While the confrontation between Center and States continues on the modus operandi to meet the shortfall in the compensation amount, Attorney General has given his valuable opinion that GST council has the powers to ask Center to let States borrow funds for this purpose.

In the 41st meeting of GST council the FM has advised the States to borrow funds for getting compensation for shortfall in GST revenue and for that purpose it has given two options either to borrow Rs.97000 crs. from RBI or borrow 2.35 lakh crs. from the market. But many States are not happy with this proposal. They feel that its center’s obligation to compensate States hence Center should take loans and distribute the same among states.

The attorney general has said in his opinion to the government on the above matter that

the Goods and Services Tax (GST) Council is empowered to ask the Central government to permit the states to borrow for meeting GST compensation shortfall.

AG has however, left it to the Centre to take the final call on the borrowing by states,citing laws laid down in the Constitution. In a written reply to a query in Rajya Sabha, minister of state for finance Anurag Thakur informed. 

“The GST Council can, in the exercise of its duties under Article 279A (4)(h) of the Constitution, recommend to the central government to permit the states to borrow money, as a measure for meeting the compensation gap,” Thakur said. “It would, however, be for the central government to take final decision in the matter, in exercise of its authority under Article 293(3) of the Constitution,” he added.

As per the reply, the AG has also said that the GST Council can recommend continuance of cess beyond the transition period of five years – that is beyond 2022 – to raise funds for paying compensation in the event of a shortfall during the transition period.

The step to be taken on account of any ‘extra ordinary circumstances causing a steep fall in GST revenues and shortfall in the funds’, move can be made under Section 8(1) of the Goods and Services Tax (Compensation to States) Act, but would “require a decision by a three-fourth majority of the weighted votes,” the AG had added in his opinion

The Center had approached the AG after some States raised the issue of borrowing in the GST Council. AG’s opinion was presented to the states at a special meeting of Council held on 26th August in which Center said that it is not obliged to compensate states for the shortfall in revenue from GST.