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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST - 41st GST Council Meeting

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..... hief Minister of Maharashtra, Sh. Jagdish Devda, Hon’ble Minister for Commercial Tax, Finance, Statistics and Planning from Madhya Pradesh and Sh.Subodh Uniyal, Hon’ble Minister for Agriculture, Agricultural Marketing. Agricultural Processing, Agricultural Education, Garden and Fruit Industries, Silk Development from Uttarakhand. 3.1 The Secretary then briefed the Council that the only Agenda that day was discussion on the GST Compensation to the States and UT’s. He then asked Sh. Ritvik Pandey, Joint Secretary, DoR to begin with the presentation. Agenda Item 1: GST Compensation to States/UT’s 4. The Joint Secretary, DoR began with a presentation (attached as Annexure 3) stating that it was a small presentation to give the status on the Compensation released till then, the legal provisions, the interpretation of those legal provisions and thereafter a discussion on the options available with respect to GST compensation could be taken up. The JS, DoR stated that since the inception of GST i.e 1st July 2017 GST compensation of around ₹ 3 Lakh Crore had been released out of a collection of almost a similar amount of GST Compensation Cess. The releases wer .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ortfall should be met. The JS, DoR added that this was further discussed in the 8th GST Council Meeting held on 3-4 January, 2017 in which even the borrowing option was discussed and the Hon’ble Chairperson again had stressed that it was the GST Council that would need to deliberate on the ways available to meet such gap. JS, DoR stressed that the intent was always to have a dedicated stream of revenue in the form of cess for payment of compensation to the States/UT’s on account of the loss of revenue due to implementation of GST. Further stating that this dedicated revenue stream had a good impact in 2017-18 and 2018-19 and because of the same the release of compensation to the States/UT’s was never impacted due to competing demands on the CFI on account of various Centrally sponsored schemes or expenditure requirements of Government of India for internal security, defence requirement etc. 4.3 The JS, DoR stated that based on the discussions in the GST Council, when the Bill was presented in the Parliament similar issues were brought up and Sh. K. C. Venugopal, Hon’ble Member of the Parliament had introduced an amendment to the bill at that time stating tha .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... of April, but due to the pandemic, meeting could not be held. He also reminded that the Chairperson had mentioned of taking legal opinion and release as much GST compensation to the States/UT’s as was possible and that the entire issue would be examined. Accordingly, on the basis of directions given in the Meeting the opinion of the learned Ld. AGI was sought on the matter. The Secretary asked JS, DoR to present verbatim opinion of the Ld. AGI. 4.7 The JS, DoR presented the verbatim opinion of learned AG: a. Irrespective of what the situation goes, whether cess resources are adequate or not at any point of time, the entitlement of the States are very hard coded in the Act that cannot be changed, it is protected revenue minus actual revenue, every year. b. There is no express provision in the Compensation Act which puts a mandate on the Government of India to raise resources or to arrange resources for payment of compensation. c. GST Council has the power to raise resources, it is very clearly mentioned in the Act that GST Council has to find other sources to meet the requirement. d. Council will be well within its rights to discuss the borrowing issue to meet the compensation .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... expected that there would be no loss of revenue, nonetheless the Centre assured to pay compensation for a specified period if there was such a loss. He emphasised that it was in this spirit that it finally got incorporated into the Constitutional Amendment Bill, 2014 which was later finally passed and was worded as follows “Parliament shall, by law, on the recommendation of GST Council, provide for compensation to the States for loss of revenue arising out of implementation of GST for a period of five years”. So, the question was that the Parliament had enacted a law as provided in the Constitution including stated recommendations of the GST Council. Thus, this would require us to look at the Minutes of the Council’s Meetings. He reminded the Council of the elaborate discussions on the subject prior to enactment of the GST Compensation law. Many Members had invited attention that in case the compensation cess was insufficient to meet the of needs Central Government should provide for the deficit from its own funds. Some suggested that if the amounts available for compensation were not sufficient to pay compensation then the levy of cess might be extended beyond f .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... years. He stated that other decisions including possibility of market borrowing for payments of compensation were part of the Minutes of the 8th Meeting and need not be incorporated in the law” The Hon’ble Minister from Punjab further added that the Council agreed to the above suggestion. Thus it was evident that the GST Compensation Act was not worded as per the additional decisions of the Council, but in view of the assurances given by the Secretary to the Council, not to insist on legal change, agreeing to accept the promise there is no ambiguity what so ever that Centre was responsible for payment of compensation and that in case of a shortage Centre will have to provide for shortfall including borrowing. If the Centre had no obligation to pay GST compensation then the question arises as to why the orders for release of compensation from time to time were being issued by the Central Government, why not the Council Secretarial. The Compensation Fund is reflected in the Union Budget as a receipt of the Central Government under Major Head 009.Summing up he said that he appreciated the view of the learned AG but if the Minutes of the 7th 8th and 10th Council Meeting wer .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... of around ten thousand to twenty thousand Crore per annum which again would not be sufficient to compensate the States. 4. The second option was borrowing from the market which he felt was the only option available which posed questions such as who would borrow, Central government will borrow or State Government would borrow and what could be the mode of repayment which had been answered to by the Hon’ble Chairperson as recorded in the Minutes that the repayment could be made through collection of cess in the sixth year and further subsequent years. The Hon’ble Deputy CM of Bihar submitted to the Chairperson that the only option left was market borrowing. He stated that it would be better if Central Government could borrow and compensate the States, but understanding the limitations of the Centre as the Centre already had ₹ 12 Lakh Crore of borrowing this Financial Year which meant that fiscal deficit was crossing 5.5%. The projected revenue shortfall assuming collections in FY 2020-21 to be 65% of 2019-20 would be around ₹ 3.65 lakh Crore. Even in case of 80% collection the shortfall would be around ₹ 2.73 lakh Crore. He recognised the huge borrowing .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... h would otherwise have accrued to them had cess been merged with SGST after June 2022, so that would be a loss for the States but the States were willing to bear that loss. He further emphasised the immediate need of funds for the States and that whatever decision had to be taken should be linalised in this meeting itself. He urged the Council to consider his suggestions. 7. The Hon’ble Minister from Tamil Nadu stated that the issue being discussed was the most important issue causing anxiety amongst all the State Governments. He noted that it was worrisome that in this fiscal for the period up to July 2020 Compensation claims of ₹ 12,258.94 Crore were pending for State of Tamil Nadu. He stated the importance that compensation payments held for the overall fiscal situation of the State need not be emphasised, moreover significance of the same had increased manifold due to the fiscal stress caused by Covid- 19 situation. He added that the Government of Tamil Nadu expected the Government of India to continue to honour its commitment and to protect revenue at 14% growth from base year. Any reneging from the promise will not only affect the confidence of the State in the ov .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... CM of Maharashtra extended greetings to all the Hon’ble members of the Council and stated that the State had pending compensation claim of ₹ 22,534 Crore for the FY 2020-21 till July and going by this rate this was likely to go up to ₹ 1 lakh Crore by the end of two years. If this compensation was not made available timely, the State’s finances would further deteriorate and hinder development works of the State. He emphasised that in times of COVID- 19 the State needed more resources to tide over the situation. He urged the Centre to borrow from the market as for States it was not possible to borrow owing to the fiscal limits, as also States would be unable to obtain the interest rates that Centre could obtain and this undue high rate would ultimately burden the final consumer in form of greater cess. If all States entered into market to take loan then interest rate will further shoot up and it will become more difficult to raise loans. Centre has made a mechanism in the form of cess to compensate the States that is to be paid up to five years till June 2022. This period should be increased further for levy of cess. Centre should, in the present situation ma .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... Act and also in the GST Council to compensate and disburse protected revenue with 14% growth, to the States, moreover now when some of the States were unable to pay salaries to the employees, in addition to managing the Covid situation which required additional funds. Apart from this, economic activities had to be started for which some concessions had to be given by the State Government. That being the situation he urged the Chairperson not to burden the States any further. Let the central government borrow the money and give it to states, already there was provision in the GST Act that after a period of five years whatever additional cess had been collected it could be retained. He further added that from past several months the lockdown had slowly eased and economy had been opened but still tourism had taken a big hit in their State much like Goa. He requested the Hon’ble Chairperson to let Government of India take the responsibility. Two things have been quotes, one is the statement of Finance Secretary in the Standing committee on Finance. The Finance Secretary in the Standing Committee of Finance said that Government had no money at present to pay GST compensation to th .....

