Punjab FM writes to Nirmala Sitharaman on pending GST compensation

CHANDIGARH: Shocked by reports that Union finance secretary Ajay Bhushan Pandey had earlier this week informed the parliamentary panel about the central government’s shortage of funds to pay Goods and Services Tax (GST) compensation to the states, Punjab finance minister Manpreet Singh Badal on Friday wrote on the issue to Union finance minister Nirmala Sitharaman.
The Punjab government is yet to receive its GST compensation of over Rs 4,000 crore for the first four months of this financial year — April to July.The central government had released Rs 12,187 crore as GST compensation to the state for the financial year 2019-20 in various installments.

“Punjab is already operating with a GST deficit in excess of 45%, the highest amongst the general category states. With the current pace, this is likely to exceed 60% by the time period of assured compensation is over,” wrote Manpreet. The Punjab finance minister has informed Sitharaman that he has come to know from media reports that the central government had “obtained an advisory from attorney general” that it has no legal obligation to pay compensation to the states. “More than the legal interpretation (which may itself come into judicial challenge at some stage), you must take note of Centre’s innumerable assurances in the run up to the GST to provide for assured and unhindered compensation,” he added.
‘Centre should borrow, not force states to bear burden’
The minister also reminded the Union finance minister that such assurance from the Union government was the real edifice on which the GST consensus was achieved. Suggesting various measures to come out of the difficult situation, Manpreet clarified that the central government should itself go for borrowing rather than forcing states to bear this burden. He reasoned that this step would be both efficient in terms of cost of borrowing as well as equity.
Since Article 279A(11) of the Constitution allows healthy resolution of various disputes between the states and the Centre through a dispute settlement mechanism, it is yet to be operationalised in the case of GST compensation. “Should the (GST) council fail to meet a consensus on this issue, there may be no harm in resolving them through the dispute resolution process. The evidence before the parliamentary panel to that extent is in my view a little premature,” wrote the minister. In his earlier letter to Sitharaman on July 2, Manpreet had also suggested to make another constitutional provision under Article 279A(3) operative which provides for appointment of a vice-chair from among the states so as to give equal voice to states.
In his latest letter, Manpreet also pointed out that since the GST Compensation Cess Act is a central legislation and provides for compensation, the obligation to pay the compensation follows the enactment naturally. He also apprised the Union finance minister that the compensation does not have to come from the cess alone as besides the provisions of Section 8 of the Act for providing compensation, Section 10(1) of the Act reads, “such other amounts, as may be recommended by the council.”