It's Centre's Force Majeure on GST compensation says Gautam Khaitan
Recently, the Centre described the pandemic as an act of God and abandoned
the states to bridge up GST compensation shortfalls via borrowings. Eminent
Lawyer and Managing Partner of OP Khaitan & Co - Gautam Khaitan calls it
Centre's Force Majeure on GST compensation.
The Centre has abandoned the states. The Onus is on the Centre and not the
states says Gautam Khaitan. 'Both the options that are offered to the states
to bridge the revenue gap are not viable. It is like to mortgage the future for
the needs of today. It should be the Centre that must borrow and not the
states,' he added.
Indian constitutional expert and political scientist Granville Austin once said
that despite a strong Centre, Indian federalism is 'cooperative federalism'. Gautam Khaitan says,
'The way things have turned out in the past, especially
since the outbreak of the pandemic, it seems like it is no more a cooperative
federalism, but a coercive one'.
The nation has been witnessing an economic slowdown for the past three years. In
September last year, the Centre for the first time admitted problems regarding
compensation payments in the 37th GST Council. Since then, there have been
cascading delays in all the subsequent payouts.
'It has been almost a year since the states have been cooperative with the
delays in the compensation. When it is the Centre's turn to return the favor
amid one of the most difficult times, it has failed.'
Legality of Centre's force majeure on GST compensation
Black's Law Dictionary defines 'force majeure' as 'an event or effect that can
be neither anticipated nor controlled. It is a contractual provision allocating
the risk of loss if performance becomes impossible or impracticable, especially
as a result of an event that the parties could not have anticipated or
'In Law, it is used in the contracts between two parties. In past, we have had
so many natural calamities but nowhere our government invoked force majeure nor
anywhere in the world any government has done this as so far as taxes are
concerned, says Gautam Khaitan.
'Moreover, when there is no such provision in the GST (Compensation to States)
Act, 2017, how can you invoke it. Paying compensation to the states is the
statutory obligation and the Centre must not get out of it,' he added.
In the opinion of several experts, the invocation of force majeure by the
sovereign can create wider implications can open up this option to others as
well. Moreover, the Supreme Court in its recent judgment held that the said
clause can only be invoked only in two situations non-performance due to
conditions beyond control; there are no legal options to mitigate such
Amidst such unprecedented economic slowdown, the states must not be left on
their own to manage their finances. As mandated, the Centre should compensate
the state for the losses on account of the implementation of the GST.
With over three decades of practice in corporate law, Gautam Khaitan is a
well-known lawyer. In the world of business transactions, he is known as a lead
negotiator who has coordinated on a range of complex projects that require
financial and legal advice.
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