GST Council can recommend to Centre to permit States to borrow money to meet compensation shortfall: AG

Our Bureau New Delhi | Updated on September 15, 2020 Published on September 15, 2020

The AG’s opinion was sought to resolve issue about pending payment of GST compensation to States due to shortage of compensation cess collection   -  Getty Images/iStockphoto

The GST Council can recommend to the Central government to permit the States to borrow money, as a measure for meeting the compensation gap, Attorney General (AG) KK Venugopal had opined. This information was shared by Anurag Singh Thakur, Minister of State for Finance, with Parliament.

“It would, however, be for the Central government to take final decision in the matter, in exercise of its authority under article 293(3) of the Constitution,” the AG had further said. The AG’s detailed opinion was shared through a written reply to a question in the Rajya Sabha on Tuesday.

The AG’s opinion was sought to resolve issue about pending payment of GST compensation to States due to shortage of compensation cess collection.

Article 293 (3) of the Constitution says: A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government.

The opinion was sought on six issues and discussed with States during GST Council Meeting on August 27.

On the question was that in case the balance in the Goods and Services Tax Compensation Fund is not sufficient, is there an obligation on the Centre to meet the shortfall wholly or partly, the AG made it clear there s no express provision in the Compensation Act for the Government to bear the liability of making good the shortfall.

When asked are States eligible to receive compensation even when there is no sufficient money in the Compensation Fund, AG replied in affirmative — irrespective of shortfall. When enquired can the States borrow on the strength of the future receipts from the Compensation Fund to fill the gap either fully or partially, AG’s response was that the Constitution has authorised Parliament to make loans to a State, subject to any limit which may have been fixed by law.

GST Compensation shortfall

Another question was about options before the GST Council, Union and States to meet the said shortfall. Also possibility was explored whether period of compensation cess can be extended beyond transition period — after June 2022.

“Where, on account of extraordinary circumstance carrying steep fall in GST revenues and a shortfall in the Fund, the States cannot be paid full compensation during the transition period, the shortfall in the payment can be made up even after the transition period of five years consequent to a recommendation by GST Council extending the levy and collection of cess beyond 5 years,” he said.

Two options

Based on the opinion, Centre offered two options to States – borrow ₹ 97,000 crore through special window or borrow ₹2.35-lakh crore from open market. This has become huge political controversy. Though 13 Sstates have expresses their intent about borrowing but 10 Opposition-ruled States want Centre to borrow.

The Finance Ministry also informed the Rajya Sabha that GST Compensation due for April-July period is estimated at over ₹1.51-lakh crore.

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Published on September 15, 2020
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