The 56th GST Council Meeting: A Path Towards Simplification and Enhanced Compliance September 2025

 The 56th Goods and Services Tax (GST) Council Meeting, held in September 2025, represents a significant stride towards simplifying India's GST system. The recommendations from this pivotal meeting address several key areas, aiming to reduce litigation, improve compliance, enhance affordability, and strengthen institutional mechanisms.

Rate Rationalisation: A Streamlined Structure One of the most impactful recommendations is the consolidation of the multiple existing GST slabs (5%, 12%, 18%, and 28%) into three broad categories. These new categories are:

• Merit Rate: 5% for essential goods and services.

• Standard Rate: 18% for most goods and services.

• Demerit Rate: 40% for sin goods, coupled with a compensation cess.

 

This restructuring is designed to simplify the tax framework, minimise classification disputes, and align Indian GST practices with international VAT/GST principles, particularly those of neutrality and simplicity as espoused by the OECD. The Supreme Court, in cases like Union of India v. Mohit Minerals and Abbott Healthcare v. Commissioner of Sales Tax, Kerala, has previously highlighted the necessity of clarity in tax levy to prevent double taxation and prolonged disputes stemming from multiple rate classifications. The Council’s recommendations, as reaffirmed by the High Court of Gujarat in State of Gujarat v. Reliance Industries, hold binding value in rate fixation. The expected impact includes overall simplification of the GST regime, improved compliance, and a reduction in litigation.

 

Safeguarding Transitional Input Tax Credit (ITC) The Council has also taken steps to safeguard transitional ITC rights under Sections 16 and 17 of the CGST Act during rate changes. This decision is supported by Supreme Court judgments, such as Filco Trade Centre, which held that transitional ITC is a vested right that cannot be arbitrarily denied, and ALD Automotive Pvt. Ltd. v. CTO, where ITC was recognised as a substantive right forming part of a taxpayer’s capital. Clarificatory circulars are also expected to guide refund treatment in inverted duty cases. This measure aims to ensure a smooth transition for taxpayers, protect credit entitlements, and reduce disputes.

 

Operationalising GST Appellate Tribunal (GSTAT) To strengthen appellate remedies and expedite dispute resolution, the Council decided to operationalise GSTAT benches across India. Established under Section 109 of the CGST Act, GSTAT will provide taxpayers with effective appellate remedies. The Supreme Court, in cases like Rojer Mathew v. South Indian Bank and Madras Bar Association v. Union of India, has emphasised the importance of tribunal independence and respecting judicial independence in appointments. GSTAT is anticipated to reduce the burden on High Courts, provide faster resolution of disputes, and build taxpayer confidence.

Valuation and Procedural Reforms Significant procedural reforms include an amendment to Section 13(8)(b) of the IGST Act to align intermediary service taxation with the consumption principle. This addresses criticisms, such as those from the Bombay High Court in Material Recycling Association of India v. Union of India, regarding the artificial taxation of intermediaries. Additionally, Section 15(3) of the CGST Act will be simplified to allow genuine post-sale discounts to be excluded from taxable value, even if not pre-agreed. The Supreme Court in CCE v. Southern Motors supported the exclusion of genuine commercial discounts if they are not mechanisms for tax evasion. These reforms seek to harmonise Indian GST with global practices, provide clearer rules for cross-border transactions and discounts, and reduce unnecessary disputes.

 

Sector-Specific Rate Relief and Refunds The Council announced rate reductions for specific sectors under Section 11 of the CGST Act, which permits exemptions in public interest. Key reliefs include:

• Nil GST on paneer and UHT milk for Agriculture & Dairy.

• 5% GST on soaps and bicycles for MSME/Consumer Goods.

• 18% GST on small cars, air conditioners, and televisions for Auto & Electronics.

• Nil/5% GST on critical goods for Medical & Healthcare. These reductions aim to enhance affordability, support MSMEs, and strengthen healthcare access, providing relief for consumers, growth for small businesses, and cheaper healthcare essentials.

Furthermore, the refund mechanism for accumulated ITC under Section 54(3) of the CGST Act will be streamlined. It will now include specified input categories, with simplified filing and processing. This decision balances legislative intent with taxpayer relief, acknowledging Supreme Court rulings such as VKC Footsteps v. UOI which upheld restrictions on input service credits, while also considering judgments like Triveni Engineering v. UOI by the Allahabad High Court, which directed refund processing even when circulars attempted to restrict entitlement. The expected impact is quicker refunds, greater clarity for taxpayers, and fewer disputes.

 

Sin Goods and Compensation Cess: RSP-Based Levy For products like tobacco, pan masala, and gutkha, the Council shifted to a Retail Sale Price (RSP)-based levy under the GST (Compensation to States) Act, 2017. These goods will continue to attract a 40% demerit rate plus cess. This move aims to address valuation complexities observed in the tobacco sector, as noted by the Supreme Court in ITC Ltd. v. CCE, by ensuring uniformity. While this is expected to bring transparency and uniformity in valuation and stable revenue, high rates may also risk smuggling and black-market trade if not supported by strong enforcement.

 

Conclusion The 56th GST Council Meeting marks a comprehensive effort to streamline and strengthen India’s GST system. The recommendations—encompassing rate rationalisation, protection of transitional ITC, operationalisation of GSTAT, valuation and procedural reforms, sector-specific relief, clarification of refunds, and RSP-based levy on sin goods—are largely consistent with global VAT/GST practices. These reforms are anticipated to lead to a significant reduction in litigation, improved compliance, enhanced affordability for consumers, and robust institutional mechanisms for dispute resolution