GST Compensation to States: An Ineluctable Obligation on the Union

GST Compensation to States: An Ineluctable Obligation on the Union

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Volume 14 Issue 1 ()

The Central Government in the year 2020 initially refused states a recompense for both actual and notional losses in their GST revenues for the FY 2020-21. While the discombobulated state governments scrambled to find legal and fiduciary justification for their demands, the Centre simply cited situational expediency and the absence of any obligations, for their denial. It suggested two alternatives to the states, both of which evolved borrowing, as the only mechanisms for compensation. However, as the GST Council meetings and the 101st Constitutional Amendment Act would collectively reveal, the Centre had promised to the contrary. The obligation of maintaining a constant supply of compensation-credit to states emanates from that promise and is all the more binding, given the huge sacrifice made by the states. The historically unique creation of legislative tax-fields outside of Schedule VII of the Indian Constitution and the overwhelmingly dominant role of the Centre in administering them, were both premised on this future consideration to the states. Herein, the proviso to Article 368(2) has the same outcome as its laterally inverted version, Article 252, insofar as it crafts a contract between two vertical government branches operating in a ‘federal market’. This, then, adumbrates the foundation of what presently prevails in American Constitutional jurisprudence as the ‘anti-coercion’ principle. This paper argues that the Indian Constitution has encapsulated this principle inceptively. GST compensation then becomes a contractual obligation at a Constitutional level, eliminating any legal space of revocability otherwise available to the Centre.

Cite as: Yash Sinha , GST Compensation to States: An Ineluctable Obligation on the Union, 14 NUJS L. Rev. 149 (2021)