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..... he stated that Government of India should borrow and give to States. On the discussions with regard to Parliament rejecting the amendment moved by Hon’ble MP Sh. K. C. Venugopal, he reminded the Council that he had himself been an MP for more than 23 years and had great respect for the Parliament, but whatever deliberations that had taken place in the Council, the assurances made by the Hon’ble chairperson of the Council and decisions taken in Council may not be in the knowledge of the Parliament, so taking umbrage in the argument may not be appropriate. Further he brought up the issue that every State was getting 41 % revenue share whereas Puducherry was getting only 26% whereas it was entitled to 41% and also Puducherry was not being duly compensated even in grants given by Government of India. He made a strong plea that the Hon’ble chairperson should think of extending the period of compensation for ten years or go for a different financial model for the States for GST. There was shortfall of cess and we were going for market borrowing and that being the situation, considering this aspect a separate meeting could be called as to what should be the different fin .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... before the implementation of the GST regime but the basic issue was that if they were going for borrowing to meet out the deficit in the cess funds then who shall borrow. He asked why the Government of India seemed to be backing out and putting it on the State Governments maybe at higher interest rate and standing sovereign guarantee. He recommended that the Government of India and the Parliament must come forward, must stand for the country, for the federal structure and ensure that they were there with the States in times of stress. The rights of the taxation have been taken away from the States and given to GST Council. He added that he was also not in agreement that GST Council should take initiative and opined that Parliament should take initiative as enshrined in the 101st Constitutional Amendment Act. He humbly reminded the Chairperson that she was leading them in the Council and also representing the Government of India and in these times of hardship they should ask the Government of India to take these loans. He added that he had some other suggestions regarding other possible revenue sources which he would share in writing. 11. The Hon’ble Deputy CM of Delhi noted .....

