GST compensation to states this year has been affected by the Covid pandemic (Representational)
New Delhi:
The Finance Ministry has dismissed allegations of a “diversion” of Rs 47,271 crore from the GST Compensation Fund, a non-cancellable fund to which the GST payment is transferred and from which compensation is paid to states, and said that all amounts owed to the state and union territories for 2017/18 and 2018/19 had been paid in full.
The time required for the reconciliation of compensation receipts, sources from the Finance Ministry said, cannot be called “deviation … when the quotas to the states were completely released by the central government.”
Concerns about the GST Compensation Fund arose after a report by the Comptroller and Auditor General (CAG) said that the government had mistakenly withheld around Rs 42,000 crore of GST compensation.
In its report, the CAG noted that according to the law, the amount collected as GST tax for the year will be transferred to the GST Cess Fund for distribution to the states as compensation for the loss of income.
The report says that in 2017/18 the transferred amount was short at Rs 6,466 crore and the following year it was short at Rs 40,806 crore. The combined amount, said the CAG, “was available for use for purposes other than those provided by law.”
However, sources from the Ministry of Finance noted that under the law, all amounts, including taxes and fees, collected by the center must first be credited to the Constitution Fund of India (CFI) and only then transferred.
Sources said that since the final amounts collected are known only at the end of the fiscal year, any amounts raised above the estimated collections would remain, temporarily, in the Consolidated Fund of India (CFI).
“Therefore, such temporary retention of the GST cessation in CFI, pending reconciliation, cannot be treated as a deviation by any stretch of the imagination,” said a ministry source.
The Finance Ministry also noted that the CAG had not mentioned “diversion” of funds, but simply that there was an apparent error in the reconciliation.
GST compensation has emerged as a sore spot with state and union territory governments this year, particularly with the adverse economic impact of the pandemic and the Covid shutdown.
The center is struggling to pay compensation to states, due to a state’s revenue growing more slowly than 14 percent, because states have not gained much this year due to the months of lockdown required by the COVID crisis -19.
Congress had called the delay in paying GST compensation a “sovereign default” and backtracking on the constitutional guarantees that were the reason the states joined the GST regime. Several opposition-ruled states, including Bengal and Kerala, have been equally upset.
Following a GST Council meeting earlier this year, state and UT governments were asked to borrow either the total amount of Rs 2.35 lakh crore (which included Covid relief) or Rs 97,000 crore ( which was just a GST offset).
Last week, several states and UT submitted their loan proposals.
With input from PTI
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