Union Finance Minister Nirmala Sitharaman firmly rejected allegations that the GST Compensation Cess collected by the Centre was being diverted to repay the Union government’s own debt. The statement came in response to remarks made by Member of Parliament Sasikanth Senthil during discussions in the Lok Sabha.

Sitharaman clarified that the Compensation Cess was instituted strictly for a five-year period to bridge revenue shortfalls of states after the implementation of the GST regime. “It has been clarified many times that the Compensation Cess was collected for a period of five years for the purpose of giving it to the states, and that after five years it was to conclude,” she said.

Taking strong objection to the claim that the proceeds were used for the Centre’s debts, Sitharaman stated that the cess was collected with the explicit approval of the GST Council, which includes finance ministers of all states. She noted that the funds were legally earmarked to service loans taken under the back-to-back compensation mechanism during the pandemic to ensure state revenues remained protected despite severe economic disruptions.

“The Compensation Cess was, in fact, collected with the authority of the GST Council to repay the loan taken for the back-to-back arrangements made to compensate state governments for the revenues they could not collect during the Covid-19 pandemic,” she said.

Expressing disbelief over the accusation, Sitharaman questioned how a constitutional body comprising state finance ministers could have allowed such diversion if it were true. “Are the finance ministers of the states not empowered enough to question me on that?” she asked, stressing that all fiscal arrangements were transparently approved and executed through the GST Council.

She further asserted that the Compensation Cess mechanism operated strictly within its constitutional and statutory framework and urged the MP to withdraw what she termed a “baseless allegation”.

The Finance Minister reiterated that the cess mechanism concluded as originally designed and no deviation occurred either in purpose or utilisation.

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