Page 41 - GSTL_6th August 2020_Vol 39_Part 1

2020 ] NEWS DESK J23
In FY20, the Cess collected was only ` 95,444 crore against ` 1,65,302
crore paid as compensation to the States. So, the Centre used the cess balance of
FY18 and FY19 and funds from the Consolidated Fund of India to meet the short-
fall.
If the compensation payment was tough for the Centre in FY20, It is go-
ing to be tougher in FY2I.
[Source : Asian Age, New Delhi, dated 29-7-2020]

Centre not obligated to pay for GST compensation short-
fall : AG — Exploring options
The Attorney General has opined that the Centre has no statutory obliga-
tion to make up from its coffers any shortfall in GST revenues of States, which
may now have to look at market borrowings against future revenue mop-up,
sources said.
The Centre had in March sought views from Attorney General K.K.
Venugopal on the legality of market borrowing to make good the shortfall in
compensation fund - a corpus created from levy of additional tax on luxury and
sin goods to compensate States for revenue shortfall arising from their taxes be-
ing subsumed into the Goods and Services Tax (GST).
Sources said the AG in his view has said there is no obligation on the
Central Government to pay the GST compensation shortfall from its coffers.
The AG has also said the GST Council has to decide on making good the
shortfall in the GST compensation fund by providing the sufficient amount to be
credited to it.
Sources said the options before the Council for meeting the shortfall
could be to rationalise GST rates, cover more items under the Compensation Cess
or increase the cess, or recommend higher borrowing by States to be repaid by
the future collections into the compensation fund.
Since raising tax or cess rates might not be feasible in the current pan-
demic situation, the option that remains would be each State borrowing from the
market against the consolidated fund of the State to meet the shortfall in revenue.
Under GST law, States were guaranteed to be compensated bi-monthly
for any loss of revenue in the first five years of the GST implementation from
July 1, 2017. The shortfall is calculated assuming a 14% annual growth in GST
collections by States over the base year of 2015-16.
Under the GST structure, taxes are levied under 5, 12, 18 and 28% slabs.
On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods
and the proceeds from the same are used to compensate States for any revenue
loss.
During the eighth meeting of the Council held in January, 2017, the then
Finance Minister of Karnataka had said “the understanding should be that if the
amount for compensation was inadequate in the GST compensation fund, then
cess could be collected in the sixth year or subsequent year to adjust the pay-
ment.”

GST LAW TIMES  6th August 2020  41