GST compensation due to state governments for this year - around Rs 20,000 crore - will be released, Finance Minister Nirmala Sitharaman had said on Monday night after a marathon meeting of the 42nd GST Council.
The Council, however, failed to provide a consensus on mode of repayment of total compensation - around Rs 97,000 crore (rising to Rs 2.35 lakh crore including Covid-related relief). A decision on this matter has been deferred till the next meeting on October 12.
The GST Council did, however, extend the cess for another five years. The surcharge on luxury products, which is part of the GST, had been due to expire in 2022.
GST compensation has emerged as a sore point with state and union territory governments this year, particularly with the adverse economic impact of the Covid pandemic and lockdown.
The centre is finding it difficult to pay states compensation - due if a state's revenue grows slower than 14 per cent - because states have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis.
The Congress had called the delay in paying GST compensation a "sovereign default" and going back on constitutional guarantees that were the reason states came on board with the GST regime. Several opposition-ruled states, including Bengal and Kerala, have been similarly upset.
After a meeting of the GST Council earlier this year, state and UT governments were asked to borrow - either the full amount of Rs 2.35 lakh crore (which included Covid relief) or Rs 97,000 crore (which was only GST compensation).
Tonight's meeting was the first since the centre put forward its borrowing proposal.
So far 21 states have agreed to borrow, with 10 opposition-ruled states refusing to do so.
These states, which include Kerala and Bengal, have written to Prime Minister Narendra Modi, reminding him of his government's "constitutional" responsibilities in this stand-off.
The states opposing borrowing as a method of repayment have also pointed out that this places an extra burden on their finances at an already difficult time. The centre, they said, could take up this burden and pay back the loan by carrying forward GST cess collection past 2022.