GST dispute resolution system a temporary solution

Committee likely to be set up to work out a structure of compensation to states, write INDIVJAL DHASMANA & DILASHA SETH

The contentious dispute resolution mechanism under the proposed goods and services tax (GST) regime would not be a permanent structure. A temporary set-up is envisaged to address differences among or between states, and with the Centre, sources said.

A committee is also likely to be set up on the modalities of the proposed full compensation to states for five years, if they earn less revenues under the GST regime compared to the existing tax system.

The GST Council, whose decisions might lead to these disputes, will work out a mechanism for redressal of disputes. The Council is yet to be set up. So, the mechanism would be worked out later.

At a recent meeting between Finance Minister Arun Jaitley and the empowered committee of state finance ministers, there was a suggestion to have a retired high court judge to head the proposed dispute resolution mechanism.

However, sources said Jaitley suggested if the dispute was legal, a retired judge could be made head of the resolution panel but if differences were not legal in nature, other experts could be considered. Sources said states agreed, but the details are yet to be worked out.

The Congress party has also come around the idea that the dispute resolution mechanism will be decided by the GST Council. However, the party wants a more categorical constitutional provision for the redressal mechanism. The existing Constitution amendment Bill on GST says the GST Council may decide modalities of the redressal mechanism. The party had earlier wanted an independent dispute resolution authority .

In a dissent to the Rajya Sabha committee report, Congress member Mani Shankar Aiyar had said: “The principles of natural justice hold that a party to a dispute cannot be a judge in its own cause and leaving disputes to be settled in accordance with the directives of the GST Council would be tantamount to allowing all disputes, which would necessarily involve one or more members of the GST Council, as judges in disputes to which they are party.”

The Bill presented by the United Progressive Alliance government had provided for setting up a Goods and Services Tax Dispute Settlement Authority. However, a standing parliamentary committee had observed the Authority would have overriding powers over Parliament and state legislatures, and must be omitted.

The GST Council will comprise Union and state finance ministers. It would take decisions regarding GST through a three-fourth majority. The Centre will have one-third voting rights, while the states will have two-third.

According to the present provisions in the Constitution amendment Bill, the council is also likely to recommend about the GST rates but since the Congress wants the rates to be capped in the GST Bill, it is yet to be seen whether this provision is further amended. The Congress says it does not want the rates to be changed through a notification but by the Finance Act.

Meanwhile, state finance ministers want to know from Jaitley as to the mechanism of compensation - whether it would be paid yearly, half-yearly or quarterly. It was suggested during the empowered committee meeting that a committee be set up to work out that and there should be a whole chapter on this mechanism in the GST Bill or rules thereunder.

The Centre has already accepted the states’ demand for full compensation for five years if they incur losses under the GST regime. The Constitution amendment Bill, as passed by the Lok Sabha, had provided for full compensation for the first three years , 75 per cent in the fourth year, and 50 per cent in the fifth year.

States wanted the exact mechanism of the compensation since they had burnt their fingers when it came to compensation from the Centre to states for reducing central sales tax (CST) from four per cent to two per cent. CST will no longer be there once GST is introduced.