GST Council has no jurisdiction over borrowing by states: Govt sources

The Council on Monday had extended the cess collection beyond June 30, 2022.
Amid demand for a division of votes in the Goods and Services Tax (GST) Council on the issue of mechanism to compensate st­ates, sources in the Union government have said voting can happen only in matters under the Council’s jurisdiction, and borrowing is not one of them.

The Council has jurisdiction to extend the levy of compensation cess to make up for a shortfall in the compensation requirements of states and collections from the cess. “It has done that. Now the ball is in the court of individual states, not the GST Council,” a source said. The Council on Monday extended cess collection beyond June 30, 2022.

So far as borrowing is concerned, it is the individual decision of a state and the Centre, which squarely falls under Article 293 of the Constitution. “When something is not under the jurisdiction of the GST Council, how can voting or division be permitted on the subject? Voting can occur in the Council only in those matters that are under the express jurisdiction of the Council,” another source said.

The sources cited Attorney General K K Venugopal’s opinion to buttress their stand. Venugopal, they said, had opined that states could borrow on the basis of future receipts of compensation and, thus, did not need the GST Council's recommendation to raise loans. “States actually and legally do not require permission of the GST Council to borrow. Therefore, division or no division, no one can prevent any state from borrowing,” a source said. “Can Assam be prevented from borrowing, if Kerala does not want to borrow?”    

Borrowing options were given by the Department of Expenditure. The department negotiated with states and modified one of the options later. “It is the department that was giving these options, and not the Council,” the source said. The Centre had given two options to the states — to borrow Rs 97,000 crore from a window to be facilitated by the Reserve Bank of India or to borrow Rs 2.35 trillion from the markets. After negotiating with states, it raised the amount for the RBI window to Rs 1.10 trillion by taking GST revenue growth at 7 per cent, as against 10 per cent assumed.

As many as 21 states had opted for the RBI option, according to finance ministry sources. However, around 10 states opposed both the options and wanted the Centre to borrow instead.  

The Centre requires the support of 20 states to pass a decision. However, sources say voting cannot happen on this issue in the Council. 

States should reject Centre’s options: Chidambaram Senior Congress leader P Chidambaram on Tuesday complimented the states that rejected the two options given by the Centre to bridge the gap in the GST compensation cess and asked them to stand firm at the next meeting of the GST council on October 12.

The former finance minister said the states should not borrow as the liability to provide  GST compensation as well as the onus to find resources fall on the Centre.

"I compliment the 9-10 states that stood firm and rejected the two options given by the central government to bridge the gap in the GST compensation cess.

“The liability to provide the GST compensation to the full extent falls on the central government, as reluctantly admitted by the FM yesterday. Naturally, the onus of finding the resources also falls on the central government," he said in a series of tweets.

"It is unfair and unjust to ask state governments to borrow the money. States must stand firm at the next meeting on 12th October," Chidambaram said.

At its meeting on Monday, the GST Council failed to reach a consensus on ways to compensate the states for the loss of tax revenue.

The panel will meet again on October 12 to thrash out the state compensation issue, Finance Minister Nirmala Sitharaman said after a marathon eight-hour meeting.

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