Centre infringed the law, used funds for GST compensation elsewhere: CAG

Team SoOLEGAL 29 Sep 2020 3:17pm

Centre infringed the law, used funds for GST compensation elsewhere: CAG

Last week, citing the opinion of India's Attorney General, Finance Minister Nirmala Sitharaman told Parliament that there was no provision in the law to compensate states for the loss of GST revenue from the Consolidated Fund of India (CFI).

The Comptroller and Auditor General (CAG)of India has found that during the financial year of 2017-'18 and 2018-'19, the Centre infringed its own legislation on the Goods and Services Tax regime and retained Rs 47,272 crore of the GST compensation cess that was supposed to be used exclusively to compensate states for loss of revenue.

The auditor said that this money was used by the Centre for “other purposes”,which "led to the overstatement of revenue receipts and the understatement of the fiscal deficit for the year." The short-credit was a breach of the Compensation Cess Act of GST, 2017.

During the July 2017-June 2022 period, the GST (Compensation to States) Act guarantees all states an annual growth rate of 14 percent in their GST revenue. It was introduced as a consolation for the loss of revenues resulting from the GST implementation. If the revenue of a state rises slower than 14%, the Centre can compensate it with the funds directly received as a compensation cess. The Centre levies a compensation cess on some luxury products to provide these grants.

“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.

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

The CAG also highlighted the breach of the accounting procedure in the cessation of the GST compensation cess and claimed that this wrongful activity has repercussions on the reporting of grants in aid, because the GST Compensation Cess "is the right of the States and is not a grant in aid."

The CAG also said "it is recommended that immediate corrective steps be taken by the Ministry of Finance.”

Tagged: GST   Attorney General   Finance Minister   Nirmala Sitharaman   Consolidated Fund of India   Comptroller and Auditor General   CAG   Goods and Services Tax  
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