GST compensation deadlock | Kerala FM Thomas Isaac says some states are likely to approach Supreme Court

Some states are likely to approach the Supreme Court on the Goods and Services Tax (GST) compensation issue, Kerala finance minister Thomas Isaac said in a tweet on October 15.

"Some of the States are likely to approach SC against discriminatory and illegal action of Centre regarding GST Compensation. Kerala CM to chair a meeting of law, tax and finance departments and advocate general to take final decision on Kerala’s stance tomorrow afternoon," Isaac said.

Moneycontrol had earlier reported that the opposing states in the GST Council meeting on October 12 wanted to push for forming a Group of Ministers (GoM) to resolve the borrowing deadlock, as there was no consensus on the issue.

Finance Minister Nirmala Sitharaman while addressing the press after the Council meeting insisted that there were differences within the GST Council on the borrowing issue, but they cannot be termed as a dispute.

The Centre's insistence to not term the borrowing issue as a dispute was primarily based on concerns that states might then use it push for a dispute resolution mechanism.

Some of the States are likely to approach SC against discriminatory and illegal action of Centre regarding GST Compensation. Kerala CM to chair a meeting of law, tax and finance departments and advocate general to take final decision on Kerala’s stance tomorrow afternoon.

— Thomas Isaac (@drthomasisaac) October 15, 2020

The stalemate between the Centre and states over the compensation issue continued, even after a number of meetings dedicated on the same. GST Council could not reach a consensus on borrowing options in lieu of compensation cess shortfall and Finance Minister Nirmala Sitharaman said that some states questioned whether the Council has any authority to disallow those states that have already opted for one of the borrowing options from going ahead with their borrowing plans.

"Had repeatedly appealed in the Council to increase unconditional component of additional 2 percent borrowing permitted, to ensure fiscal space for the states, while negotiations could go on for a new compromise option. Now Centre uses it for dividing states. Still Centre wants consensus," Isaac said.

Centre allowed 21 states to opt for option 1 to meet the GST revenue shortfall and granted permission to mobilise Rs 78,542 crore so far.

"According to (IMF) International Monetary Fund, with catastrophic economic collapse India will slide to 3rd poorest in South Asia with only Pakistan and Nepal reporting lower per capita GDP. Even Bangladesh would move ahead of India with $1888 per capita as against India’s $1877 in 2020. Total policy failure!" Isaac also said.