Delhi Chief Minister Arvind Kejriwal on Tuesday wrote to Prime Minister Narendra Modi, appealing to him to consider more legally viable options for providing Goods and Services Tax (GST) dues to the states to help them tide over the financial crisis during the Covid-19 pandemic.

In the letter, Kejriwal mentioned that two options that are given by the Union Finance Ministry which require the states to borrow loans and then meet the repayment liabilities, will put an onerous burden on the states. The Aam Aadmi Party (AAP) national convenor wrote the letter following deliberations on the options given by the central government to the states at the 41st GST Council meet on August 27.

Appealing to the Prime Minister, Kejriwal said that the GST Council should consider authorising the Centre to borrow on its behalf and extend the period of collection of cess beyond 2022. The GST Council had on August 27 offered states with two options to tide over their GST revenue shortfall as the GST cess collected from items such as cars and tobacco was not adequate to compensate them this financial year.

The Centre specified that the state governments could borrow either via a special window it will facilitate through the Reserve Bank of India (RBI) or raise debt from the market. Terming the GST reform as a landmark reform in the indirect tax structure of India, the Delhi Chief Minister in the letter stated that the assurance of the GST compensation to states to meet the shortfall in GST collections is one of the pillars on which the entire GST edifice rests.

Kejriwal also said that all the states will overcome the unprecedented situation that the Covid-19 pandemic has brought before the country by working collectively. He said that the GST Act, 2017, very clearly provides for compensation to the states for the loss of revenue arising on account of the implementation of the GST in pursuance of the provision of the Constitution (101st Amendment Act, 2016).

"To create an artificial distinction between loss occurring due to the implementation of the GST and those occurring due to COVID-19 pandemic goes against the very spirit of the Compensation Act and will lead to a creation of a trust deficit between the Centre and the states, wherein in future, the states will be hesitant in coming together to achieve more such larger common national goals, as was done through the implementation of GST," Kejriwal said.

The Delhi Chief Minister said that the options proposed by the Centre will lead to a cumbersome process of borrowing by the states, crediting the debt amount to the GST compensation fund, "to which legally all the compensation funds have to be credited in terms of the Section 10 of the GST (Compensation Act, 2017) and thereafter release of such funds as may be due to the states from the Compensation Fund."

Requesting the Prime Minister for a more sustainable and viable option, Kejriwal said, "Considering the above situation, it is my humble submission that the Government of India may like to consider a much more simpler and legally sustainable option of borrowing by the Government of India to the full extent of the requirement of compensation in the year 2021 and 2022, to be serviced and repaid by the future collection of cess with effect from 2022."

For this purpose the GST Council may consider authorising the central government of India to borrow on its behalf and extend the period of collection of cess beyond the year 2022, Kejriwal said. He further stated that if this option is exercised, it will be acceptable to all the states who will be obliged to the Centre for supporting them in such a situation.

Five states -- Punjab, Delhi, Kerala, Telangana and West Bengal -- that are not ruled by the Bharatiya Janata Party (BJP) on Monday rejected the proposal mooted by the central government at the GST Council meeting.