change in GST rate and Section 64A of Sale of Goods Act, 1930

Section 64A of the Sale of Goods Act, 1930 mandates that if, after the execution of a sale contract, there is an increase or decrease in tax such as GST on the relevant goods, the contract price must be correspondingly increased or decreased, unless there is a different intention in the contract. This statutory adjustment ensures neither buyer nor seller unfairly benefits or suffers due to tax changes outside their control, such as the GST rate reductions recommended by the 56th GST Council meeting held on 5 September 2025, which take effect from 22 September 2025.

Section 64A: Key Legal Text and Purpose

• Section 64A applies where taxes like GST are imposed, increased, decreased, or remitted after a contract is made but before the sale is concluded, unless the contract stipulates otherwise.
• If tax is increased, the seller may add that excess to the contract price to recover the incremental tax from the buyer.
• If tax is decreased, the buyer can deduct the amount equivalent to the tax decrease from the contract price.

Application to GST Rate Cuts under the 56th GST Council Meeting

• The 56th GST Council meeting reduced GST rates for many goods and services, with effect from 22 September 2025.
• For contracts signed before the rate change (but with delivery or payment after 22 September 2025), buyers are entitled to deduct the benefit of tax reduction from the contract price as per Section 64A, unless the contract specifies otherwise.

Common examples include the reduction of GST from 18% to 5% on food items, services in gyms, hotels, and manufacturing products where deliveries are scheduled post-GST rate change date

• Section 64A provides statutory backing for price revision when tax rates change after contract formation, protecting each party from unexpected tax liabilities or windfalls.
• The provision is vital in Indian commercial practice, especially during periods of significant tax reform, such as the 2025 GST rate rationalization that merged slabs and reduced rates for various essentials.
• Businesses must adjust their invoices and reconcile payouts where delivery or payment occurs after the new GST rates take effect, unless contracts clearly allocate the tax risk otherwise.

Summary Table: Section 64A and GST Rate Change

Section 64A ensures fairness by adjusting contract prices according to statutory GST changes, with the 2025 rate reductions triggering buyer price reductions for pending deliveries under existing contracts, unless a contrary contract provision exists.