HC refuses to direct Centre to pay dues

The Madras High Court (HC) refused to issue a direction to the Centre to release Goods and Services Tax (GST) compensation of ₹12,250 crore to the Tamil Nadu government. However, the court expressed “hope and trust” that the money would be disbursed in due course, taking into account the financial difficulties faced by the State due to the COVID-19 pandemic.

A Division Bench of Justices M. Sathyanarayanan and R. Hemalatha ruled that the Centre was not under mandatory compulsion to strictly follow a timeline in compensating the States once in two months for shortfalls in GST collections; hence, the court could not be expected to issue a positive direction to release the amount.

Case dismissed

The judgement was passed while dismissing a case filed by activist G. Sundarrajan of Poovulagin Nanbargal to implement Section 7 of the Goods and Services Tax (Compensation to States) Act of 2017 in letter and spirit, and consequently compensate the loss suffered by the State due to the shortfall in GST collections from April 1 to August 31.

The Bench agreed with petitioner’s counsel M. Radhakrishnan that the Act requires the Centre to pay the GST dues once in two months during the transition period of the first five years from when individual States shift from their local tax regime to the GST system, a uniform tax structure to be followed by all States across the country.

Though Section 7 uses the term “shall”, such usage, by itself, would not make it a mandatory obligation on the part of the Centre to compensate the losses within the prescribed time limit, the judges said.

‘Not mandatory’

The judges cited a few Supreme Court verdicts to drive home their point that the object of an enactment should be considered in its entirety while interpreting its contents.

“In the considered opinion of this court, the mere employment of the word ‘shall’ cannot be construed as mandatory in the light of the ratio decidendi laid down in the above cited decisions and it depends upon the context and purpose of legislative intent also,” the Bench, led by Justice Sathyanarayanan, observed.

The Act does not speak about the consequences of not adhering to the timeline fixed under it for compensating the States for shortfall in GST collections. “Therefore, it could be construed as only directory and not mandatory,” the Division Bench said.

The judges went on to observe: “It is not as if the first respondent [Centre] is not going to compensate the States, in the light of the above cited provisions, and whatever difficulties faced by the Government of Tamil Nadu in lieu of the economic meltdown due to the COVID-19 pandemic may have equal application to the Union of India also.”

During arguments, Mr. Radhakrishnan pointed out that Chief Minister Edappadi K. Palaniswami had written to Prime Minister Narendra Modi in August this year, calling for release of the GST compensation of ₹12,250 crore immediately for Tamil Nadu. The contents of the letter were also released to the media.

Petitioner’s argument

“Ideally, the State government should have approached the High Court seeking a direction to the Centre. Since it has not done so, the petitioner had come up with the present case because it was not just the government but the people of the State who were being deprived of the finances required to implement various welfare schemes,” argued Mr. Radhakrishnan.

Taking these submissions into consideration, the High Court, in its verdict, said: “This court hopes and trusts that the first respondent would take into account the difficulties being faced by the States, especially the State of Tamil Nadu in light of the contents of the press release dated August 31, 2020 issued by the Director of Information and Public Relations.”

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Printable version | Jan 25, 2021 4:33:05 AM |

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