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..... short the Council was discussing that whether States could borrow. On the points made by Hon’ble Deputy CM of Bihar regarding possibility of borrowings by the States he said that Delhi did not have the power to take loans and give guarantee. He again reiterated that Delhi was one State that did not have the power to take loans and take guarantee. He again stressed that the responsibility of meeting the shortfall was of the Central Government as was evident from the Minutes of the 7th 8th and 10th GST Council Meeting and the assurances given by the Chairperson and Secretary therein as discussed by Hon’ble Minister from Punjab. He added that he had been very vocally advocating federal structure like the GST Council in sectors of education and health where State and Centre could work together and that if a decision was taken that it is the State’s responsibility and that the States should borrow to make good the shortfall then this would be the last time that States would ever trust assurances by the Centre. He stated that the assurances given in the meeting and the intent of the Council in bringing out the GST framework were more important than what was written in t .....

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..... as economy is slowly getting back on track, collections are increasing but he acknowledged that States were heavily impacted as compensation was not being released on time. He drew the attention of the Council towards Goa and noted that Goa was heavily dependent on mining which the Hon’ble Supreme Court prohibited, Further, he added that Goa was also heavily dependent on tourism which had been demolished by the pandemic which raised questions on Goa’s economic survival. He stated that similar were the problems of other States, but small states get impacted by small amounts, noting that total dues to Goa were less than ₹ 1000 Crore. He stated that Compensation Cess Fund currently had a balance of ₹ 11000 Crore and if his counterparts from bigger States could have a larger heart, smaller States could be given their dues in time allowing them to survive and be saved from financial collapse. Smaller States such as Goa had a very small tax base and no new commodities or activities could be taxed to generate revenue. My learned friends in the Council had been privy and part of the formulation of the entire GST structure, He found it appalling that 7th ,8th and 10 .....

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..... vis- a- vis the same period in 2017-18, implying that the new GST regime had worked well. He urged the Hon’ble Members to give solutions in these challenging and difficult Covid times on how the revenue could be increased, how greater cess could be collected and possibly later rates could also be increased so that States don’t suffer and the Centre would have sufficient revenue. It is not as though the Centre had plenty of funds which they were reluctant to release to the States. The quantum of stimulus provided by Centre in all sectors including Housing where tax rate is only 5% and for affordable housing only 1%. These were all positive steps. He stated that India had always been resilient and under the leadership of dynamic PM they would tide through these times and India will be the most prosperous country and that economy would rise again. He added that he had carefully listened to and appreciated the application of mind exhibited by the Hon’ble Chairperson in the recent CII meeting and he was confident that the economy will make a strong comeback. Stating on behalf of the smaller States he again requested the Hon’ble Chairperson to look into problem of .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... otected revenue for five years, which was guaranteed as per the amendment to the Constitution, has to be given to the States. Hence, there should not be backtracking on these commitments. They have trusted the Central Government in the past, they continue to trust now and will continue to trust in the future as well. They should not be any issue in giving the protected revenue of 14%. He stated that the issue with Jharkhand is that they are a manufacturing State. They get less revenues in the GST regime. Consuming States will get more revenues as was stated by Hon’ble Member from Puducherry. He was right when he said that manufacturing States have a loss in GST. Their collections are low. There is a necessity of focusing on this issue. COVID-19 times have brought social and health related responsibilities. There is a dire need for money and their collections are also falling. Since the Chairperson is also the Finance Minister for the Government of India, he felt that it was necessary to convey that the Central Government has lot of pressure on the resources of the State. For example, 24% of the all coal mining in the country is done in Jharkhand. The production is done within .....

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..... ve years. Third point which no Member had spoken till then was that there had to be a plan which was also put forth by Hon’ble Member from Goa. Why shouldn’t the GST Council plan on increasing the tax slabs. Revenues come only when there is tax collection. This power is with the GST Council which can decide and propose to Government of India that at least the tax slabs should be reviewed. If the 5% tax slab is changed to 6% tax slab, then according to him there wouldn’t be a huge variation in the rate but the tax collection will increase. 5% tax slab had the largest basket. If the 12% slab was increased to 14% or 15% and 28% was increased to 30%, then at least the gap which was created over the last three years will be filled. He felt that for the coming meeting on 19th September, Central Government could deliberate and the States also should propose on how to get additional collections since Cess couldn’t be the only way to get tax. If ₹ 90,000 crore would be the cess collection, then the Central Government cannot fill the gap for the States. There have to be alternative ways which have to be worked out by the GST Council. He thought that all the memb .....

