Centre violated GST law, used funds allocated for states elsewhere: CAG report

CAG also highlighted violation of accounting procedure in the GST compensation cess

PTI18-07-2020_000198B Finance Minister Nirmala Sitharaman | File

Amid the GST compensation row, a report by the Comptroller and Auditor General (CAG) has now revealed that the Centre violated the law on the unified tax regime by and retained Rs 47,272 crore of the GST compensation cess that meant to be used specifically to compensate states for loss of revenue, during the financial year of 2017-’18 and 2019-’19, The Indian Express reported on Thursday. “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 has said.

The money was used for other purposes, the CAG report said, adding that this “led to overstatement of revenue receipts and understatement of fiscal deficit for the year”. The revelation will put the Central government on the defensive as states scramble to raise funds to fight the COVID-19 pandemic amid impending recessional fears.  

“The short-crediting was a violation of the GST Compensation Cess Act, 2017,” the national auditor said in its report on the accounts of the Union government, which were tabled in Parliament on Wednesday, the last day of the Monsoon session.

As per the provisions of the GST Compensation Cess Act, the entire cess collected during a year is required to be credited to a non-lapsable fund (GST compensation cess fund) which is part of the Public Account, and is meant to be used specifically to compensate states for loss of revenue.

Elaborating, the report says: “During 2018-19, there was a budget provision of Rs 90,000 crore for transfer to the Fund and an equal amount was budgeted for release to States as compensation. However, though Rs 95,081 crore was collected during the year as GST compensation cess, Department of Revenue transferred only Rs 54,275 crore to the Fund.

“From the fund it 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 as against BEs of Rs 90,000 crore each for transfer and payment of compensation,” the The Indian Express report said citing the CAG.

The auditor added that the Ministry of Finance has accepted the audit observation, and has stated that “the proceeds of cess collected and not transferred to Public Account would be transferred in the subsequent year”.

The CAG has also highlighted the violation of accounting procedure in the GST compensation cess.

As per the approved accounting procedure, GST compensation cess was to be transferred to the Public Account by debit to Major Head “2047-Other fiscal services”, the report says. “Instead, the Ministry of Finance operated the Major Head ‘3601-Transfer of Grants in aid to States’,” CAG said.

The auditor said this 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”.

“It is recommended that the Ministry of Finance take immediate corrective action,” it added.




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