New Delhi, Aug 1 (PTI) Finance Minister Nirmala Sitharaman on Saturday said the Attorney General's view on GST compensation was sought after consultation with the states and a meeting of the GST Council would be held to discuss the legal opinion.

The finance minister was responding to a question on apprehensions raised by certain states about the reported AG opinion on GST compensation.

"This matter was discussed in the GST Council meeting when it met last time. Members expressed their views on the matter and it was decided that legal opinion should be taken from AG," Sitharaman told reporters here.

The GST Council, chaired by the Union finance minister and comprising state counterparts, had in March decided to seek views from the AG, who is the chief legal officer of the government, on the legality of market borrowing by the Council to make good the shortfall in compensation fund.

"The opinion has come...we will hold an exclusive GST Council meeting on the issue of compensation," Sitharaman said, adding that the date of the meeting will be decided shortly.

According to sources, the Attorney General has opined that there is no obligation on the central government to pay the GST compensation shortfall to the states and GST Council has to decide on ways to make good the shortfall in compensation fund.

The payment of GST compensation to states became an issue after revenues from imposition of cess started dwindling since August 2019 and the Centre had to dive in to the excess cess amount collected during 2017-18 and 2018-19.

Under the Goods and Services Tax (GST) law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5 per cent, 12 per cent, 18 per cent and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The Centre had released over ₹ 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during the year 2019-20 was ₹ 95,444 crore. The compensation payout amount was ₹ 69,275 crore in 2018-19 and ₹ 41,146 crore in 2017-18.

GST compensation obligation questioned after AG opinion; Council to decide funding and borrowing options for shortfalls. The Attorney General advised that there is no legal obligation on the Central Government to pay GST compensation shortfalls to states and that the GST Council must decide how to address the compensation fund deficit, including considering market borrowing as a funding mechanism.