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..... t the compensation and when will they pay back the banks etc. will be there when the State takes the loan. He sincerely requested that Centre should take the entire responsibility, Centre should take the loan and give money to the States and the GST cess period can be extended. Till what time the cess period has to be extended cannot be told now. Nobody was able to tell clearly when the COVID issue will subside, quantum of losses etc. In these circumstances, they suggest that the cess period should be increased till the repayment is over. Total period is for five years, so there are about 20 more months to go. How much compensation will be paid, when the COVID situation will improve, when exactly the revenues would increase nobody can tel1 So, it is better that Central Government should take the responsibility and it should pay the compensation as quickly as possible to the States so that States can work better in health sector and other sectors during the CO VID pandemic times. They were not able to pay the employee salaries for three months and they have to pay their employees. Their situation is very bad. His plea is that Central Government should take all the responsibility and .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ection 18 of 101st Constitutional Amendment and then the learned AG’s opinion. On the whole it appeared that in the presentation itself, there was an indication of showing the way forward i.e. by way of States being enabled to borrow. He felt it was indicated that way. When they look at the actual enactment and the way the various deliberations that took place over more than a decade ago, the spirit of the entire enactment which was mentioned by Hon’ble member from Punjab and other Members, in the 7th GST Council Meeting, he reiterated that “The Hon‘ble chairperson observed that there was constitutional commitment for the Central Government to provide hundred per cent compensation and how it would be done was for the Council to decide “. In another instance the minutes of the 7th GST Council Meeting state that “The Hon’ble Chairperson said that in the Council there was shared sovereignty between the Centre and the States and the council was the de facto legislative body and it was expected that the Parliament and the State legislators would adopt the decision of the Council in toto “. Hon’ble Member from Punjab had earlier state .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ards heath care and social protection services. Just like Hon’ble member from Telangana said he felt that it was difficult to even pay the salaries of the government employees in view of this crisis. Since the Central Government has the power, authority and facility to raise the money, the Centre either by revision of compensation cess or Government of India borrowing and then extending the compensation period or even by authorizing the RBI to raise the money so that they tide over the crisis. On the whole, they truly opine that the because of various sizes of States, various revenue patterns and various specific nature and financial situations, they feel that Centre has to somehow hand hold the States and take them forward by providing all the compensation they have to receive and even more, if possible. It becomes very difficult for smaller and medium States to repay at later stage because of amount of borrowing. 16. Hon’ble Member from Assam thanked the Chairperson for convening this important meeting. He had mentioned his thoughts on this issue in the previous meeting also. Some of his esteemed colleagues had taken a stand that it was for the Central Government to p .....

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..... was nothing moral in this world. It was purely a legally binding relationship where they have entered into the GST Council. He agreed that for the loss on account of implementation of GST which can be easily separated, he thought that at some point of time, whatever may be the wording, they have to find out à way for paying the compensation cess to the States. For the loss on account of COVID situation, when Kerala had suffered floods, they allowed certain provision, for Kerala to raise revenue and under the Constitution they had been given a prescription to raise revenue. There was no morality involved at that point of time which was done by the Constitution. He admitted that the Central Government has taken good care of States during the pandemic and if someone used harsh words, he was very sorry for that. The Central Government had arranged Revenue Deficit Grant and Devolution Grant. They could have taken a moral and legal stance that Income Tax, Excise Collections were low and hence grants may not be given. The moral question would have been flattened. The Central Government was looking after the States like a mother looked after her child during crisis. The Chairperson .....

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..... account of GST implementation. If there was a certain loss on account of’ national calamities, then there was a constitutional provision on how to manage and provide for it. The GST law is clear on this. The Chairperson had convened this meeting to discuss this issue and it was gracious of her that she was looking after States well in the COVID- 19 situation and he again emphasized without her, they would not have been able to pay salaries. Today they are doing that. Even after the Revenue Deficit grant was finished, she again reappropriated and started paying to States. These things history will record. Some people were trying to project as if the States were not being looked after by Centre but history and records will say otherwise that Centre has gone out of way to help the States in this crisis. Clearly, there were two losses, one on account of GST implementation and other on account of COVID- 19 pandemic. He requested that for GST implementation loss, the Central Government can borrow and the GST council will pay back to Central Government or RBI from the cess that will be collected even after five years or at the enhanced rates whenever they are in a position to raise .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ensation fund was handled. If there was an excess balance, it went into the Consolidated Fund of India and the undistributed IGST also went in the Consolidated Fund of India. If there was a shortfall, how can the Centre shy away from addressing the problem? He hoped that they would take it in the spirit. But for the time being, he agreed that the GST Council had sought the opinion of the learned Attorney General and they would have to work within the framework of his opinion. He did not want to state what learned AG had said but he would fully agree with Dy. CM, Bihar that there was only one option at the current juncture, for reasons he had elaborated that, borrowing was the only solution. Now, what would be the agency to do this borrowing? There are three agencies, Central Government, State Government and the GST Council itself. The initial presentation by the Revenue Secretary seemed to have hinted that the it would be more appropriate for the States to borrow. Hon’ble Member from Andhra Pradesh had elaborated the difficulties involved. One is the FRBM Act, the other is that the cost of borrowing would be much higher, and the third is that there is no particular macroecono .....

