Nine states to approach SC against Union govt over GST compensation issue

Kerala FM Thomas Isaac said that the state’s Chief Minister will chair a meeting of law, tax and finance departments and advocate general to take final decision on Kerala’s stance.
GST Council meeting
GST Council meeting
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As the stalemate between the Union government and some states over GST compensation continues, Kerala Finance Minister Thomas Isaac said on Thursday that some of the states are likely to approach the Supreme Court against the Union government’s ‘discriminatory and illegal action’ with regard to GST compensation. He had said post the GST Council Meeting on Monday that nine states are planning to approach the SC if the Union government insists that states opt for the first option of borrowing to meet the GST revenue shortfall.

The first option allows states to borrow Rs 1.1 lakh crore to bridge the revenue shortfall gap through a special borrowing window that will be facilitated by the Union government with support from the Reserve Bank of India. Kerala FM said on Thursday that the state’s Chief Minister Pinarayi Vijayan will chair a meeting of law, tax and finance departments and advocate general to take final decision on Kerala’s stance on Friday afternoon.

Telangana Finance Minister Harish Rao too, reportedly slammed the Union government for ‘unilaterally’ deciding to go for option 1 and said that the state will not budge from its stance that the Centre should borrow the money and compensate states. “The Union government, instead of compensating the States for the entire Rs 1.83 lakh crore losses incurred by them, has instead, taken the easy way out by opting for the first option and asking States to borrow Rs 1.11 lakh crore,” Telangana Today quotes him as saying.

The GST Council has met twice over the past two weeks in a bid to arrive at a consensus on states borrowing to meet the GST revenue shortfall. However, no consensus has been arrived at. While 21 states have agreed to borrow, others such as Kerala, Telangana, Punjab have been opposed to the idea and have argued that the Centre should be the one borrowing. Finance Minister Nirmala Sitharaman has reiterated that the Centre cannot borrow as that will have a larger impact on the market. She said after the meeting on Monday that states that have agreed to a borrowing option cannot be held back due to a lack of consensus.

Following this, the Union government, on Tuesday, permitted 20 states to raise Rs 68,825 crore through open market borrowings under option 1 to bridge the GST revenue shortfall. Andhra Pradesh and Karnataka are among the southern states that were permitted to raise funds. On Wednesday, the Union government permitted Tamil Nadu as well.

Addressing the media on Monday, Economic Affairs Secretary Tarun Bajaj said that the Union government and RBI will work with states to facilitate borrowing from the market at minimum rates and said that the interest rate will be much lesser than what some states expect it to be.

He said that the resources of the states and Centre will remain intact, and that the entire interest will be paid back from the compensation cess that was collected beyond July 22.

The 21 states/UTs that opted for the first option on GST compensation 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, Uttar Pradesh and Tamil Nadu.

Watch to know what GST compensation is and why it is important to states

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