The unusual step of the central government invoking ‘act of God’ to appease the states on not being able to provide due cess compensation was unfortunate and unjustifiable, feel most legal experts and economists. Vijay L. Kelkar, chairman of the 13th finance commission, describes the finance minister’s stance as “bizarre”, while EY India chief policy advisor D.K. Srivastava says the analogy is most unfortunate. Balveer Arora, chairman, Centre for Multilevel Federalism, JNU, points out that there is no concept of ‘act of God’ in the Constitution and none in the GST Council Act. While states are continuing consultations with each other, many have written to finance minister Nirmala Sitharaman to convince her on the need for the Centre to take the initiative of borrowing and compensating the states for the shortfall in revenue due to the Covid lockdown that considerably halted economic activities across the country. So far indications are that the Centre is not willing to accommodate the states.
“The concept of ‘act of God’ is usually encountered in contract law,” says Arora. “It is a sort of escape clause for insurance companies when they seek to wriggle out of their commitment by invoking it. The GST is an act of Parliament, and federalism involves shared sovereignties. Just as Parliament is sovereign in the areas assigned to it, the states are sovereign in the areas assigned to them in terms of taxation powers. From their pool of sovereignty, the states have surrendered their powers in fiscal matters to the Centre. So, this whole business comes under constitutional law and not contract law. In fact, nowhere in the GST Council Act is it mentioned that this is a commercial contract where the finance minister can invoke ‘act of God’. So the only way you can get out of the responsibility you have acquired in the exercise of your sovereign power is by declaring bankruptcy.”