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..... esponsibility for future, he would plead that temporary accommodation may be provided for GST compensation fund and the payment may be made to the States for the first two months of the current financial year so that normal functioning of the State Governments is possible. Other issues would be taken up in the upcoming meeting on 19th September 2020. 18. Hon’ble Member from Himachal Pradesh stated that he had carefully listened to the thoughts of various Hon’ble Members. They had focussed on the option of raising loan. He agreed with the suggestion of Dy.CM, Bihar that the States would be in a position to take a loan on account of GST compensation only if loan burden in any form did not fall on them. Himachal Pradesh is a unique State and this had to be kept in mind when making any kind of decision. It was his hope that if there was a necessity for the State to take a loan on account of GST compensation then in the current circumstances there should not be any negative effect on the borrowing limit of State. The revenue gap of the State was steadily increasing while the return compliance of the State was better than the national average. In the end, he also wanted to st .....

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..... to come out this situation. This problem was temporary. However, this problem also gave opportunity to think together, act together and solve together. That must be the spirit. The constitution provides certain law and regulation. However, the market doesn’t only go by law. Sometimes it goes beyond law, sometimes along with law and sometimes indifferent to law. GST Council is a moderator between the market and the law. Therefore, very proactive thinking had to be done in this situation as a moderator. Apart from taking the letter and spirit of constitution, the market spirit should also be considered. Therefore, putting the economic wagon back on the rail is of the highest priority of the States and Centre. To put the economy on track finances, investment, capital expenditure without gaps are required for Centre and States. Decisions of any kind which reduce the capital expenditure of the States will certainly harm not only the States but also Centre. He emphasized that this was a testing time and it was not only the monetary aspect to be considered but the very foundation of the federal structure. The cooperative federalism which was proposed and propagated by Hon’ble .....

