Lok Sabha Question No. 58 (UNSTARRED), answered on 2020-09-14
Subject: Levy of Compensation Cess
Ministry: FINANCE
Asked by: Jayadev Galla

## LOK SABHA UNSTARRED QUESTION NO. 58 TO BE ANSWERED ON MONDAY, THE 14TH SEPTEMBER, 2020 BHADRAPADA 23, 1942 (SAKA)

## Levy of Compensation Cess

## 58: Shri Jayadev Galla:

Will the Minister of FINANCE be pleased to state:

- (a)  the details of items on which Compensation cess is being levied under the Goods and Service Tax (GST) law;
- (b)  the details of cess so far collected since implementation of GST and distributed to States, year-wise and State-wise;
- (c)  whether the meeting of GST Council is going to be held to finalize the issue of Compensation Cess to be paid to States; and
- (d)  if so, the details thereof and the details of advice given by the Attorney General sought by the Ministry in connection with payment of compensation to States?

## ANSWER

## MINISTER OF STATE IN MINISTRY OF FINANCE (Shri Anurag Singh Thakur)

(a):  Section  8(2)  of  the  GST  (Compensation  to  States)  Act,  2017  provides  for  levy  of compensation cess on supply of certain goods and services which are specified in the Schedule of the said Act. Such important items which attract compensation cess are Pan Masala, Tobacco and tobacco products, Coal, Aerated Waters, Motor Vehicles etc.

(b):  The  details  of  GST  compensation  cess  collected  and  compensation  released  to States is as follows: -

(Figures in Rs. Crore)

|                             | 2017-18   | 2018-19   | 2019-20                 | 2020-21              |
|-----------------------------|-----------|-----------|-------------------------|----------------------|
| Compensation Cess collected | 62,612    | 95,081    | 95,444                  | 21355 (till July,20) |
| Compensation released *     | 41,146    | 69,275    | 1,20,498 (till Nov, 19) | 65,546 (till Mar'20) |

* State-wise details of GST compensation released in as per  Annexure-I.

(c)  &  (d):  GST  compensation cess collected in current FY 2020-21 is not sufficient to release  the  admissible  GST  compensation  for  period  April-July,  2020.  Moreover,  the GST  compensation  cess  collected  till  July,  2020  has  already  been  utilized  for  the purpose of GST compensation released to states for the period till March, 2020. Taking into account the shortage of cess collection during current FY, Central Government has sought the legal  opinion  of  Ld.  Attorney  General  of  India  on  6  points  on  the  issue  of release of GST compensation to States and the point-wise summary of opinion given by Ld Attorney General is as per Annexure-II.

Accordingly, to discuss the issue of pending GST compensation and future course of  action  to  meet  the  GST  compensation  shortfall  has  been  discussed  in  41st  GST Council  meeting  on  27.08.2020  wherein  States  were  given  two  options  to  meet  their GST  compensation  shortfall  for  current  FY  from  market  borrowing.  Based  upon  the options exercised by the States, their compensation, borrowing, repayment etc. will be dealt as per their individual choice.

****

## Details of GST Compensation

(Rs. in crore)

|      |                   | GST Compensation released in   | GST Compensation released in   | GST Compensation released in   | GST Compensation released in   | GST Compensation released in   |
|------|-------------------|--------------------------------|--------------------------------|--------------------------------|--------------------------------|--------------------------------|
| S.No | Nameof State/UT   | FY 2017-18                     | FY 2018-19                     | FY 2019-20                     | FY 2020-21                     | Total                          |
| (1)  | (2)               | (3)                            | (4)                            | (5)                            | (6)                            | (7)                            |
| 1    | Andhra Pradesh    | 382                            | 0                              | 1840.76                        | 1187                           | 3410                           |
| 2    | Arunachal Pradesh | 15                             | 0                              | 0.00                           | 0                              | 15                             |
| 3    | Assam             | 886                            | 466                            | 878.97                         | 488                            | 2719                           |
| 4    | Bihar             | 3041                           | 2571                           | 3524.78                        | 2265                           | 11402                          |
| 5    | Chattisgarh       | 1483                           | 2261                           | 3081.44                        | 1877                           | 8702                           |
| 6    | Delhi             | 157                            | 4182                           | 7436.00                        | 2160                           | 13935                          |
| 7    | Goa               | 252                            | 476                            | 818.70                         | 329                            | 1876                           |
| 8    | Gujarat           | 3687                           | 6149                           | 10646.52                       | 5822                           | 26305                          |
| 9    | Haryana           | 1199                           | 2820                           | 5453.43                        | 2522                           | 11994                          |
| 10   | Himachal Pradesh  | 539                            | 2037                           | 1877.33                        | 1018                           | 5471                           |
| 11   | J&K               | 1137                           | 1462                           | 2279.28                        | 1230                           | 6108                           |
| 12   | Jharkhand         | 1265                           | 1029                           | 1531.82                        | 859                            | 4685                           |
| 13   | Karnataka         | 6246                           | 10754                          | 14496.90                       | 7266                           | 38763                          |
| 14   | Kerala            | 1772                           | 2884                           | 5575.04                        | 3514                           | 13745                          |
| 15   | Madhya Pradesh    | 2511                           | 2866                           | 4530.78                        | 2600                           | 12508                          |
| 16   | Maharashtra       | 1488                           | 8330                           | 15018.13                       | 6837                           | 31673                          |
| 17   | Manipur           | 24                             | 0                              | 0.00                           | 0                              | 24                             |
| 18   | Meghalaya         | 124                            | 73                             | 101.45                         | 65                             | 363                            |
| 19   | Mizoram           | 0                              | 0                              | 0.00                           | 0                              | 0                              |
| 20   | Nagaland          | 0                              | 0                              | 0.00                           | 0                              | 0                              |
| 21   | Odisha            | 2019                           | 3390                           | 3928.78                        | 1917                           | 11255                          |
| 22   | Puducherry        | 333                            | 592                            | 862.29                         | 338                            | 2125                           |
| 23   | Punjab            | 4037                           | 7129                           | 8804.54                        | 6310                           | 26281                          |
| 25   | Sikkim            | 6                              | 0                              | 0.00                           | 0                              | 6                              |
| 26   | Tamil Nadu        | 632                            | 3151                           | 8922.03                        | 5442                           | 18147                          |
| 27   | Telangana         | 169                            | 0                              | 2263.16                        | 791                            | 3223                           |
| 28   | Tripura           | 129                            | 155                            | 171.00                         | 159                            | 614                            |
| 29   | Uttar Pradesh     | 2124                           | 308                            | 5179.52                        | 3943                           | 11555                          |
| 30   | Uttarakhand       | 1283                           | 2037                           | 2477.38                        | 1452                           | 7249                           |
| 31   | West Bengal       | 1608                           | 1977                           | 4358.74                        | 2479                           | 10423                          |
|      | Total             | 41146.00                       | 69275.00                       | 120498.29                      | 65546.20                       | 296465.49                      |

