NEW DELHI: The Centre and Opposition-ruled states are set for another face-off on Monday when the GST Council meets to debate the constitutionally- mandated goods and services tax (GST) compensation for state governments for FY21.
The central government is in a fix as around 10 non-Bharatiya Janata Party ruled states have rejected the finance ministry’s proposal that states borrow to meet the GST revenue shortfall and have instead demanded setting up of a dispute settlement mechanism.
Kerala, West Bengal, Punjab and Delhi want the Centre to fully borrow the GST revenue shortfall amount and compensate states.
Thomas Isaac, the finance minister of Kerala, in an interview earlier this month, had said if the Centre presses to get the borrowing options cleared by vote and refuses to set up a dispute resolution mechanism, his state will move the Supreme Court.
Abhishek Jain, partner at EY India, said the Constitution does not specify any dispute resolution mechanism and deciding on the framework has been left to the GST Council. “Dispute settlement mechanism can be an arbitration process, possibly under a group of former Supreme Court judges. It could also be a group of ministers within the GST Council which now the opposition states have suggested. The Centre and the dissenting states need to talk and find a midway, possibly agreeing to equally dividing the borrowing requirement between the centre and states,” Jain said.
The Centre has drawn a distinction between what is payable to states as compensation due to implementation of the indirect tax reform, rolled out in 2017, and the revenue loss on account of the pandemic.