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..... Comprehensive solution to this complex problem should be done since GST Council had collective responsibility to find a solution for compensation crisis. This was not just a small problem but they were going through a crisis. This was testing time for everyone. Everyone had to stand united and there was no question of distributing the onus of responsibility. Karnataka being a progressive State, they were always with the Government of India in any reforms which can bring economic change and economic stimulation. One point he wanted to make as far as Karnataka was concerned, since they are almost growing at 14% (targeting 13.9%) efficiency should not be punished. If not rewarded it should not be punished. Therefore, looking into all these views and increase of borrowing limits since they had come out with certain reforms, it might take some time; SBI in its reports had said the day before the previous day that only eight States were capable of borrowing and other States find it difficult to borrow. This aspect also had to be relooked into so that State Finances must be reserved. He thought that with the Chairperson at the helm of affairs who had been one of the experienced persons in .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... issue in the thoughts of various Members who presented their views in the GST Council was that all States were in dire necessity for liquidity. All States were requesting Government of India’s help and GST Council’s help in one form or another for meeting their expenditure. The GST compensation till now which had to be compulsorily given to the States by law, all Hon’ble Members had discussed on how the payment has to be made. He felt that it was not right to hold something or someone as the cause for these circumstances. Only the circumstances have turned out like this. They all had to only think about how to get out of this situation with the help of Government of India. He requested that they all should think on the simplest and fastest way to meet the compensation needs and the liquidity needs of the States. Just as Dy.CM, Bihar stated that there was only one option. When they earlier discussed about the compensation issue, the Corona pandemic was not present. At that time, there were balance dues of compensation of States. At that time their thoughts were expressed and were also recorded in the minutes that, if possible, Government of India or GST Council wo .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ates and repayment must be made from the income of the cess. According to him, there would not be an issue even if the cess period is increased for five years. The Centre-State relations would flourish. The financial problems of Centre and States would be solved. The primary objective of the GST Act was ‘One Nation One Tax’ would be successfully met. The GST Act would be successful and the conviction of the States in the law and in the GST Council should remain firm. Suitable mechanisms for this should be created. His request was that, if possible, a committee consisting of five to seven secretaries/commissioners from States may be constituted urgently and they should submit a report on how to raise a loan, how to implement this mechanism, who will take the loan, when the payments will be made etc. within seven to ten days. It was necessary that payments were made as early as possible. If there were delays then the troubles of States would multiply. States were not in a position to pay salaries also. Plans and development activities in States had stopped. These had to be taken forward and Atma Nirbhar Bharat also had to be implemented by them. To do these, financial sit .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... humbly submit to the Chairperson. Coining to the practical part question to answer was how to they manage this. They fully understood the COVID situation; the situation of the Central Government and Centre should understand their situation. There were two options. One is to increase the GST rates and through various mechanisms collect more cess etc. which would be for the long term. As per RBI and studies by different agencies, GDP may fall this year from 4-9%. If it falls even by 2%, it will shrink. In this situation, if the GST rates & cess are increased, cesses on sin goods are hiked; it would be impractical and not doable in the current times. So, the second option is borrowing. Who is going to borrow is the question. Capacity to borrow is one of the usual criteria for borrowing. Capacity to borrow of the States is in a precarious condition. Hon’ble Member from Karnataka cited the SBI report that only eight States were in a state to borrow. The fact is that nobody is in a state where they can borrow and build up debt which they have to service. So, his first point is that capacity to borrow lies with the Centre. The Centre had already given Rs ten lakh crore stimulus. .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... tarted by the discussion, legal things can be interpreted in many different ways. What cannot be interpreted is what happened in the Kolkata meeting of the Empowered Committee. The States gave up their rights because they wanted a big fiscal jump which the world would remember. With the spirit, on one condition, that for 5 years and no more than 5 years, the Centre compensates the States. Due to COVID lockdown which was initiated by the Hon’ble Prime Minister and later on States also imposed lockdown, citing all the data that Hon’ble Member from Punjab started with, Hon’ble Dy.CM, Delhi expressed the same sentiment, Hon’ble Member from Kerala brought in the question of rating agency where it doesn’t matter whether the Centre or State borrows since it will be counted as fiscal deficit and it will affect the rating agencies, he earnestly submitted that since Centre had the capacity to borrow, can borrow at right rate and had the debt servicing capacity this may be considered objectively. With it, the Chairperson can put in place a long-term strategy with the GST Council that they will rejig the rates especially the cesses and particularly the sin goods. .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... p may be taken, Centre can help by printing more money, NABARD has a lot of money which belongs to the Central Government in the form of corpus fund which can be used to pay compensation to States. It was also true that the capacity of States to borrow is finished. They were a victim of indebtedness. Hence, for this reason, they would not take huge loans and if they took, they have to face huge interest burden. When the Central Government takes loan from related sources or institutions, they get it for lesser rate of interest. In these circumstances, the Central Government had to find out a way and pay the compensation for which the Central Government was committed to. He also reminded that their Hon’ble Chief Minister, who is also the Finance Minister, wrote a letter requesting extension of the cess period for five more years. Due to COVID, the income of all States had fallen and nobody could predict till when this situation will be present and when things will be back to normal. For this reason, the cess period should be extended. With a federal structure mechanism, for the States, the Central Government may also raise funds by raising loans from IMF, World Bank and other i .