He noted that the amount would be credited to the unexpired GST compensation Cess collection fund, part of the Public Account, for payment to states for loss of revenue due to GST implementation since 2017, but the government did not. did, therefore in violation of the GST Compensation Termination Act of 2017.
“Audit examination of the information in statements 8, 9 and 13 regarding the termination collection and its transfer to the GST Compensation Fund, shows that there was a short credit to the Fund of the GST Compensation Cess collections for a total of Rs 47,272 crore during 2017-18 and 2018-19, ”the CAG noted.
“The short credit was a violation of the GST Compensation Cessation Act of 2017 … It is recommended that the Ministry of Finance take immediate corrective action,” the national auditor said in his report presented in Parliament earlier this week.
The brief crediting of the fees collected during the year led to an overstatement of revenue income and an underestimation of the fiscal deficit for the year. The audit also revealed an accounting procedure error in the transfer of funds to the Public Account, where the funds were moved under the main heading of ‘transfer of grants in aid to the states’ rather than ‘other fiscal services’.
“The illegal operation has implications in the reporting of aid grants, since the GST Compensation Cess is a right of the States and is not an aid grant,” said the auditor.
However, CAG indicated that the Ministry of Finance declared in February 2020 that the product of the fees collected and not transferred to the Public Account would be transferred in the following year, accepting the observation of the audit.
But any transfer in the following year would become an appropriation of that year’s resources and would require parliamentary authorization.
The findings of the national auditor are contrary to the presentations by Finance Minister Nirmala Sitharaman in Parliament last week that states could not be compensated for the shortfall of income from the Consolidated Fund of India (CFI) based on a opinion of the Attorney General of India which stated that there was no such provision in law.
The issue of termination of compensation is driving a wedge between the Center and the states in the GST Council, where the Center has asked the states to apply for loans to cover the income shortfall, as it is unable to pay compensation due to the states for fiscal year 2020-21. Some states have completely opposed the measure arguing that the Center should borrow and provide to the states, as the states have granted the majority of their taxing powers to the Center under the GST regime introduced in July 2017.
The auditor also noted that during 2018-19, Rs 95,081 crore was raised during the year as GST compensation assignment, but Rs 54,275 crore was transferred to the compensation fund against the budgeted provision of Rs 90,000 crore and a equal amount to deliver to states as compensation. .
“From the Fund, (the revenue department) paid Rs 69,275 crore (including an opening balance of Rs 15,000 crore in the Fund) as compensation to the Estates / UT. This resulted in savings of Rs 35,725 crore on account of the short transfer to the Fund and of Rs 20,725 crore on account of the compensation payment to the states / UT, ”said the CAG.
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