Denying the GST compensation to the States – Flouting the Cooperative Federalism

Vidya V Devan
Assistant Professor, Bharata Mata School of Legal Studies, Chondy, Aluva, Kerala, India.

Volume III, Issue V, 2020

GST which was termed as the radical indirect reform regime which came into force on the mid night of 1st July 2017 was termed as the ideal example of cooperative federalism. GST was an attempt to bring about uniformity in indirect taxation in India which suffered from the multi layered imposing structure and cascading effects. The change was not easy as there was no concurrent power of taxation under the constitution. So after the101th constitution amendment in 2016, GST was implemented to form ‘’one Nation, one Tax’’ to make India internationally more competent and to enhance the intra national trade and commerce to develop the GDP of the country. The drastic changes in taxation regime could be successfully implemented only with the corporation of the States. The states were worried about there revenue loss while changing over from an origin-based tax structure to a destination-based taxation. The Centre promised the states to compensate initially for 5 years to cope up with new system. But now at amidst the pandemic of Covid 19 both the Centre and State is suffering a huge economic loss. The financial crisis of the states is augmented by the Centre’s decision to stop the payment of the GST compensation which was due to the States. This has certainly and truly effected the Centre -State relations and the ‘’federalism’’ the one among the basic feature of Indian Constitution. Turning back at the States at times when they need the most may disrupt the working of GST, the indirect tax regime which was already struggling to exist.

Keyword: Indirect tax, Centre –Sstate financial relation, GST, revenue loss, compensation to the states, cooperative federalism.