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... d to put in efforts to keep the revenue shortfall (which is projected minus actual revenue) to the minimum. Effective steps had been taken to ensure highest filing of returns and for preventive action. Uttar Pradesh required less compensation. However, due to situation caused by COVID-19, the State’s requirement for compensation increased as compared to previous years. In these testing times of Corona, for taking care of States, the compensation for the month of February 2020 was paid and Uttar Pradesh received ₹ 3,943 crore for which he specially thanked the Chairperson. However, Uttar Pradesh still had to get ₹ 11,876 crore compensation. He impressed this on priority that balance ₹ 11,876 crore should be given to Uttar Pradesh due to the current testing times. If they calculated the compensation amount for the next two years, then they would get a figure of ₹ 60,000 crore. In the exclusive meeting on GST compensation, there were two options before them. First was that their resources and other means may be increased and the second is that, to deal with the current circumstances, borrowings may be resorted to and take a loan in some form. He wanted to .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... nue should not be delayed. He personally also made these requests earlier. His humble submission was that matters involving revenue, if referred to Fitment Committee and Law Committee, then strict timelines should be imposed for them. They should take decisions between two GST Council Meetings so that they can be put up to the GST Council in the subsequent meeting for final decision to be taken for the benefit of States. Hence, he wanted to emphasize this issue. Along with this, Uttar Pradesh had requested GST Council for capacity based special compensation scheme for brick kiln, pan masala, this was referred to the joint meeting of Fitment Committee and Law Committee but this matter is still undecided. Hence, they wanted to attract the attention of the Chairperson to this issue. Revenue realization from advertisements shown on Facebook, YouTube, Google is negligible. If a mechanism was devised to share data then their revenues could increase. Finance Secretary at the beginning had focussed on how to deal with the current situation and Hon’ble Member from Gujarat stated that borrowing had to be done, whether the Centre, GST Council or the States. In this matter, they are comp .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... 9 had severely crippled the State’s tourism sector. The Chairperson knows that their population was 1.25 crores and 7 crore tourists visit the State. The sector was demolished and it will take years to correct. Apart from this other sectors also faced losses. They were a small Himalayan State. Before they transitioned from VAT to GST, they were growing at 17% but the Centre fixed a growth of 14% which was also a loss they faced. As fur as borrowing was concerned, in the current situation, their borrowing capacity was 3% and they are already paying a big amount of ₹ 5,800 crore as interest which is 2.1% of their GSDP. The total loan liability for their State was ₹ 71,500 crore which is 24.36% of GSDP. Hon’ble Member from Jharkhand stated that their liability was ₹ 45,000 crore. In spite of being a small State, they have a liability of ₹ 71,500 crore. There were not in a position to borrow further. His humble request was that it was preferable for the Centre to take the loan and pay to the States. 26. Hon’ble Member from Madhya Pradesh stated that during the Corona times, due to economic slowdown State tax revenues fell by 40%. From April to .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ncur a heavy borrowing, Further the Union’s commitments on defence, internal security, various welfare programmes like food subsidy, rations also need to be taken into account as unless these responsibilities are met, the problems in economy may become more serious. However, as the States are also facing issues, there is a need to take a collective view. He further stated that compensation gap for only the first four months of the current Financial Year is ₹ 1,50,000 crore compared to what used to be the compensation gap for an entire year, around 1,00,000 crore. Then, he requested the Joint Secretary (DoR) to present the estimates on shortfall. 27.2. Joint Secretary (DoR), presented the estimates on shortfall. He stated that it was an indicative estimate as it was difficult to estimate time shortfall depends on how the recovery would take place. Even if it is assumed that there would be recovery in the coming few months, estimates suggest that there would be a shortfall of around ₹ 3,00,000 crore for the year against the protected revenue. For April-July, the shortfall is around ₹ 1,50,000 Crore. Shortfall has been divided into how much of is it because of .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... s, a view could be taken considering the shortfall being divided into these two buckets. 28. Hon’ble Member from Delhi stated that these are the projected facts which are presented and the figures presented may also change. On the basis of either the Centre’s proposal or from any of the proposals floated during the discussions, a decision or view point could be made. 29. Hon’ble Member from Kerala suggested that the spirit of discussion in the Council should be understood and that apportionment of shortfall into loss from Covid and loss from implementation of GST should not be done as the Constitution does not make such distinction. It is a false direction of discussion as there is no distinction made in legal terms. He suggested that the Council should instead discuss how this entire loss could be met. 30. Hon’ble Member from Assam stated that the differentiation between implementation of GST and other reasons is inherent in the Constitution and not technical in nature. He further stated as per Section 18 of the 101st Constitution Amendment Act, Parliament shall, by law, on the recommendation of Goods and Services Tax Council provide for compensation to the .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... quest the Centre to support them in Covid situation but the Minutes of the earlier GST Council meetings cannot be misinterpreted to mean that Centre would compensate the States in any other situation. Neither legal nor moral responsibility exists on the Centre to compensate the loss that occurs because of Covid. Instead, only a request can be made to the Centre. He further stated that in this regard, he had a strong disagreement with the Hon’ble Member from Puducherry. 33. Hon’ble Chairperson stated that while all the suggestions from all the States are welcome, and the Council would be enriched from the healthy debate. She further suggested that instead of a debate about the interpretation of the Act, or the Minutes, the States may present their views on the suggestions made. 34. Hon’ble Member from Punjab stated that a clarification may be given from the Government of India on the IGST amount which was wrongly credited to the Consolidated Fund of India. He further stated that an entry of about ₹ 34,000 Crore was reversed, but a clarification was needed about the rest of the money. If the rest of the amount ₹ 54,000 Crore was also reversed, it would h .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... no debate about a distinction being made between the normal course of growth and Covid related shortfall. 