A two-day meeting of the GST Council is beginning on Tuesday amid rising trust deficit between the Centre and states.

The vexed issue of compensation to the states is expected to figure prominently at the meeting. The Centre on Saturday notified the extension of the GST compensation cess for about four years till March 2026. But the proceeds will be used only to repay the borrowings made on behalf of the states to meet the revenue shortfall during Covid.

This is also seen as an aggressive posture by the Modi government as the decision was taken at an earlier council meeting in September and the Centre had time after the forthcoming meeting to do the notification.

Under GST rules, states were entitled to compensation for any shortfall in collections vis-a-vis the previous indirect tax regime for five years. But Covid-19 has severely hit revenues, and the states want the compensation regime to continue. With the Supreme Court recently ruling that the GST Council decisions are only advisory in nature, there are concerns the states may look for other revenue streams.

Finance ministers from Opposition-led Kerala, West Bengal and Chhattisgarh have said they will raise the issue before the council. Amit Mitra, the principal chief advisor to the chief minister of Bengal, wants the compensation regime to continue for the next three to five years.

“The current GST Council meeting has the primary agenda of discussing the circumstances arising out of the end of compensation regime. There is a possibility that given the current economic conditions, GoM may not be able to recommend rate increases across slabs. “Hence the government may consider interim measures to provide revenue support to the states,” Bipin Sapra, partner — Tax & Regulatory Services — indirect tax, Ernst & Young LLP, said.

L’Oreal in the dock The GST anti-profiteering watchdog has found cosmetic giant L’Oreal guilty of not passing on the rate reduction benefits to consumers to the tune of Rs 186 crore.

The national anti-profiteering authority has directed L’Oreal to deposit the sum of Rs 186 crore along with 18 per cent interest in the consumer welfare fund. The NAA led by chairman Amand Shah directed that half of the profiteered sum, amounting to Rs 93.19 crore along with interest needs to be deposited in the Central Consumer Welfare Fund, and the other half in the Consumer Welfare Fund of states where the supply was made, according to the order.