Delhi and Puducherry lock horns with Centre over IGST distribution

The distribution of the integrated goods and services tax (IGST) has become another point of dispute between Delhi and Puducherry, on the one hand, and the Centre, on the other.

Delhi and Puducherry have for long been battling with the Centre for full statehood.

The two are at odds with the Centre over their pending IGST dues for the first year of the roll-out of the indirect tax in 2017-18 (FY18). 

In the upcoming GST Council meeting on June 21, they are likely to ask the Centre to pass on their share of the IGST collections, which were distributed in an ‘ad hoc’ manner to other states.

However, there may not be any solution in sight, with the Centre unlikely to relent. 

Delhi says it missed out on at least Rs 3,000 crore of the Rs 1.68-trillion undistributed IGST. 

In FY18, the undistributed IGST was moved to the Consolidated Fund of India and distributed to the states in accordance with the Fourteenth Finance Commission formula, by which 42 per cent of the Centre’s tax revenues goes to the states.

Delhi and Puducherry are the only Union Territories (UTs) with equal voting powers as others in the GST Council. 

GST laws treat Delhi and Puducherry as states, and for those the State GST is levied against the UT GST (UTGST) because they have elected legislative assemblies. However, they are not part of the Centre’s tax devolution system fully, according to Finance Commission norms.

“While Delhi and Puducherry may be right about losing out on the IGST due to the way the tax was distributed in FY18, there is no way it can be undone now. The distribution was in accordance with the Finance Commission’s formula, hence they got disentitled. There is no issue anymore, so the matter should be considered sorted,” said a government official.
HOW THEY STACK UP: IGST apportioned between Centre, states in 50:50 ratio so far (figures in Rs crore)

The IGST is levied on interstate movements of goods as well as imports. There should ideally be ‘nil’ balance in the IGST pool since the amount should be used for paying the central GST (CGST) and state GST (SGST). As some businesses are ineligible for claiming the benefits of input-tax credit, the IGST account always has some unutilised amount in it.

Delhi and Puducherry say since the money was collected by way of tax, to which they were equal claimants, they should get a share of it. The issue relates to FY18 alone, when the undistributed IGST amounted to Rs 1.68 trillion. The IGST Act does not envisage what needs to be done in such a situation.

The issue did not arise in 2018-19 because the GST Council decided to distribute the unutilised IGST between the Centre and the states equally on a provisional or ad hoc basis every two months. This was done primarily to ensure a regular cash flow to the states and the Centre.

However, this provisional settlement is subject to revision, and some states might have to return an amount while some others might get more, when more data is accessible, officials from states say.

GST laws were amended in August last year to allow for distributing any balance IGST equally between the Centre and the states. 

Delhi Deputy Chief Minister Manish Sisodia has pointed out that the money could have been kept in a separate account so that the two UTs were not deprived of their rights.

After the amendments in the GST laws, the credit of the IGST will be first adjusted towards any kind of tax payable under the regime of IGST/CGST/SGST, which would reduce the hassles of ad hoc distribution.

Delhi and Puducherry have been in the forefront of the demand for full statehood. The Aam Aadmi Party, the ruling party in Delhi, made it an election issue in the polls in 2015.

Puducherry Chief Minister V Narayanasamy, in a meeting with Prime Minister Narendra Modi on Sunday, urged the Centre to accept Puducherry’s demand for full statehood to ensure its development.

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