Centre violates law, uses funds for GST compensation elsewhere: CAG

Sept. 25: The Union government in the very first two years of the GST implementation wrongly retained ₹47,272 crore of GST compensation cess that was meant to be used specifically to compensate states for loss of revenue. This was revealed in the Comptroller and Auditor General’s (CAG) audit report on the accounts of the Union Government for 2018-19.

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. However, the government, instead of transferring the entire GST cess amount to the GST compensation fund, retained it in the CFI, and used it for other purposes.

The short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit for the year. The audit also revealed an accounting procedure error in the transfer of funds to Public Account where the funds were moved under major head of ‘transfer of Grants in aid to states’ instead of ‘other fiscal services.

As per the CAG report, the Union government “saved” Rs 35,725 crore by not transferring the amount it was to transfer to the fund. It adds that the government “saved” a further Rs 20,725 crore because the states got only Rs 69,275 crore out of the total they are supposed to get, which is Rs 90,000 crore.

The CAG’s audit report comes just a week after Finance Minister Nirmala Sitharaman claimed in 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. The CAG noted that crediting less than it should have to the GST cess collection fund was a violation of the GST Compensation Cess Act, 2017.