Covid-hit states urge quick release Rs 20,000 cr IGST dues from Centre

They argue that while Centre recently released Rs 36,400 crore in pending IGST dues in lieu of compensation for December, Jan and Feb, more remained to be given to them

With revenues being hit hard by the lockdown, the states have asked the Centre to expeditiously disburse the remaining Rs 20,000 crore of unsettled integrated goods and services tax (IGST) dues from 2017-18. The matter was deliberated during the 40th GST Council meeting on Friday and was referred to the group of ministers (GoM) led by Bihar deputy chief minister Sushil Kumar Modi.

The states argued that while the Centre recently released Rs 36,400 crore worth of pending IGST dues in lieu of compensation for December, January and February, more remained to be given to them. Generally, compensation is paid from the compensation cess but the cess collection has fallen due to the economic slow down. 

The matter pertains to the year of GST introduction- 2017-18, when the unsettled amount of Rs 1.76 trillion left in the IGST was transferred to the Consolidated Fund of India by the Centre instead of distributing the same to the states as an ad hoc settlement.

Therefore, states only got 42 per cent of that as devolution according to the 14th Finance Commission formula, instead of 50 per cent share. Besides, states have raised the issue that they are also entitled to 42 per cent of the Centre’s share in the kitty, taking the total unsettled dues at over Rs 55,000 crore.

Of that, while Rs 36400 crore was paid in lieu of compensation money earlier this month to states, Rs 20,000 crore of dues still remain unsettled.

“In 2017-18, instead of distributing IGST to states on an ad hoc basis, it was put in the consolidated fund of India. So states only got 42 per cent of that as devolution, whereas we were entitled to 50 per cent of IGST and another 42 per cent out of Centre’s half. Now they have released around Rs 36400 crore," 

Kerala finance minister Thomas Isaac told Business Standard.

The Comptroller and Auditor General had earlier pointed out in its report that  that the procedure for devolution of IGST from consolidated fund of India was against the provisions of Constitution of India.

IGST is levied on inter-state movement of goods as well as imports. There should ideally be ‘nil' balance in the IGST pool since the amount should be used for payment of CGST and SGST. As some businesses are ineligible to claim the benefits of input-tax credit (ITC), the IGST account always has some un-utilised amount in it. 

Union finance minister Nirmala Sitharaman said after the Council meeting that understanding the need of states to have money in their hands, Centre corrected one end of the anomaly, wherein the Centre could release money and give to the states without states having to do any adjustment. She said the matter will be further taken up by the GoM led by Sushil Modi.

The Constitution was amended in August 2018 to allow for distribution of any balance IGST equally between Centre and states. 

The un-utilised IGST is distributed between the Centre and all states in a 50:50 ratio.

M S Mani, partner, Deloitte India said, "In the present situation where tax collections of both the Centre and the States have been under stress , while  expenditure has been mounting on account of increased healthcare costs , it would be preferable to have a monthly settlement of the states dues. “

The compensation mechanism will be discussed in a separate GST Council meeting in July.