Dr. Amit Mitra
Minister-in-charge
Finance Department,
Planning & Statistics Department and
Programme Monitoring Department
Government of West Bengal
D.O. No. 156/FM/2021
Dated, the 23rd June, 2021
Dear Smt. Nirmala Sitharanian ji,
I write this letter with great anguish. Many of us have observed a steady breakdown of the spirit of cooperative federalism and the erosion of the commitment to work out a consensus in the GST Council Meetings.
We are passing through dangerous times for the GST regime itself, when States’ own revenues are in dire distress with a growth of (-) 3% during FY 2020-21. The gap between protected revenue and revenue collected has ballooned to Rs.2,75,606 crores. The actual compensation due to the States for 2020-21 has reached Rs. 74,398 crores. Fraudulent transactions hit a peak of Rs. 70,000 crores according to Nandan Nilekani’s presentation to the GST Council.
What pains me the most is the fact that GST Council meetings have become acrimonious, vexing and almost toxic with erosion of mutual trust that had held fast between States and the Centre since the inception of the GST Council.
I recall many instances when GoI (The Chair) yielded to suggestions even from a lone voice from a State and in turn, States yielded to GoI proposals despite reservations. The Council vehemently debated over thousands of pages to formulate the GST Law, IGST Law and GST Compensation Law without any bitterness or antagonism. I recall that the possibility of a consensus almost broke down over how tax payers would be divided between Centre and States (vertical or horizontal formula) ending with a consensus on a 1.5 crore threshold, as proposed by States. But now I am afraid, that arriving at such consensus, even for much simpler matters, has become elusive.
Frankly speaking, Hon’ble Minister, an undercurrent has emerged in recent times that while the Chair hears the submissions of all States very patiently, indeed, there is a predetermined conclusion with which Gol, aided by its top bureaucrats, comes to the GST Council meetings.
At times, we have found that after hours of submission by Ministers, no conclusion or consensus is declared at the end of the meeting, as in the case of the 42″ meeting of the Council. In fact, we heard the conclusion from the Press Conference given by the Chair. However, even this conclusion was changed due to the advice of RBI – a decision taken outside the GST Council Meeting. Ironically, the final conclusion, springing from the RBI advice, was identical to the one that many of us proposed at the Council, that the Centre should borrow from its special window of the RBI, instead of the 31 States and Union Territories simultaneously hitting the market for loans.
Many of us as Ministers are also concerned that the GST Implementation Committee (GIC) consisting of officers, from a few States and mainly from the GoI, have started amending rules and presenting them only for the information of the GST Council — not for discussion and ratification. When the GIC was meant only for procedural issues, it has amended Rule 8 and 9 on Registration, Rule 21, Rule 21A, Rule 59, Rule 86B and Rules 138 and 138A on the vital issue of e-Way Bills. You would agree that such amendments and their implementation by GIC are undermining the powers of the GST Council.
Hon’ble Minister, given the impending crisis that the GST regime is facing today, now would be the time for us to pull together and rebuild trust and faith, not just hear but to listen to each other’s logic with an open mind as we have done, for many years in the past, when we cut across party lines and regional diversities.
I recall, how we, the coastal States came together, differing with the GoI on taxing in territorial waters. The States which expressed a common view on this matter at the GST Council included Odisha (BJD), Andhra (TDP), Tamil Nadu (AIADMK), Karnataka (Congress), Gujarat (BJP) and West Bengal (TMC). After long discussions and presentations by officers, the Chair yielded to the demands of the coastal States overruling objections from officials to reach a consensus. Unfortunately, today we find the prevalence of a narrow view of political majoritarianism prevailing in the GST Council in contrast to the example cited above.
May I add that the seeds of the consensual process were sown through a rare consensus on 141h June, 2016 at the fateful meeting of the Empowered Committee of Finance Ministers of all States, cutting across all political parties, in Kolkata — a consensus which the Union FM finally accepted on the matter of compensation to States.
I urge you Hon’ble Minister to kindly introspect on what I have taken the liberty of bringing to your attention with utmost sincerity and frankness, so that you may consider a course correction in the manner of functioning of the GST Council. I assure you that we will respond in equal measure if you bring back a consensual atmosphere that had defined the GST Council since its inception.
With Warm Regards,
Yours sincerely,
(Dr. Amit Mitra)
Smt. Nirmala Sitharaman,
Hon’ble Union Minister of Finance and Corporate Affairs Government of India
134, North Block
New Delhi – 110001
Fax No. 011 23092830
CC to : The Hon’ble Finance Ministers of States and Union Territories
Download Letter by West Bengal FM to Union FM on GST Council Meetings
Respected Dr. Amit Mitra ji, I appreciate you for bringing in fore the real state of functioning of GST council.
It seems that the independence of GST Council as constitutional body is undermined in the sense that instead of recommending the things in addressing the issues, implement the things which govt. wants and working on SOS basis which we seen for rate reduction .
There are many real issues which industries are struggling are yet be addressed.
Example.
1) Issue related to refund of GST on inverted duty cases. we do not understand why refund of ITC not allowed for input services?? There are huge accumulation of credit in the books
2) clarification of cross charges vs. ISD. once goods and services both are covered under GST, why goods are not covered under ISD mechanism?
3) There is no consistency in implementation of ITC credit rules. if supplier is defaulted in filing of returns and tax (after collecting it from recipient), why department is not catching such defaulter on immediate basis rather than giving pain to buyer by disallowing credit.? what is use of so called GSTN infrastructure if infrastructure per se or officer work in sleeping mode.
3) where is the seamless system of flowing of credit to businesses.? why there are if and buts and why goods or service or capital goods items be in negative/block lists if they are used in business with taxable outward supply.
4) there is no clarity or definition of word “Gift” for the purpose of section 17(5)(h) -block credits. – Distribution of sales promotional items cannot be considered as ‘gift’ in true sense as it has direct nexus with furtherance of business. Additionally, cost of such items were already part of main products on which tax payers discharge GST liability.
5) Issue on export of intermediary services is left with judiciary rather to act upon by GST council or GST Implementation Committee (GIC)
6) issue of IGST on Ocean freight which is part of import cost of goods is pending
7) why all capital goods will have 60 months (5 years ) life for ITC. GIC should consider faster obsolescence in the case of electronics and tech driven products
8) There is no press release on pointwise issue addressed or departmental view.
9) There is vague definition of “job work”. It appears from legacy excise regime and GST rate notification, job work is meant for outsourcing of manufacturing or processing activity only by the business houses but definition is so drafted that it covers indenpent