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Centre used GST funds elsewhere, violated the law: Comptroller Auditor General

Date: 25-09-2020
Subject: Centre used GST funds elsewhere, violated the law: Comptroller Auditor General
NEW DELHI: The government wrongly retained Rs 47,272 crore of goods and services tax (GST) compensation in the Consolidated Fund of India in 2017-18 and 2018-19 and used it for other purposes, the Comptroller Auditor General said in its audit report of government accounts.

It flagged that the amount was to be credited to the non-lapsable GST Compensation Cess collection fund - part of Public Account - for payment to states for loss of revenue due to implementation of GST since 2017, but the government did not do so, thus violating the GST Compensation Cess Act 2017.

“Audit examination of information in Statements 8, 9 and 13 with regard to collection of the cess and its transfer to the GST Compensation Cess Fund, shows that there was short crediting to the Fund of the GST Compensation Cess collections totalling to Rs 47,272 crore during 2017-18 and 2018-19,” the CAG noted.

“The short-crediting was a violation of the GST Compensation Cess Act, 2017… It is recommended that the Ministry of Finance take immediate corrective action,” national auditor said in its report tabled in Parliament earlier this week.

The short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit for the year. The audit also revealed an accounting procedure error in the transfer of funds to Public Account where the funds were moved under major head of ‘transfer of Grants in aid to states’ instead of ‘other fiscal services.’

“The wrongful operation has implications on the reporting of Grants in aid, since the GST Compensation Cess is the right of the States and is not a Grant in aid,” the auditor said.

CAG however noted that the finance ministry stated in February 2020 that the proceeds of cess collected and not transferred to Public Account would be transferred in subsequent year, accepting the audit observation.

But any transfer in the subsequent year would become an appropriation from the resources of that year and would require Parliamentary authorisation.

The national auditor’s findings run contrary to finance minister Nirmala Sitharaman’s submissions in the Parliament last week that states could not be compensated for revenue shortfall from the Consolidated Fund of India (CFI) relying on an opinion from the Attorney General of India which stated that there was no such provision in the law.

The issue of compensation cess is driving a wedge between Centre and states at the GST Council where the Centre has asked states to borrow for meeting the revenue shortfall as it is unable to pay the compensation due to the states for FY 2020-21. Some states have opposed the move completely arguing that the Centre should borrow and provide to states, since states have given majority of their taxation powers to the Centre under GST regime introduced in July, 2017.

The auditor also noted that during 2018-19, Rs 95,081 crore was collected during the year as GST compensation cess but Rs 54,275 crore was transferred to the compensation fund as against budgeted provision of Rs 90,000 crore and an equal amount for release to states as compensation.

“From the Fund it (department of revenue) paid out Rs 69,275 crore (inclusive of an opening balance of Rs 15,000 crore in the Fund) as compensation to the States/ UT. This resulted in savings of Rs 35,725 crore on account of short transfer to the Fund and of Rs 20,725 crore on account of payment of compensation to the States/ UTs,” the CAG said.


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