36. Hon’ble Member from Delhi stated that he agreed with the Finance Secretary about the loss of revenue to the Centre in non-GST taxes such as Excise duties, Corporate tax, Income tax, yet, States have also suffered losses in VAT, Excise. Property tax, Vehicle tax, Registration etc., because of Covid. The distinction between shortfall from GST implementation and from Covid is difficult to make and may be wrong also. While no national disaster like Covidwas observed, there have been many disasters at the State level. If any State faces such disaster, it would not be right to divide the shortfall into being caused by GST implementation and by disaster. While it seemed to be a consensus view that a borrowing must be done to tackle the shortfall situation, the question is whether Centre or the States need to take this loan. He further stated that even if the States take loan at different interest rates, according to the Section 10 (1) of the GST (Compensation to States) Act, all amounts need to be credited to the Public Account of India, and need to be redistributed among th .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... correct and is unacceptable. He stated that the States were promised compensation for shortfall and that no mention was made about the reasons in the Compensation Act and thus the issue of force majeure does not arise. He further requested that the opinion of the Learned Attorney General may be shared with all the States. 40. Hon’ble Member from Kerala strongly disagreed with the assessment made by the Finance Secretary in dealing with the situation. He stated that barring one or two states all others who spoke, said that the center should do the borrowing. Having felt the sense of the house, this aspect should be discussed first and he took strong exception to the discussions centering on covid related revenue loss and non-covid related revenue loss. When the economy is in recession, or in contraction, the theory suggests that the Government should expand the expenditure. He suggested that States were not asking for a stimulus package but are asking to maintain the existing expenditure. He suggested that the interest rate at present was one of the lowest and borrowing will not have much impact. He suggested that a part of the Centre borrowing may be monetized instead, to not .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... from the Cess collection from the States, Centre needed to support the States in the present situation. He pointed out that Telangana was in need of compensation for the first time, whereas several other States which were affected by natural calamities or were being handled badly were provided with compensation earlier, leaving better performing States disincentivized. He further stated that the allocations made by the XIV and XV Finance Commissions were also skewed against the better performing States like Telangana. He stated that, while he agreed with the support being given by the Finance Commission to the low performing States, States like Telangana lost much more. Similar treatment was happening with the disbursal of GST Compensation also. He requested that instead of making a distinction between shortfall from GST implementation and Covid induced loss, entire shortfall amount may be given by the Centre and let it be repaid by extending the Compensation levy for a further period. 44. Hon’ble Member from Karnataka stated that the law was very clear and he agreed with the perspective shared by the Finance Secretary regarding the identification of actual shortfall from Cov .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ST Council Meetings, there was a never a situation of Centre versus the States. The difference if any were always discussed and thrashed out to speak collectively for federal India. At present, federal India needed extraordinary solutions urgently to help the States which are at the forefront of fighting Covid. She reminded that she had to take the opinion of the learned Attorney General as she had committed in an earlier Council Meeting because the Cess collection was not proving adequate for meeting the requirement. She reminded that she answered in the Parliament also regarding the delay in payment of compensation which was a challenge in itself She further stated that regarding few Members’ comment that the surplus in Cess collection was kept in the Consolidated Fund of India, it was not done with any vicarious interest, and it was drawn to give to the States though with a delay caused by procedural matter as it required appropriation through the Parliament. She further stated that regarding the issue of IGST settlement, the issue was resolved but the mechanism of adjustment among the States is being examined by the Group of Ministers headed by the Hon’ble Member fr .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... tates need not individually approach the RBI, instead the Centre can facilitate with the RBI so that same rate can prevail for all the States. She further stated that any excess collection of Cess after paying back the borrowed amount through RBI, will be given to the States which can also help in the repayment of’ States borrowing from the market under relaxed 0.5% FRBM limit. 47. Hon’ble Chairperson then presented the Option 2, that total Compensation requirement for the year of 2020-21 being around ₹ 3,00,000 Crore and the estimated collection of’ ₹ 70,000 Crore, the borrowing needs to be around ₹ 2,30,000 Crore which is about 1.15% of GDP. For this Option also, Centre will allow the borrowing by the States through the RBI and pay back from the arrears of compensation released beyond the transition period. She further stated that the compensation requirement would be around ₹ 3,50,000 Crore for the year of 202 1-22, the last of the 5-year transition period, and estimated collection would be around ₹ 90,000 Crore requiring around ₹ 2,40,000 Crore to be borrowed. She suggested that the arrangements may be done only for the curr .....

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Minutes of the 41st GST Council Meeting held on 27th August, 2020 - GST

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..... ispensed with, for going to the Reserve Bank. 58. Hon’ble Member from Rajasthan stated that his State’s fiscal deficit is already beyond the limit prescribed by FRBM Act and debt-to-GDP ratio is already 33% as against 25% suggested by FRBM Act. He further stated that if the loan is being paid for by the Cess, the Centre should borrow and recover from the cess as States have already crossed the FRBM limits and such option would be welcomed by all States. 59. Hon’ble Member from Kerala stated that the best course of action would be to give some time to the States to examine the options. 60. Hon’ble Member from Assam stated that a time of seven days may be given to communicate their decision in writing. He further stated that if Option 1 is given, the State may or may not go for further market borrowing depending on the requirement but in Option 2 means that such borrowing will certainly take place. 61. Hon’ble Chairperson clarified that even in the Option 2, the borrowing would be done in the name of the States. 62. Hon’ble Member from West Bengal supported the proposal made by the Hon’ble Minister from Assam and suggested that a detailed pro .....

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