GST Council meet: Stalemate over compensation may see some solution today

Dissenting states may move SC, press for dispute resolution authority, refer matter to GoM

GST, goods and services tax
The meeting on October 5 had remained inconclusive and discussion was deferred to October 12

The stalemate over the goods and services tax (GST) compensation may finally see temporary resolution at the Council meeting on Monday, with the fiscally stressed states unwilling to defer the matter further amid high spending pressure in the second half of 2020-21.  

Some dissenting states, including Kerala, may be willing to compromise in favour of the Centre’s offer of the Reserve Bank of India (RBI) window of Rs 1.1 trillion.

However, dissenting states may parallelly move Supreme Court (SC) over the issue and press for their demand for setting up a dispute resolution body on the issue of compensation.

As many as 21 states have opted for the RBI window.  

“Since 21 states are picking Option 1, we will go with it. But we will either move SC or the dispute resolution mechanism,” Kerala Finance Minister (FM) Thomas Isaac told Business Standard.  
The National Democratic Alliance-ruled states will press for expediting the borrowing process for states that have picked either of the two options presented by the Centre to make up for the compensation-cess shortfall.

Meanwhile, Puducherry Chief Minister (CM) V Narayanasamy said that it was in favour of the GST Council resolving the issue at the earliest. “Everything depends on the discussions that take place. Every political party wants to resolve the issue and not defer it further.” He said it is the statutory obligation on the part of the Union government to borrow and give money to states.

“That’s what the former FM (late Arun Jaitley) categorically stated when he chaired the meeting. The Centre should not go back on that commitment,” said Narayanasamy.

The meeting on October 5 had remained inconclusive and discussion was deferred to October 12.

Assam FM Himanta Biswa Sarma pointed out that there should be voting on the issue. “In the spirit of democracy, voting can take place to resolve the issue,” he said. He added that the matter should not be delayed further. “Let other states pursue their course. Whether going to SC, the dispute resolution mechanism or voting — we have no opposition. We will not get in their way, they should not get in ours,” he added.

However, sources in the Centre had indicated that the issue of borrowing does not fall within the ambit of the GST Council. Hence, there can be no voting on the subject.

Chhattisgarh FM T S Singh Deo, however, resisted this idea, saying if the borrowing was not under the purview of the GST Council, it should not even have been brought to the Council in the first place.

He added that while it would want consensus on the issue, voting will be the last resort. He also said he was open to the idea of getting the issue resolved through a Group of Ministers (GoM).

“While moving SC on the issue is acceptable, a GST Council GoM can also look at the issue and give recommendations within a few days. It is also a dispute resolution mechanism,” he added.

Bihar Deputy CM Sushil Kumar Modi emphasised that the states that have picked the option of the RBI window should be allowed to go with it,  while others can keep deliberating on it.

“It should not be a matter for the GST Council to decide which states will opt for it or which ones won’t,” said Modi, adding that a GoM can look into the dispute raised by the dissenting states.

The Union finance ministry has offered two solutions to states — borrow Rs 97,000 crore, which is the result of the shortfall owing to GST implementation through the special window facilitated by the RBI, or borrow the full shortfall in compensation (Rs 2.35 trillion), which includes the impact of the Covid-19 pandemic, from the markets, to be facilitated by the central bank.

The amounts will be paid by the compensation cess, which will extend beyond June 30, 2022. In the case of the second option, the proposed extension of cess will be used for paying only the principal, not the interest.

The option of the special window was raised to Rs 1.1 trillion at the October 5 meeting.

According to government sources, at least 21 states and Union Territories that had agreed to the Centre’s options are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand, and Uttar Pradesh.

The Centre needs the support of 20 states to pass a resolution in the GST Council in case voting is required.