42nd GST Council Meet, ₹20,000 Crore To Be Given To States – Free PDF

What happened yesterday?

• The 42nd meeting of federal tax body, the Goods and Services Tax (GST) Council, took place via videoconference,
• Mainly to discuss how to bridge the shortfall in states’ tax receipts.

GST Compensation Cess Act, 2017

• As per the provisions of the GST Compensation Cess Act,
• The entire cess collected during a year is required to be credited to a non-lapsable fund which is part of the Public Account.
• It is meant to be used specifically to compensate states for loss of revenue.
• Centre promised to compensate 14% growth in the revenue of states.
• While the Centre has released the full payout for FY20 of Rs 1.65 lakh crore.
• Compensation payments for this financial year since April remain pending.

How much will be this year’s shortfall?

• The total shortfall in collection of GST estimated at ₹2.35 lakh crore (3 lakh-0.65 lakh from cess)
• Out of the total shortfall, ₹97,000 crore is on account of GST shortfall, while the rest is due to COVID-19 pandemic.
• During the last meeting in August, the Centre presented two options before states to meet the GST shortfall.

What are the 2 options?

1. A special window can be provided to the states, in consultation with the Reserve Bank of India, at a reasonable interest rate for borrowing of ₹97,000 crore. In this both Principal & Interest amount can be repaid from cess collection even after 2022.
2.  The second option is to borrow the entire ₹2.35 lakh crore shortfall under the special window. In this, States have to repay the interest amount from their coffers.

• To make the 2^nd offer more attractive to states,
• The GST panel had increased the borrowing limit of ₹1.1 lakh crore instead of ₹97,000 crore on Monday.

So what options did states choose?

• The Centre and states on Monday could not reach a consensus on the issue of borrowing to make up for compensation shortfall at the 42nd Goods and Services Tax (GST) Council meet.
• While at least 21 states, mostly ruled by BJP or parties which have supported it on issues had opted for the 1^st option.
• While opposition-led states like West Bengal, Punjab and Kerala have not yet accepted the borrowing option given by the Centre.
• Opposition-led states demand that-
• Full compensation should be paid to the states during the current year as per clauses in the law and centre should borrow.
• Decision was postponed to the next meeting on 12th of October

Then what is this ₹20,000 crore being given to states?

• Finance Minister Nirmala Sitharaman said compensation cess collected this year amounting to about Rs 20,000 crore would be disbursed to all states by tonight.

Conclusion

• Both centre & states have a very large borrowing requirement this year and any additional borrowing may have other repercussions.
• Therefore, the compensation issue between Centre and States is likely to take some more time to be sorted out.

Q) Which of the following products are outside the purview of GST?

1.  Alcohol for medical use
2.  Electricity
3.  Medicines
4.  Natural gas

1. 1 & 2 only
2. 2 & 4 only
3. 1, 2 & 3 only
4. 2, 3 & 4 only

Q) If there is any dispute, which will be the highest authority for appeals under GST?

1. Ministry of Finance
2. Central Board of Excise and Customs
3. Supreme Court
4. GST Tribunal

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