Finance Minister Nirmala Sitharaman told the Parliament last week that there was no provision in the law to compensate the states for the loss of GST revenue out of the Consolidated Fund of India (CFI). But, the Comptroller and Auditor General of India has found that the Centre has violated its own Goods and Services Tax laws and has retained Rs. 47,272 crore of the GST compensation cess that was supposed to be used for compensating the states for loss of revenue, during the financial year of 2017-18 and 2018-19.
The CAG made it clear that this money was used for “other purposes” that has “led to an overstatement of revenue receipts and understatement of fiscal deficit for the year.” This short-crediting was a violation of the GST Compensation Cess Act, 2017. The CAG presented the report in both Houses of Parliament which is an observation of the government accounts for 2018-19. The CAG has said, “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 totaling to Rs 47,272 crore during 2017-18 and 2018-19. The short-crediting was a violation of the GST Compensation Cess Act, 2017.”
What did the government do?
As per the GST Compensation Cess Act, the entire fund collection of a year are to be credited to a non-lapsable fund which is a part of the Public Account and was supposed to be used by the states for compensating for the loss of revenue. However, the government never transferred the entire GST cess amount to the GST compensation fund and retained it in the CFI and used the money for various other purposes. The CAG mentioned, “The amount by which the cess was short credited was also retained in the CFI and became available for use for purposes other than what was provided in the act.”
What does the report reveal?
Elaborating and proving the claims, the report says “During 2018-19, there was 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 Policytimes Suggestions
- Speaking in the Lok Sabha, Sitharaman clearly said on September 18 that the amount collected through cess is what should be given to the state. If there is nothing in the cess, the states will get nothing. While she was very firm on this opinion, the CAG report challenges this idea.
- Now the Ministry of Finance has accepted the audit observation and they have ensured that the money will be transferred in the subsequent year.
- The policies of the GST Act have been very unclear since the time of its implementation and with the increasing problems; it is high time that the government revises it, accepts the flaws in it and rectifies them.