Bihar has joined ranks of Karnataka and Assam in rooting for the first option proposed by the Centre to compensate states for the goods and services tax (GST) shortfall amid inadequate cess collection. This indicates there could be a sharp divide between the Bharatiya Janata Party (BJP) and non-BJP ruled states at the upcoming GST Council meeting to settle the thorny issue.

Rejecting both options on the table, state chief ministers (CMs) from West Bengal, Tamil Nadu, Kerala, Chhattisgarh, and Telangana have reached out to Prime Minister (PM) Narendra Modi to intervene, urging the Centre to take a loan instead. Delhi, Puducherry, and Punjab have also summarily rejected the two options.

The Union finance and expenditure secretaries had met state CMs on Tuesday, clarifying the minutiae of the two options. The first option is to only borrow up to Rs 97,000 crore, which is a shortfall arising out of the GST implementation via a special window by the Reserve Bank of India, or the entire Rs 2.35 trillion through the issue of market debt.

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Karnataka has said it has decided to opt for the first option proposed by the Centre for borrowing, under which the state will be eligible for a total compensation of Rs 18,289 crore, of which Rs 6,965 crore will come from the cess collected. For the balance Rs 11,324 crore, the state will be able to borrow through a special window, with the burden of principal and interest repayment being met out of the compensation cess fund.

With divergent views on the issue emerging, the dissenting states will likely press for operationalising the dispute resolution mechanism in the Constitution. The Constitution Amendment Act for GST provides that “the GST Council may decide on the modalities to resolve disputes arising out of its recommendation”.

Telangana CM K Chandrashekhar Rao has written to the PM, saying the Centre had violated the provisions of the GST Compensation Act by parking the surplus compensation fund in its consolidated fund.

Tamil Nadu CM Edappadi K Palaniswami wrote to the PM, arguing that the Centre had a moral and legal obligation to compensate states for the shortfall.

Meanwhile, Punjab and Chhattisgarh CMs wrote to Union Finance Minister Nirmala Sitharaman, contesting the growth assumptions and the concept of bifurcating revenue loss figures into Covid and non-Covid.