CAG Says Centre Broke Law by Using GST Cess Elsewhere Amid Row Over Unpaid Dues to States

Finance Minister Nirmala Sitharaman, quoting the view of the Attorney General of India, ruled out funding the GST revenue shortfall from the Consolidated Fund of India (CFI) in the Lok Sabha last week. While replying to a debate on supplementary demands for grants, the minister had said the GST Council would reach a common ground on ways to compensate states for loss of revenue, but maintained that the amount has to be paid from the compensation cess kitty.

However, the Comptroller and Auditor General (CAG) of India has discovered that the Centre breached the law by retaining Rs 47,272 crore of GST compensation cess in the CFI during 2017-18 and 2018-19 and employed the funds for other purposes, The Indian Express reported. In its report on the accounts of the Union government, tabled on Wednesday, CAG said that the short-crediting was a violation of the GST Compensation ACT, 2017.

“Audit examination of information in Statements 8, 9 and 13 with regard to the 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 totalling to Rs 47,272 crore during 2017-18 and 2018-19,” the CAG said in a report.

According to the provisions of the GST Compensation Cess Act, the complete cess collected during a year is needed to be credited to a non-lapsable fund (GST compensation cess fund), which is part of the Public Account, and is intended to be employed to make up for the states’ loss of revenue. But instead of moving the entire GST cess amount to the GST compensation fund, the government held on to it in the CFI, and employed it for other purposes, the IE reported citing CAG.

The national auditor further said that 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. “Short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit for the year,” it added.

The report said that during 2018-19, there was a budget provision of Rs 90,000 crore for the 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 added.

The states are staring at a Rs 2.35 lakh crore GST revenue shortfall this fiscal. Of this, as per the Centre’s calculation, Rs 97,000 crore is estimated to be on account of GST implementation, while the remaining Rs 1.38 lakh crore is due to the coronavirus pandemic.

The Centre last month provided two options to states to borrow either Rs 97,000 crore from a special window facilitated by the RBI, or Rs 2.35 lakh crore from the market and also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.