Stage set for stormy GST Council meet today

While as many as 21 states, mostly ruled by BJP or parties which have supported it on issues, had till mid-September opted to borrow Rs 97,000 crore to meet the GST revenue shortfall in the current fiscal, opposition-led states like West Bengal, Punjab and Kerala have not yet accepted the borrowing option given by the Centre.

Sources said in the 42nd meeting of the Council on October 5, opposition-ruled states would object to the Centre’s borrowing options and demand alternative mechanism for funding GST compensation deficit.

They feel the constitutional liability of compensating states lies with the union government. In the current fiscal, the states are staring at a staggering Rs 2.35 lakh crore Goods and Services Tax (GST) revenue shortfall.

Of this, as per Centre’s calculation, about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is the impact of COVID19 on states’ revenues.

The Centre in August gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

The non-BJP ruled states are at loggerheads with the Centre over the issue of funding the shortfall. Chief Ministers of six non-BJP ruled states — West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu – have written to the Centre opposing the options which require states to borrow to meet shortfall.

While these states want the Centre to borrow to meet the shortfall, the Centre has argued that the revenue accruing from GST compensation cess goes to the states and the Centre cannot borrow on the security of the tax it does not own.

Attorney General of India KK Venugopal had given his legal view on the compensation cess issue where he has opined there is no obligation on the Centre under the GST laws to compensate for the loss of revenue.