Finance Minister Sitharaman Slams GST Cess Misuse Claim as “Baseless”

Finance Minister Nirmala Sitharaman (FM) rejected allegations that the GST ( Goods and Services Tax ) Compensation Cess was being misused to pay the Central government's debts, calling the claims baseless and demanding their withdrawal in Parliament on 3 December, 2025.

The Allegation

The parliamentary exchange centered on accusations made by Member of Parliament Sasikanth Senthil, who allegedly claimed that funds collected under the GST Compensation Cess were being diverted to service the Centre's own debt obligations.

Minister's Response

In her response, the FM reminded the House that the purpose and usage of the Compensation Cess had been clarified multiple times and expressed serious objection to what she termed misleading characterizations of the fund's utilization.

"I must also express my serious objection to the observation that the Compensation Cess is being used to pay the Centre's own debt," she stated during the parliamentary session.

Setting the Record Straight

The Finance Minister outlined the actual framework and purpose of the GST Compensation Cess:

• Five-Year Limited Period: She clarified that the Compensation Cess was designed as a time-bound arrangement, collected for a specific five-year period to compensate states for revenue losses following the GST implementation, after which it was scheduled to conclude.

• COVID-19 Emergency Measures: Sitharaman explained that the Compensation Cess was collected with the explicit authority of the GST Council to repay loans taken by the Centre for back-to-back lending arrangements made to compensate state governments during the COVID-19 pandemic when states faced severe revenue shortfalls.

• Constitutional Mechanism: The Finance Minister pointed out that the GST Council is a constitutional body where finance ministers of all states participate, and any misuse of funds would have been questioned and challenged by state representatives.Complete

Questioning State Finance Ministers' Authority

In a peculiar moment, Sitharaman questioned whether the MP's allegations implied that state finance ministers sitting in the GST Council lacked the authority or competence to oversee fund utilization.

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"I cannot believe that a constitutional body - where the finance ministers of all the states sit - would allow me to use the Compensation Cess to pay the central government's debts, unless Hon'ble MP Shri Sasikanth Senthil claims so. Are the finance ministers of the states not empowered enough to question me on that?" she challenged.

Demand for Withdrawal

The Finance Minister concluded her response with an unequivocal demand: "The Hon'ble MP should withdraw his statement and baseless allegation as it is wrong."

Understanding GST Compensation Cess

The GST Compensation Cess was introduced in 2017 alongside the implementation of the Goods and Services Tax to compensate states for potential revenue losses during the transition period. The cess was levied on select goods considered demeritorious or luxury items.

During the COVID-19 pandemic, when state revenues and the cess collection fell short of compensation requirements, the Centre borrowed funds to ensure states received their due compensation through a back-to-back lending arrangement. The Compensation Cess collection was subsequently used to service these specific loans taken for state compensation.

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