## Question. 1

In case the balance in the Goods and Services Tax Compensation Fund is not adequate to meet the compensation payable under Section 7, are the States still entitled to receive the full amount of compensation calculated as per the provisions of the Goods and Services Tax (Compensation to States) Act, 2017?

Opinion-  The  States  are  entitled  to  receive  the  full  amount  of  compensation during  the  'transition  period',  in  accordance  with  the  provisions  of  the  Act, irrespective of shortfall.

## Question. 2

In case the balance in the Goods and Services Tax Compensation Fund is not  sufficient,  is  there  an  obligation  on  the  Centre  to  meet  the  shortfall wholly or partly?

Opinion  -  There  is  no  express  provision  in  the  Compensation  Act  for  the Government of India to bear the liability of making good the shortfall.

## Question. 3

What are the options before the GST Council, Union and States to meet the said shortfall? Can the GST Council recommend extension of period during which the compensation for the transition period can be paid to the States in terms of Section 8?

Opinion - Only in a case where all the States together agree to a deferment or extension  in  regard  to  the  payment  of  compensation  to  them,  that  one  could adopt such a course of action.

## Question. 4

Can  the  States  borrow  on  the  strength  of  the  future  receipts  from  the Compensation Fund to meet the compensation gap either fully or partially?

Opinion  -  Clause  (2)  of  Article  292  authorizes  Parliament  to  make  loans  to  a State, subject to any limit which may have been fixed by law made by Parliament. The entitlement of a State to borrow is set out in Article 293(1). The limitation on such right is found in Clause (3), which prohibits a State from raising any loan, without the consent of the Government of India, 'if there is still outstanding any part of a loan which has been made to the State by the Government of India..'.

## Question. 5

Can  the  GST  Council  recommend  or  request  the  Centre  to  consider allowing States to borrow money to meet the compensation gap either fully or partially?

Opinion-  The  GST  Council  can,  in  the  exercise  of  its  duties  under  article 279A(4)(h) of the Constitution, recommend to the Central Government to permit the States to borrow money, as a measure for meeting the compensation gap. It would,  however,  be  for  the  Central  Government  to  take  final  decision  in  the matter, in exercise of its authority under article 293(3) of the Constitution.

## Question. 6

Apart  from  aforesaid,  opinion  of  Learned  AG  on  following  was  also obtained:

(i) Whether the States would be 'entitled' to any compensation beyond the  transition  period  of  five  years  under  the  Goods  and  Services  Tax (Compensation to States) Act, 2017.

(ii) Whether,  in  light  of  the  fact  that  GST  Revenue  would  be  down  by Rs.2.5 lakh crore as compared to what it would have been without COVID and in such extraordinary circumstances when the entire world is facing an economic downturn due to the impact of Covid-19 on the economy and the amounts in the GST Compensation Fund is not adequate to pay the States, can it be and said that while the entitlement of the States to receive the full amount of  compensation  is  payable  for  the  'transition  period',  however, the levy and collection of cess and payment of the shortfall compensation can  be  extended  beyond  5  years  in  accordance  with  Section  8(1)  of  the Goods  and  Services  Tax  (Compensation  to  States)  Act,  2017  and  Article 279A of the Constitution?

(iii) Whether,  instead  of  taking  consent  of  all  States  for  the  purpose  of deferring the payment of the shortfall compensation under the Goods and Services Tax (Compensation to States) Act, 2017, the recommendation of the GST Council in the form of a decision of the majority of the Council as provided in Article 279A(9) of the Constitution would be sufficient to defer the payment of shortfall compensation in the extra-ordinary circumstances such as the present?

Opinion - (i) The compensation under the Act is payable to the States during the transition period (i.e. 5 years); and

(ii)  Such payment shall be made from the Fund, into which the proceeds of the cess are credited.

(iii) GST Council would recommend the continuance of the cess beyond the transition  period  of  5  years  only  in  a  situation  of  shortfall  during  the  transition period, which would necessitate the raising of funds for paying the compensation to the States after the 5 year period is over.

On account of any extraordinary circumstances causing a steep fall in GST revenues and a shortfall in the Fund, the states cannot be paid full compensation during the transition period, the shortfall in the payment of compensation could be made up even after the transition period of 5 years.

A recommendation by the GST Council extending the levy and collection of the cess beyond 5 years under Section 8(1) of the Act, would require a decision by a three-fourth majority of the weighted votes.