With states asking for an extension of the compensation mechanism beyond June 2022 under the Goods and Services Tax (GST) regime, some Opposition-ruled states have also suggested tweaking the revenue sharing formula between the Centre and states under the indirect tax regime. States have also cited a recent Supreme Court ruling to state that decisions made by the Council are persuasive in nature and should not be considered as ‘binding edicts’, which could disrupt fiscal federalism and rather provide equal power to legislate on GST. The Supreme Court, in the Mohit Minerals Ocean Freight case, had ruled the recommendations of the GST Council are not binding and only have persuasive value. It held that Parliament and state legislatures can equally legislate on GST. Chhattisgarh Finance Minister T S Singh Deo, in a letter to Union Finance Minister Nirmala Sitharaman, said if the protective revenue provision is not continued, then the 50:50 formula for central GST (CGST) and state GST (SGST) should be tweaked, with the share of states at 70-80 per cent and CGST at 20-30 per cent. “We are presenting the proposal in the GST Council to continue with the 14 per cent protected revenue provision. If the protective revenue provision is not continued then the 50 per cent formula for CGST and SGST should be changed to SGST 80-70 per cent and CGST 20-30 per cent,” Deo, who did not attend the meeting due to Covid, said. The GST Council on the first of its two-day meeting in Chandigarh saw a general consensus among states on rate rationalisation, which includes correcting inverted duty structures and expanding the tax base. The second day of the meeting is set to take up the more contentious issue of extending the compensation to states beyond June 2022. Separately, Amit Mitra, principal chief advisor to West Bengal Chief Minister Mamata Banerjee, said in light of the recent Supreme Court judgment, all decisions of the Council should be taken by consensus. “Post decision of the Honourable apex court, it has become imperative for the GST council to take every decision by consensus and to leave aside any shade of majoritarianism not only for the future credibility of the GST Council but also the uphold the rich tradition of this august body,” Mitra, former Bengal FM, said. As per data on revenue growth collated for the Council meeting, the all-India average shortfall between the protected revenue and the post settlement gross SGST revenue was 27.2 per cent in 2021-22 as against 37.9 per cent in 2020-21. Under GST, as per cent the Goods and Services Tax (Compensation to States) Act, 2017, the states were guaranteed compensation at the compounded rate of 14 per cent from the base year 2015-16 for losses arising due to implementation of the taxation regime for five years since its rollout. The compensation regime will end in June.
