The centre faces strident demands for compensation under the GST. (Representational)
The government has to compensate states fully for the loss of revenue in Goods and Services Tax (GST) during the coronavirus crisis, its top lawyer has advised ahead of a big meet of the GST council to be attended by state Finance Ministers and Chief Ministers.
Sources say the Finance Ministry had asked Attorney General KK Venugopal a few key questions, seeking advice as it faces strident demands for compensation under GST.
The Congress has called it a "sovereign default" and going back on constitutional guarantees that had been the reason the states had come on board with the GST plan.
The BJP's own leader Sushil Modi, the deputy Chief Minister of Bihar, has said the Centre should borrow and pay GST compensation to states as it is "morally bound" to do so.
The Attorney General's response has reportedly caused anxiety in the Finance Ministry and also raised questions on the efficacy of the GST Act, which was dubbed a "game-changer".
Here are the centre's questions and the replies:
Does the Centre have to pay states the full compensation during the transition period of five years in case it does not have the required funds?
Attorney General's reply: The Centre is bound to pay the states full compensation irrespective of any shortfall.
The Centre asked whether it would have to bear the shortfall of promised money partly or wholly.
Attorney General's reply: It is for the GST council to decide on making good the shortfall and the council can't make a recommendation which the central government is opposed to.
The Revenue department asked whether the five-year period of compensation can be extended to states.
Attorney General's reply: There can be no extension unless states agree to this deferment.
The Finance Ministry asked whether states can borrow based on the assured compensation from the GST fund.
Attorney General's reply: He said they can but with a rider that they have to get a clearance from the Centre to borrow any money.