Punjab has formally rejected both options provided by the Central Government to make up for Goods and Service Tax (GST) compensation shortfall. Punjab Finance Minister Manpreet Badal on Monday wrote to Union Finance Minister Nirmala Sitharaman communicating the decision while seeking clarity on several concerns raised by the State.

The Finance Minister has asked the Centre to reconsider the decision which was taken at the last Goods and Services Tax Council (GSTC) meeting.

“We thus take both the options with great regret as a clear breach of solemn and constitutional assurance by the Central Government,” said Manpreet in the letter, adding that Punjab would like full clarity on each of these issues and the matter once again placed on the agenda in the next meeting of GST Council.

“We believe this is a betrayal of the spirit of cooperative federalism that formed the backbone of the GST journey so far,” he said, reiterating the demand for a dispute resolution mechanism.

Alternatively a GOM (group of ministers) may be constituted to deliberate on the matter and make recommendations in a time-bound period of 10 days, he suggested adding that Punjab is prepared to cooperate in a spirit of finding a solution to this vexed problem but is unable to persuade itself to either of the options presented at this stage.

Manpreet flagged that the states alone have very little role in the finalization of GST structure or tax rates, and future borrowings and repayment capacity will alter based on the decisions taken by the GST Council, where Centre has a decisive vote.

“Any future dispute in relation to GST Compensation will have deleterious impact creating situations of defaults by states,” he cautioned.