Economy

CAG: Centre Violated GST Law, Wrongly Retained Rs 47k Crore in Compensation Cess

‘Short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit…”

New Delhi: A portion of the funds collected under the provision of the GST Compensation Cess Act were retained by the Narendra Modi government for two years and not transferred to the appropriate non-lapsable fund that is used to compensate state governments, according to a recent report put out by the Comptroller and Auditor General (CAG).

This short-crediting of the GST compensation cess totaled to nearly Rs 47,500 crore during 2017-18 and 2018-19.

According to the national auditor, the amount by which the cess was short credited was retained in the Consolidated Fund of India (CFI) and became “available for use for purposes other than what was provided in the Act”.

In particular, the CAG notes that retaining the money helped the Centre overstate its revenue receipts and understate its fiscal deficit for the year.

The disclosures come at a politically sensitive time for the Modi government, which is in a face-off with multiple state governments over its inability to transfer the GST compensation dues that they are owed.

Just last week, finance minister Nirmala Sitharaman told parliament that there was no provision in the law to compensate states for a loss of GST revenue out of the CFI.

But the Centre itself appears to have broken the underlying rule by not transferring the full compensation collections to the GST Compensation Cess Fund.

“As per the Act and the accounting procedure, the entire cess collected during the year is required to be credited to a non-lapsable fund (the GST Compensation Cess Fund)…. And shall be used for the purpose mentioned i.e., for providing compensation to the states for loss of revenue,” the CAG report notes.

However, an audit examination showed 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.”

This refusal to transfer the full cess collection was a violation of the GST Compensation Act, 2017, the national auditor critically notes.

“The Ministry accepted the audit observation and stated (February 2020) that the proceeds of cess collected and not transferred to Public Account would be transferred in subsequent year”.

How did it work in 2018-19?

In a separate section of its report, the CAG gives an example of how this violation of the GST law worked.

“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,” it notes.

From the fund, which contained an opening balance of Rs 15,000 crore, the Centre paid out only Rs 69,275 crore as compensation to States/UTs.

“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 CAG said.