CAG: Centre Violated Law To Utilise GST Compensation Cess Meant For States Elsewhere. Know Exact Findings

GST Compensation Row: The auditor said the Centre used this amount for “other purposes”, leading to “overstatement of revenue receipts and understatement of fiscal deficit for the year”.

Finance Minister Nirmala Sitharaman. (File Photo/ AFP)

Even as the Finance Minister Nirmala Sitharaman last week referring to the views of the Attorney General of India informed the Parliament that there was no provision in the law to compensate states for loss of GST revenue out of the Consolidated Fund of India (CFI), the Centre has been accused of violating the law itself. Also Read: Bharat Bandh Today: Farmers Call For Nationwide Strike Against New Farm Bills | Explainer The Comptroller and Auditor General (CAG) of India found the Centre acting against the law by retaining Rs 47,272 crore of GST compensation cess that meant to be used specifically to compensate states for loss of revenue during 2017-18 and 2018-19, as per the report in the national daily The Indian Express. In its report, the CAG said the Centre used this amount for “other purposes”, leading to “overstatement of revenue receipts and understatement of fiscal deficit for the year”. The short-crediting was a violation of the GST Compensation Cess Act, 2017. The observations were made in a report on the accounts of the government for 2018-’19, tabled by the CAG in both Houses of Parliament on Wednesday. What is GST (Compensation to States) Act? The GST (Compensation to States) Act guarantees all states an annual growth rate of 14% in their GST revenue during the period July 2017-June 2022. The act was introduced in order to provide relief for states as a result of loss revenues accruing from the implementation of GST. If a state’s revenue grows slower than 14%, it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess. However, to offer these grants, the Centre levies a GST compensation cess on certain luxury goods. This compensation cess that gets collected gets moved into the Consolidated Fund of India, and then transferred to the Public Account of India, where a GST compensation cess account has been created. It helps in compensating states bi-monthly from the accumulated funds in this account. What is being breached? As per the Indian Express, instead of transferring the entire GST cess amount to the GST compensation fund, the CAG found that the Centre retained these funds in the Consolidated Fund of India, and used it for other purposes. The report stated that 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. But even though the government collected Rs 95,081 during the year as GST compensation cess, the 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 CAG said. As per the the CAG report, the Ministry of Finance has noted the audit observation, and has said “the proceeds of cess collected and not transferred to Public Account would be transferred in subsequent year”. “Further, any transfer in the subsequent year would become an appropriation from the resources of that year and would require Parliamentary authorization,” the report says. The CAG has also highlighted the violation of accounting procedure in respect of the GST compensation cess.