GoM to study the issue on GST compensation for several States

Several states continue to flag their concerns about the Centre not meeting the GST compensation. The GST Council formed a Group of Ministers (GoM) to examine the issue on 4 December 2019. The GoM for IGST settlement has undergone a slight reshuffle three days later of its constitution.

Union FM Nirmala Sitharaman withdrew from the panel. Meanwhile, Shri Sushil Kumar Modi took over as the convener of the GoM as laid down in the GoM order number F.No.571/GoM/IGST Settlement/GSTC/2019 dated 7 December 2019.

The GoM was formed to study in detail about the issue of delay in IGST settlement as unapportioned for the period ending on 31 March 2019. The members of the GoM include Puducherry CM Shri Narayanaswamy, Delhi CM Shri Manish Sisodia and the Minister of Commercial Taxes of Chattisgarh Shri T. S Singh Deo.

Further, the panel comprises of Shri Niranjan Pujari, FM of Odisha, Shri Manpreet Singh Badal, FM of Punjab and Shri D Jayakumar, Minister for Fisheries and Personnel & Administrative Reforms of Tamil Nadu. 

Some states have not got dues since August 2019. States such as Punjab, Tamil Nadu, Union Territories of Delhi and Puducherry have pegged the dues to be amounting to a whopping Rs 50,000 crore in the form of the compensation cess. States like Madhya Pradesh, Chattishgarh, Rajasthan, and West Bengal who had also approached before Union FM with this concern, looking for a faster resolution. 

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It is imperative to note that these states are manufacturing states, implying loss of the GST revenue that passes on to only consuming states. Consequently, they are facing a financial crisis due to the delay in being compensated.

Further, these are those states ruled by the political parties belonging to the opposition at the Centre. All have claimed that they are now being forced to borrow. Some have even alleged that the pending IGST amount was wrongly used to pay compensation cess.

Sushil Kumar Modi, Bihar CM who earlier had headed a seven-member committee this year had studied on the revenue shortfall issue. The panel was formed to find causes behind the reported revenue collection shortfall and suggest suitable steps for revenue augmentation.

The GST Council will be meeting next week on 18 December 2019. The principle activity on the agenda is to look into hiking the GST rates of items currently falling in the 5% tax bracket. It may be increased to 8%-10% for most of the items.

In the same meeting that will be held for the 38th time, Kerala FM Thomas Isaac is hopefull of the GST Council forming a dispute resolution mechanism to address the compensation issue. As a last resort, he was quoted saying to BusinessLine that states will be knocking the doors of the apex court for justice.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in