It is to be noted at the time of launching the GST regime, the law assured states a 14% increase in their annual revenue for five years of the transition period from July 1, 2017 to June 30, 2022, and guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal.
While states have no claim on compensation from July 1, 2022, the cess continues till March 31, 2026, to service the back-to-back loans availed by states when compensation cess collection fell in 2020 and 2021 because of a slump in economic activities due to the Covid-19 pandemic.
Coucil repesened by all federal states finacne minsiters approved the release of over ₹33,500 crore worth of compensation cess to the states, and agreed to table a draft legislation in the current session of Parliament to establish an appellate tribunal.
Briefing about the council meeting, Sitharaman said while the entire compensation dues to states up to May 31, 2022 were already cleared, ₹16,982 crore pending for June is also being cleared by the Union immediately, and it will be later “recouped” from the Compensation Fund meant for this purpose.
“In other words, the entire pending balance of the GST compensation, which is total of ₹16,982 crore for June will be cleare although this amount is not available in the Compensation Fund as of today, we have decided to release the amount from our own resources and the same amount will be recouped from the future compensation cess collection,” she said.
“Thus, the entire compensation amount for five years since July 2017, as envisaged in the GST Act, has been cleared, she added. The centre also cleared “admissible” final GST compensation of ₹16,524 crore pending to six states after they furnished the Accountant General’s (AG) certificates for the same, she added.
The consensus-based approach of the federal body and the magnanimity of the Union . “The decision of the central government to release the GST compensation for June 2022 to the state governments through their own funds would go a long way in establishing the trust of the states in the GST regime,” said Saurabh Agarwal, tax partner at consulting firm EY.
