GST shortfall: Opposition-ruled states to ask for dispute resolution mechanism at Council meet

NEW DELHI: The Opposition-ruled states have decided to ask the Centre to put in place a dispute resolution mechanism to address the contentious issue of Goods and Services Tax (GST) shortfall compensation in GST Council meeting scheduled on Monday.
Objecting to the Centre’s two borrowing options offered and what the states are looking at as a “threat” that there would be no compensation if they do not opt for either, Opposition-ruled states have decided to demand that a dispute redressal mechanism be activated and a vice-chairperson be appointed to GST Council. As reported by ET in its October 3 edition, the Opposition-ruled states of Punjab, Chhattisgarh, Jharkhand, West Bengal, Kerala, Maharashtra, Puducherry and Telangana have decided to reject the two borrowing options in Monday’s meeting. The states have now decided to cite the text of speech made by then finance minister Arun Jaitley given in Parliament during the passing of constitutional amendment Bill on GST.

Kerala finance minister Dr T M Thomas Isaac said, “During the debate then finance minister (Jaitley) while replying to the debate dwelled upon the decision making in the empowered committee and the future decision making in the GST Council. He said ‘GST Council will decide by consensus’.” Dr Isaac had taken the lead in getting all Opposition-ruled states together to get their opinion through a webinar last week.

The states would point out that since there is no consensus, the government should activate the dispute redressal mechanism instead of taking a majoritarian view. Isaac said, “The functioning of GST council in last few years has not lived up to these high principles (of developing a consensus). In the last meeting (where the states were offered the two options) no agenda note was circulated and not even the Attorney General’s opinion shared with states before the meeting. In the circumstances if the avowed principle of consensus is not being upheld, the legal provisions for Dispute Resolution Mechanism within council should be activated without delay.”

Aam Aadmi Party-ruled Delhi would also seek answers from the Centre on the borrowing options. Delhi finance minister Manish Sisodia told ET, “We will be seeking clarifications from the government tomorrow. Right now Delhi has neither accepted nor rejected any options.” Sisodia explained Delhi had a bigger problem as it did not have control over revenue generating assets like land. “If you see, option 2 is not even a consideration for Delhi. We would need more clarity on the way forward,” Sisodia said.

Terming the present scenario as the lowest point in “Centre-state fiscal relationship”, Chhattisgarh commercial tax (GST) minister T S Singhdeo said, “There is no third option. From our side the two options are unacceptable and the Centre cannot force us. We will convey that the legal provisions of a dispute redressal mechanism be activated immediately and the Centre borrow to make good the compensation shortfall as laid down in the Act.”

The political controversy has been triggered by a GST revenue shortfall of Rs 2.35 lakh crore for the states. As per the GST Act, the Centre has to compensate for any GST losses. As per Centre’s calculation, Rs 97,000 crore is on account of GST implementation and Rs 1.38 lakh crore is the impact of Covid on state revenues. Looking at Covid as “act of God”, which is not defined under the Act, the Centre has proposed that the states borrow Rs 97,000 crore from a special window facilitated by RBI or Rs 2.35 crore from the market.