The GST Council Friday set up a seven-member ministerial panel under Bihar Deputy Chief Minister Sushil Modi to examine the legality of imposing a new tax on certain goods and services to raise resources for natural calamity-hit states like Kerala.

The panel, headed by Union Finance Minister Arun Jaitley and comprising representatives of all states and UTs, also took stock of the shortfall in tax mop up by majority of the states under the new indirect tax regime.

Briefing reporters after the 30th GST Council meeting, Jaitley said the demand of Kerala to allow imposition of higher taxes on goods and services within the state to help tide over the losses suffered due to the recent floods was considered by the Council. It was decided that the matter should be referred to a seven-member Group of Ministers (GoM), which would include representatives from North-Eastern, hilly and coastal states.

The GoM, which has Assam Finance Minister Himanta Biswa Sarma and Kerala Finance Minister Thomas Isaac as members, would submit its report by October 31.

It will look into five issues flagged by the Council, including whether the new tax should be levied only in the state concerned or should it be an all-India levy, and that should it be on specified luxury or sin goods only.

The GoM will also look into whether National Disaster Response Fund (NDRF)/State Disaster Response Fund (SRF) mechanism is sufficient to deal with calamities and also define circumstances where the 'calamity tax' can be imposed as also the legal aspect of imposition of such a tax within the GST.

"We will have a seven-member group of ministers which in the next few weeks will make a recommendation," he said, adding that the grouping will include representatives from North East, hilly states and coastal states as they are hit by calamities the most.

While Jaitley said the GST law states that a special rate of tax can be imposed after permission of GST Council, Kerala Finance Minister Thomas Isaac said the law provides that the Council can impose a tax for a temporary period in the GST framework to help states in terms of exigencies.

"We have not thought out the details, therefore GoM will look into it. An additional 1 per cent tax on some commodities was discussed," Isaac said.

On revenue position of the states, Jaitley said the states faced an average 16 per cent shortfall in Goods and Services Tax (GST) mop up in the first year of implementation (July 2017-March 2018). The shortfall has come down to 13 per cent during April-August period of current fiscal.

While only six states -- Mizoram, Arunachal Pradesh, Manipur, Nagaland, Sikkim and Andhra Pradesh -- are facing revenue surplus in current fiscal, 25 states are staring at revenue shortfall and have to be compensated by the Centre.

The 10 states facing the maximum revenue shortfall during April-August are Puducherry (42 per cent), Punjab and Himachal Pradesh (36 per cent each), Uttarakhand (35 per cent), Jammu and Kashmir (28 per cent), Chhattisgarh (26 per cent), Goa (25 per cent), Odisha (24 per cent), Karnataka and Bihar (20 per cent each).

The state deficit has to be neutralised within five years of launch of the GST.

"As it goes on a glide path downwards, the more it comes closer to zero at the expiry of the 5th year the more the states will be closer to achieving those targets," Jaitley said.

In 2017-18, the Centre had released Rs 41,147 crore to the states as GST compensation to ensure that the revenue of the states is protected at the level of 14 per cent over the base year tax collection in 2015-16.

In current fiscal, there has been a spike in the bi-monthly GST compensation paid to the states by the Centre during June-July.

The Centre paid Rs 14,930 crore to compensate states for revenue loss incurred in June and July, a nearly four-fold jump compared to Rs 3,899 crore paid for April and May.

Asked whether the government would be able to meet about Rs 13 lakh crore budgeted GST revenue target, Jaitey said: "Currently, we are in the middle of the year... there is festival season coming... We will try and come as close to the target".

He said on the direct taxes side the government is ahead of the target. "Taking it together with the GST collection, I am confident of meeting the fiscal deficit target".

The Finance Ministry has targeted monthly GST collections to be Rs 1 lakh crore for this fiscal, but the actual mop up has been less with the sole exception of April.

Isaac said the revenue collection for August was lower by Rs 10,000 crore and the Council was confident that the revenues would pick up once invoice matching kicks in and IGST revenues are apportioned.

"The revenue gap has been increasing. The impact of reduction of tax rate on products from 28 per cent will be known fully when September returns are filed. So, we have to wait for September collection data, before we know where we are going. The current rates are not revenue neutral," the Kerala minister said.

Jaitley said each of the states which are facing a revenue shortfall had increased tax collection during 2015-16 and that has led to higher base for calculation of revenue.

On further GST rate cuts, Jaitley said, "Let us watch. We need to maintain revenue neutrality. Therefore, how much we can increase the base and collection, the future of rate reduction depends on that."