TN, Punjab likely to get additional sum from accumulated IGST of 2017-18

States such as Tamil Nadu, Punjab and Delhi may get additional money while Bihar and Uttar Pradesh might have to return some, once a Group of Minister (GoM) finalises its recommendation on Integrated Goods & Services Tax (IGST) settlement for the year 2017-18.

IGST is a tax levied on all Inter-State supplies of goods and/or services. It cannot be more than sum of CGST (Central Goods & Services Tax) and SGST (State Goods & Services Tax). Also, if it is levied then there will not be CGST and SGST. Tax collected under IGST will be shared between Centre and States.

This issue came up for discussion during 40th meeting of GST Council held on June 12. After the meeting Finance Minister Nirmala Sitharaman said: “One leg of correction (by way of paying compensation from accumulated IGST lying in Consolidated Fund of India) has happened, the other leg will have to be sorted out together with States.” Accordingly, GoM headed by Deputy Chief Minister of Bihar Sushil Modi will deliberate upon the process for settlement based on views of various States.

Now, according to senior government officials, the GoM will deliberate upon structure of process. “Process comprising of four steps will be discussed,” one official told BusinessLine . These steps would be – reversal of IGST devolution, release of States’ share, reversal of compensation amount based on second step and ad hoc appropriation of entire amount. “It is a complicated exercise,” the official said but hoped that the matter to be resolved soon.

The accumulated IGST amounting ₹1,76,688 crore during 2017-18 is the core of the issue. As the settlement mechanism was not clearly prescribed at that time, so as on March 31, 2018, the IGST money lying in the Consolidated Fund of India was devolved as per the Finance Commission's formula to the States. According to States, there were two problems. First, they got less by way of devolution and second the rest of money was given by way of compensation.

Technically speaking, if the correction were carried out then the entire amount of accumulated IGST would have to be distributed in the ratio of 50:50 and out of the balance 50 per cent amount with the Centre, the States were again entitled for 42 per cent through devolution route. States also complained that they should have got 71 per cent of IGST amount but got 42 per cent.

This matter came up for discussion during 37th GST Council Meeting held on September 20, 2019 which resulted in decision of formation of GoM. Later in the early December, Finance Ministers of opposition ruled States met Sitharaman and then GoM was formally notified. This issue hit headlines again in January this year when Tamil Nadu Governor Banwarilal Purohit, in his address to Tamil Nadu Assembly, took up the issue . “In the first year of implementation of GST in 2017-18, instead of distributing 50 per cent of the unallocated IGST in proportion to SGST collection in various States, the Government of India incorrectly appropriated the entire unallocated portion of IGST to the tune of ₹88,344.22 crore to the Consolidated Fund of India and distributed 42 per cent of this to the States. as per the Fourteenth Finance Commission’s devolution formula. This resulted in a net loss of ₹4,073 crore to Tamil Nadu and we are insisting on the immediate release of this amount due to our State,” he said.

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