voting structure therefore strengthens cooperative federalism without displacing the constitutional legislative competence of Parliament and State Legislatures.

5. Mohit Minerals Case and the constitutional status of GST council recommendations

The constitutional debate reached its clearest judicial expression in Union of India v. Mohit Minerals Pvt. Ltd. The case arose from the levy of IGST on ocean freight in CIF import transactions. Although the immediate dispute concerned the validity of the levy, the proceedings required the Supreme Court to examine the constitutional status of recommendations made by the GST Council.

A Three Judge Bench of the Supreme Court held that the recommendations of the GST Council are not binding upon Parliament and State Legislatures when they exercise their primary legislative power under Article 246A. The Court reasoned that Article 246A confers simultaneous legislative competence upon Parliament and State Legislatures, whereas Article 279A establishes the Council principally as a constitutional mechanism for making recommendations. Treating the Council’s recommendations as binding legislative commands would, in the Court’s view, alter the constitutional relationship between the Union and the States.

The judgment, however, requires careful reading. It would be incorrect to conclude from Mohit Minerals that every statutory consequence connected with a GST Council recommendation is legally optional. The Court expressly distinguished between primary legislation and delegated legislation. Where Parliament has enacted a statute providing that the Government shall exercise a particular delegated power on the recommendations of the GST Council, the statutory requirement operates upon the executive.

This distinction is particularly relevant to rate notifications. Section 9 of the CGST Act does not empower the GST Council to impose CGST directly. Instead, it requires the Government to notify rates on the Council’s recommendations. The recommendation therefore becomes a legally significant component of the delegated legislative process, while the actual notification derives its authority from the statute.

The constitutional reasoning in Mohit Minerals is closely connected with federalism. The Court emphasised that the Council’s recommendations emerge from a process of dialogue between the Union and States. The Council was not intended to create a constitutional hierarchy in which the legislative power of the Union and States would become subordinate to a third institution.

The decision consequently preserves two propositions simultaneously. First, the GST Council is constitutionally important and its recommendations are central to the operation of the GST system. Secondly, Parliament and State Legislatures retain their constitutional competence to legislate under Article 246A. The former cannot be understood in a manner that extinguishes the latter.

6. GST council as an institution of fiscal federalism

The most distinctive feature of India’s GST model is therefore not the existence of a common tax rate but the institutional process through which the Union and States attempt to arrive at common tax policy. Article 279A’s voting mechanism reflects this design. If a proposal is put to vote, the vote of the Central Government carries one-third of the weighted votes, while the votes of all State Governments collectively carry two-thirds. A proposal requires at least three-fourths of the weighted votes of members present and voting. The official GST Council describes its decision-making process as generally consensus-based, with the constitutional voting mechanism available where voting becomes necessary.

The structure is significant because neither side can ordinarily dictate the Council’s position through its own voting weight. The Union possesses one-third of the weighted vote, while the States collectively possess two-thirds, yet the three-fourths threshold makes cooperation between the two sides institutionally necessary.

This design reflects the Supreme Court’s understanding in Mohit Minerals that Indian federalism under GST operates through dialogue rather than through a simple hierarchy. The Court’s reasoning is particularly important because it rejects the assumption that harmonisation necessarily requires constitutional subordination. Uniformity is pursued through consultation and institutional coordination rather than by conferring unilateral legislative supremacy upon the Council.

At the same time, the practical autonomy of States under GST deserves closer examination. Formal legislative competence does not necessarily translate into unrestricted fiscal policy freedom. Before GST, States could determine the structure and rates of several State-level indirect taxes within the constitutional and statutory limitations applicable to them. After GST, a significant part of that policy space operates within a harmonised framework.

The constitutional question is therefore not whether States have completely lost fiscal autonomy; they have not. The more precise question is whether the nature of that autonomy has changed. GST has undoubtedly altered it. State fiscal policy in relation to GST is now exercised within an institutional structure where divergence from the common framework carries consequences for uniformity, compliance and the functioning of the national market.

This is the central trade-off within GST federalism. A common market requires a degree of harmonisation, while federalism requires meaningful participation by constituent units. The GST Council was created precisely to manage that tension.

7. Rate rationalisation and the difference between policy and law

The operation of the GST Council can be understood more clearly through the experience of rate rationalisation. At its 56th meeting held on 3 September 2025, the Council recommended a major restructuring of the GST rate framework, including a principal structure comprising a 5 percent merit rate and an 18 percent standard rate, together with a special 40 percent rate for specified goods and services. The Council also recommended significant exemptions and sector-specific changes.

The importance of this episode lies not merely in the substance of the rates. It demonstrates the constitutional distinction between policy recommendation and legal implementation. The official GST Council material recorded the recommendations, while subsequent government notifications gave legal effect to the relevant changes. The Government’s official FAQs stated that changes in rates for most goods and services were to take effect from 22 September 2025 and specifically clarified that the changes would be notified through the relevant rate notifications.

The sequence demonstrates why a Council meeting should not be treated as synonymous with the commencement of a new tax rate. A taxpayer must identify the legally operative notification, its effective date and the precise goods or services covered by it.

