New Delhi: Several state governments ruled by the Congress Party and other Opposition leaders set the stage for a stormy meeting of the GST (Goods and Services Tax) council, which is set to meet on Thursday.
At stake is what are called GST ‘dues’ — essentially compensation by the Centre for any losses that arise due to the transition to the new tax regime. When the GST regime became operational on July 1, 2017, the law guaranteed compensation for loss of revenue (i.e if the states’ revenue deficit fell below 14% annually) to the states for the first five years.
While delayed GST compensation payments have been a source of concern for many months now, what has set the stage for a clash over the last month is finance sectary Ajay Bhushan Pandey’s alleged testimony to the parliamentary standing committee on finance. Pandey reportedly told the panel that the Narendra Modi government is no position to pay the GST share of states as per the current revenue sharing formula.
According to a report in The Hindu, which quoted two unnamed members who attended the parliamentary panel meeting meeting, Pandey’s comments were in response to a question on the revenue shortfall due to the pandemic. The members then questioned him on how the government could renege on the commitment to the States. At this, “he [Mr. Pandey] pointed out that the GST Act has provisions to rework the formula for paying compensation to the State governments if the revenue collection drops below a certain threshold,” the media report said, quoting one unnamed member.
Over the last two days, the Opposition has lashed out in the run-up to the meeting, afraid that that state governments are losing an important source of revenue at a time when they need it the most. Congress president Sonia Gandhi on Wednesday said any “refusal” by the Centre to pay GST compensation to the states is nothing short of a betrayal of the trust of the people of India.
She was addressing a meeting of seven chief ministers of states ruled by non-NDA parties, which was convened by her ahead of the crucial GST Council meeting on Thursday and the Monsoon session of Parliament that is likely to start from September 14.
The meeting was attended by the four Congress chief ministers Amarinder Singh (Punjab), Bhupesh Baghel (Chhattisgarh), Ashok Gehlot (Rajasthan), and V. Narayanasamy (Puducherry), apart from Mamata Banerjee (West Bengal) Hemant Soren (Jharkhand), Uddhav Thackeray (Maharashtra) and the four Congress chief ministers.
The seven chief ministers who attended the meeting with Sonia Gandhi. Photo: Screengrab via PTI
Gandhi said the issue of GST compensation being paid to states on time according to laws passed by Parliament is crucial but this is not happening.
She said dues have accumulated and the finances of all states have been affected badly, while the Central government continues to profiteer from “unilateral” cesses which are non-shareable with states and corner this revenue.
The Congress chief said the meeting was convened to help build a coordinated approach among like-minded parties on some important and pressing issues that impinge on the Centre-state relations.
“This refusal to compensate the states is nothing short of a betrayal by the Modi government and a betrayal of trust of the people of India,” she said at the meeting.
Gandhi noted that the GST was enacted as an example of “cooperative federalism” and the GST regime came into existence because the states agreed to forego their constitutional powers of taxation in the larger national interest and on the solemn promise of compulsory GST compensation for a period of five years.
Watch | ‘We Will Approach SC If Centre Denies GST Compensation’: Kerala’s FM
She also said that some announcements by the government like the National Education Policy should worry all of them.
“This is a setback for progressive, secular and scientific values and reveals insensitivity to what the states have been saying. Problems of students and examinations are being dealt with very uncaringly,” she said.
Gandhi observed that ordinances are being issued by the Centre without consulting states on agricultural marketing and this will destroy the MSP regime and adversely impact the PDS.
“There has been a nationwide outcry against the Draft EIA Notification 2020 which is deeply anti-democratic. Laws meant to protect the environment, livelihoods and public health are being weakened,” she said, noting that the auction of coal mines has also been objected to by some chief ministers.
Public sector assets created over decades are being sold off, the Congress leader said, adding that some state governments have expressed their strong opposition to this.
She also observed that six airports have already been given to private hands and the Railways which is the life-line of the country is also being privatised by the BJP-led central government.
Gandhi called for more such meetings of like-minded parties in the larger interest of the country and the public’s good.
She also urged West Bengal chief minister Mamata Banerjee to talk to some of her counterparts in the larger interest of the public.
Mamata Banerjee during the virtual meeting. Photo: Screengrab via PTI
On Tuesday, the Congress accused the Centre of committing a “sovereign default” by not paying GST compensation to states as mandated under the law.
Addressing a joint press conference, party leaders Rajeev Gowda, Manpreet Badal and Krishna Byre Gowda also demanded the states be compensated for the estimated Rs 6 lakh crore loss in revenues due to the COVID-19 pandemic.
Ahead of the August 27 meeting of the GST Council, the Congress leaders demanded that states be paid on time the compensation of 14% as mandated by the GST Compensation Act.
“Anything less is a betrayal of the faith of India’s states,” they said in a joint statement.
Addressing a virtual press conference, Badal, who is Punjab’s finance minister, said the Centre owes Rs 44,000 crore in pending GST dues to the state which is hampering their governance.
He said the government telling the Parliamentary Committee on Finance that there is no obligation on its part to pay compensation to states amounts to “sovereign default”.
India is not a ‘Banana Republic’ to say that it is not mandatory, he stated.
“I think, there is a breach of Constitution as far as not being able to pay compensation (is concerned),” he said. The BJP government has no respect of the Constitution, the institutions and the people of India”.
Badal also informed he has written to finance minister Nirmala Sitharaman urging her to activate a dispute resolution mechanism on GST-related issues.
It can’t be your word against my word. There must be, in case as a dispute or a conflict, a dispute resolution mechanism. The constitution of the GST council provides for that, he said.
Once this mechanism is activated, states would have the right to approach the Supreme Court and take a legal recourse in case any grievance, he said.
He also said as per the GST law, there should be a vice chairman of the Council which according to political propriety should be from an opposition state, because it is felt that the agenda for GST council meeting is created by the government and its bureaucracy.
Rajeev Gowda said the state are at the forefront of the fight against COVID-19 and they should be compensated by the Centre. “It is shocking to know that instead of taking steps to help states, it is preparing grounds for betrayal. It is replacing cooperative federalism with coercive federalism,” Gowda claimed.
He said the Centre is about to execute another devastating U-turn as Prime Minister Narendra Modi had promised during the enactment of the GST that states would be compensated.
“Only on this basis, states gave up their constitutional powers of taxation and the GST regime was born. Starving states of funds has been the official policy of this government,” he alleged.
The Congress leader said any borrowing that needs to be done to help tide over the COVID-19 crisis must be done by the Central government.
It can raise resources at lower cost and can bear the debt burden better than states, Gowda said.
He also sought a reduction on the reliance on cesses and share the revenues fairly. “It is high time that the centre-state fund sharing formula from finance commissions becomes a reality.”
Former Karnataka finance minister Krishna Byre Gowda said the absence of help from the Centre is creating havoc in governance and delivery of essential services.
He said the Centre owes Rs 13,000 crore to Karnataka.
(With PTI inputs)
