As the Goods and Services Tax (GST) Council is set to meet on Monday to resolve the contentious issue of borrowing by states to meet the compensation shortfall, opposition-ruled states will push for activation of the dispute resolution mechanism as a stepping stone towards taking the compensation dispute for a legal challenge later on.
Non-BJP ruled states are not in favour of pushing for a vote on the compensation matter but instead will emphasise on setting up of the dispute resolution mechanism, which is already outlined in The Constitution (One Hundred and First Amendment), 2016, but was never put into motion ever since the July 2017 rollout of the indirect tax regime.
Kerala Finance Minister Thomas Isaac said while the resolution adopted by the Council for borrowing options will be binding on all states, it gives rise to a dispute on the manner in which compensation mechanism is being decided contrary to what is specified in the law. Therefore, the issue needs to be raised as a dispute, failing which the only remedy would be to approach the Supreme Court for a resolution, he said.
“It seems the central government doesn’t want to have any serious negotiation or discussion. Decisions taken by the GST Council, vote or otherwise, will be binding on all states. But then we have a dispute. So, while the binding resolution will hold that, the dispute will have to be resolved,” Isaac told The Indian Express.
Supreme Court last resort
The Constitution (One Hundred and First Amendment), 2016 provides for a legal remedy by setting up a resolution mechanism to solve any dispute arising out of the recommendations of the GST Council. If that option were to be exhausted to resolve the compensation deadlock, the states would have the option of moving the Supreme Court.
He further said, “We have a dispute. Compensation law says that compensation has to be paid every two months and we are not being paid, so it’s a dispute. If a dispute is not going to be discussed in the dispute resolution mechanism, then what is the remedy other than Supreme Court.”
The Constitution (One Hundred and First Amendment), 2016 provides for the GST Council to “establish a mechanism to adjudicate any dispute — between the Government of India and one or more states; or between the Government of India and any state or states on one side and one or more other states on the other side; or between two or more states, arising out of the recommendations of the Council or implementation thereof”.
Other opposition-ruled states such as Punjab and Chhattisgarh have also voiced their support for setting up a dispute resolution mechanism. Punjab Finance Minister Manpreet Singh Badal had earlier told this newspaper that the dispute resolution mechanism, stated in Article 279A of the Constitution, needs to be activated. “Under Article 279A, there is a dispute resolution mechanism that needs to be activated within the GST Council. We need to exhaust that. One cannot opt for voting on every matter,” he said.
At Monday’s meeting, the Centre is expected to oppose any move towards going for a vote, underscoring that the issue of borrowings are outside the jurisdiction of the Council. There is also an emerging view ahead of the meet that any policy decision taken by individual states on the issue of borrowings need not be uniform for all states, unlike other GST-related decisions. The GST Council will discuss the single agenda item of compensation, in a meeting which will not be counted as a fresh meeting but as a continuation of the 42nd meeting held a week earlier on October 5.
This is the third consecutive meeting of the Council which will see a discussion on the compensation shortfall issue. Opposition-ruled states have been locked in a battle with the Centre, opposing borrowing to be done by states, to bridge the compensation deficit and have instead demanded that the Centre should borrow to meet the compensation shortfall.
The Centre had in August proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to Covid) from the market. The options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.
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