This distinction also becomes important where a rate change affects transactions occurring around the date of implementation. Section 14 of the CGST Actcontains the statutory rules concerning the time of supply when there is a change in the rate of tax. The official FAQs issued following the 56th Council meeting specifically addressed transactions supplied before the rate change but invoiced or paid thereafter.

The 2025 rationalisation therefore illustrates the actual operation of India’s GST architecture: the Council acts as the principal forum for inter-governmental tax-policy formulation, while the statutory framework and notifications determine the legal consequences for taxpayers.

This also demonstrates why describing the Council as the “rate-making authority” without qualification can be constitutionally misleading. The Council is undoubtedly central to rate policy, but the enforceable rate exists through the constitutional and statutory machinery that follows the recommendation.

8. Judicial review, delegated power and the future of GST federalism

The courts have remained an important constitutional check upon the functioning of the GST framework. In Union of India v. VKC Footsteps India Pvt. Ltd², the Supreme Court examined the relationship between GST Council recommendations, delegated legislation and the parent statute. The judgment recognised the distinction between primary legislation and delegated legislation and reiterated that delegated rules must remain within the boundaries of the statute from which their authority is derived. A GST Council recommendation cannot, by itself, elevate subordinate legislation into primary legislation.

The principle has continuing relevance. The fact that a measure originates in the GST Council does not immunise the resulting notification or rule from judicial review. If delegated legislation exceeds the authority granted by Parliament, it may be challenged on ordinary principles governing subordinate legislation.

The Supreme Court’s decision in Chief Commissioner of Central Goods and Services Tax v. Safari Retreats Pvt. Ltd³., further demonstrates that GST legislation remains subject to constitutional scrutiny. The case concerned restrictions upon input tax credit under Section 17(5) of the CGST Act and required the Court to examine the statutory scheme in light of constitutional challenges.

These decisions reveal an important feature of GST federalism. The GST Council does not operate in isolation. Its recommendations exist within a constitutional chain involving legislatures, the executive and the judiciary. Parliament and State Legislatures possess legislative competence; the Council facilitates coordination; the executive implements statutory powers; and the judiciary remains available to test constitutional and statutory limits.

The future development of GST federalism should therefore focus not merely upon whether rates are high or low, but upon whether the institutional process remains constitutionally coherent. Greater transparency in the reasons supporting major rate changes, clearer communication concerning the transition from Council recommendations to enforceable notifications, and continued respect for legislative competence would strengthen legal certainty for taxpayers.

The experience of GST also suggests that fiscal federalism cannot be measured solely by the number of powers constitutionally assigned to States. It must also be examined through the institutions by which those powers are exercised. The GST Council represents an experiment in which States participate directly in the formulation of a common tax policy while retaining constitutional legislative competence.

9. Conclusion and Recommendation:

The question of who decides India’s GST rates cannot be answered simply by naming the GST Council. The constitutional position is more carefully structured. Article 246A confers legislative power upon Parliament and State Legislatures; Article 269A establishes the constitutional framework for inter-State GST; and Article 279A creates the GST Council as the principal institutional forum for recommendations concerning the GST regime.

The GST Council consequently occupies a position of considerable constitutional importance, particularly in determining the policy architecture of GST rates and exemptions. Yet its recommendations do not themselves constitute primary legislation. Union of India v. Mohit Minerals makes this distinction clear: the Council’s recommendations cannot bind Parliament and State Legislatures in the exercise of their constitutional legislative powers. At the same time, where Parliament has required the executive to act on Council recommendations while exercising delegated statutory powers, those recommendations acquire binding significance within that statutory framework.

The resulting structure is neither one of complete State autonomy nor one of centralised taxation controlled exclusively by the Union. It is a form of cooperative fiscal federalism in which harmonisation is pursued through institutional negotiation.

GST rates are formulated through the federal process centred on the GST Council, authorised through legislation and made legally operative through the constitutional and statutory machinery of notification. The Council is the principal forum of fiscal coordination, but it is not a fourth legislature.

That distinction is more than a matter of constitutional terminology. It protects the principle that taxation must have legal authority, preserves the legislative competence of the Union and States, and ensures that the objective of a harmonised national market does not come at the cost of the constitutional structure of Indian federalism.

References:

1. Constitution of India, Articles 246A, 265, 269A, 279A and 366(12A); Constitution (One Hundred and First Amendment) Act, 2016; Central Goods and Services Tax Act, 2017; Integrated Goods and Services Tax Act, 2017.

2. Union of India v. Mohit Minerals Pvt. Ltd., (2022) SCC Online SC 657

3. Union of India v. VKC Footsteps India Pvt. Ltd., 2021 INSC 469

4. Chief Commissioner of Central Goods and Services Tax v. Safari Retreats Pvt. Ltd. 2024 INSC 756

5. GST Council – Recommendations of the 56th GST Council Meeting, 3 September 2025.

6. Press Information Bureau – Recommendations of the 56th Meeting of the GST Council, Ministry of Finance, Government of India.

Author: Manish Nellaikumar LLB is Student of Lovely Professional University, Phagwara, Punjab