Days after the CAG indicated that the Center in the first two years of the GST implementation incorrectly retained GST compensation This payment which was intended to be used specifically to compensate the states for lost revenue, ministry sources said that the compensation owed for the 2017-18 and 2018-19 years was paid in full to the states.
The time taken to reconcile the compensation receipts cannot be described as a deviation from the GST ceasefire fund when the central government completely released the quotas to the states, they said.
Sources said that in 2017-18, Rs 62,611 crore was collected, of which the government released full compensation quotas of Rs 41,146 crore to the states and union territories (UT).
In 2018-19, an amount of Rs 95,081 crore was collected, of which Rs 69,275 crore was paid as full compensation fees to the states and UT.
They said that an amount of Rs 47,271 crore collected in 2017-18 and 2018-19 had not been used for reconciliation after full payment of GST compensation fees.
For the year 2019-20, the central government released Rs 1,65,302 crore as GST compensation against a layoff charge of Rs 95,444 crore that could do so with the unused layoff of Rs 47,271 crore.
The GST (Compensation to States) Act guarantees all states a 14% annual growth rate in their GST revenues in the first five years of GST implementation starting in July 2017. It was introduced as a relief for states for loss of revenue arising from the implementation of GST.
If a state’s revenue grows slower than 14 percent, the Center is supposed to make up for it using the funds specifically raised as compensation. To provide these grants, an offsetting tax of GST is applied to certain luxury and sin goods.
The compensation fee charged flows to the Consolidated Fund of India (CFI) and then transferred to the Indian Public Account, where a GST compensation account has been created. The states are compensated twice a month with the funds accumulated in this account.
However, instead of transferring the full amount of the GST assignment to the GST compensation fund during 2017-18 and 2018-19, the CAG found that the Center held these funds in the CFI and used them for other purposes.
Sources from the Ministry of Finance said that the receipt of compensation in the CFI was subject to reconciliation in the coming months, as usual, in the next fiscal year.
If for that reason the amount remained in the CFI, how can this be treated as a deviation? They asked, adding that even the CAG in its report has not said so.
The amount collected under the compensation cessation fund has been regularly and fully distributed to the states according to their quotas and budgetary provisions, and by the end of July 2020, everything has been accounted for and published, the source added.
The CAG in its report presented in Parliament earlier this week said that of the Rs 62,612 crore GST Compensation Cess raised in 2017-18, Rs 56,146 crore was transferred to the non-refundable fund.
In the following year (2018-19), Rs 54,275 million of the Rs 95,081 million raised were transferred to the fund.
The short transfer in 2017-18 was 6,466 million rupees and in 2018-19 it was 40,806 million rupees, the CAG said, adding that the Center used this money for “other purposes”, which “led to an overstatement of revenues and an underestimation of the fiscal deficit for the year “.
Sources explained that all amounts, including taxes and fees collected by the Center, must, according to article 266 of the Constitution, first be credited to the CFI and then can only be transferred to any other fund through a budget chief in the Union Budget.
The government makes every effort to transfer all amounts collected at the end of each financial year to the fund by making the necessary budgetary provisions, they said.
In case of cessation of compensation, since the final accounts of the amounts collected are known only after the close of the fiscal year, any amounts collected above the estimate will remain in the CFI temporarily, they said and added after the reconciliation, the amount is transferred to Compensation. Fund and from that fund to the states according to their compensation formula.
Therefore, such a temporary hold of the GST cessation at CFI pending reconciliation cannot be treated as a deviation by any stretch of the imagination, the sources said.
Since the tax collected by the government has been used for the full payment of the compensation due, then it cannot be alleged that the amount of the unused tax has been diverted for other purposes, they insisted.
.
