GST cess: States forced Centre to withdraw borrowing option

Contrary to a stalemate claimed by Finance Minister Nirmala Sitharaman after eight hours of the GST (Goods & Services Tax) council meeting on Monday necessitating another meeting next Monday, the Centre was forced to back down on its contentious plan to deny states a payout of Rs 1.38 lakh crore, arising out of the anticipated shortfall in the GST collections this year.

In a sudden volte-face, the Centre withdrew its controversial proposal for the states to borrow to cover up the shortfall in the face of the Opposition-ruled states like West Bengal, Kerala and Punjab challenged its despotic stand in disclaiming its constitutional obligation to fully compensate the states for any shortfall in the tax collection.

The Centre was also coaxed to concede the states' demand that the compensation cess, which is levied on luxury goods like cars and tobacco products, should be extended beyond 2022 to have money in its kitty to cover up the shortfall that it had attributed to the outbreak of Covid-19, which it had argued so far that it was not obliged to compensate under the law.