Compensation cess: 7 states to move SC if Centre doesn't pay up Rs 30,000 crore GST dues

Amidst muted Goods and Services Tax (GST) revenue growth and worries over delayed allocation of compensation cess to states, a few state governments are considering legal recourse against the Centre if their dues are not cleared immediately. States like Kerala, West Bengal, Punjab, Delhi and Chhattisgarh, Madhya Pradesh, Rajasthan and Union Territory of Puducherry -- all non-BJP states -- are planning to knock at the door of the Supreme Court if their concerns are not addressed.

Finance ministers and representatives of these states met Union Finance Minister Nirmala Sitharaman last week, urging her to release the pending compensation cess since August. States get an average cess compensation of about Rs 7,500 crore per month (as per the last fiscal's numbers), which means the Centre is yet to release funds worth over Rs 30,000 crore to these states.

Chhattisgarh Commercial Taxes Minister TS Singhdeo told Business Today that these states were planning to move the top court but they wanted to exhaust all other options before that. "Initially, we were thinking of going to the Supreme Court but the consensus was that rather than going to the SC first, we should exhaust the other options, which the apex court would anyway ask us to do," Singhdeo said.

The GST Council is well aware of the situation and is going to review GST and compensation cess rates in its next meeting this month. The GST Council has accepted that the compensation demands have been rising and they are unlikely to be met from the compensation cess being collected. The Council has already formed a committee of officers from states as well as the Centre to suggest measures for increasing the GST revenue.

Also read: FM Sitharaman says govt will pay states' share of GST; 'compact will be honoured'

The compensation cess is levied on goods that come under 28 per cent GST slab, and the amount collected from it is allocated to states to make good of the deficit due to implementation of the GST. The deficit is calculated assuming that states GST revenues grow at 14 per cent every year beginning 2015-16. The compensation cess was planned to be levied for the first five years of the GST. However, many states have already started demanding for its extension beyond 2022.

Though TS Singhdeo says its extension would not solve the problems of manufacturing states like Chhattisgarh, which stand to lose maximum from the GST. He says manufacturing states suffer heavily whenever compensation from the Centre stops.

Last year, the Centre had collected the compensation cess of Rs 95,000 crore. This year till October, it has already collected cess of Rs 55,500 crore, just 1.5 per cent more than what was collected last year during the same period.

Also Read: GST revenue crosses Rs 1 lakh crore mark in November