States have opposed the two proposals suggested by Centre to bridge GST shortfall. Terming it ‘Betrayal of Federalism’, Delhi’s Deputy Chief Minister Manish Sisodia has said that the state government cannot take a loan from the RBI under exisiting administrative setup. He added that the Centre has promised that it will pay GST compensation at the rate of 14% but now they have refused it stating that there is no such provision in a situation like Covid.

Punjab Finance Minister Manpreet Singh Badal also expressed that the solution offered by Centre is not acceptable. He said that the Centre had promised that it will stand guarantee and the amount will be repaid from the compensation cess, which will continue for 2-3 more years.

The Centre on Thursday presented two options to states regarding GST compensation during the GST Council meeting including a special window in consultation with RBI to provide Rs 97,000 crores at a reasonable interest rate and that the entire GST compensation gap of Rs 2,35,000 crore this year can be met by them in consultation with RBI.

Talking to reporters after the 41st meeting of GST Council through video conferencing, Finance Secretary Ajay Bhushan Pandey said Attorney General KK Venugopal has stated that pending GST compensation cannot be given from Consolidated Fund of India.

“AG’s clear opinion was that the compensation gap cannot be met from India’s consolidated fund. Option one presented to GST Council was to provide a special window to states, in consultation with RBI to provide Rs 97000 crores at a reasonable interest rate,” he said.

“Option two presented to GST Council was that the entire GST compensation gap of Rs 2,35,000 crore of this year can be met by states, in consultation with RBI,” he added. These options will be sent to states for a view within seven days and will apply for this fiscal year only.

Pandey said that GST collection has been severely impacted this year due to COVID-19 pandemic and as per GST Compensation Law, states need to be given compensation. Noting that Attorney General said that GST Compensation has to be paid for a transition period from July 2017 to June 2022, Pandey said the compensation gap which has arisen this year (expected to be Rs 2.35 lakh crores), was due to COVID-19 as well.

“The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores,” he said. Finance Minister Nirmala Sitharaman, who chaired the meeting, said the states have asked them to give them seven working days to think about the options.

“Once the arrangement is agreed upon by GST Council, we can proceed fast and clear these dues and also take care of the rest of the financial year. These options will be available only for this year. In April 2021, the Council will review and decide action for the fifth year,” she added.