In his audit report of government accounts, the Comptroller and Auditor General (CAG) noted that the amount would be credited to the non-cancellable GST Compensation Cess fundraising fund for payment to the states for loss of income due to implementation of GST since 2017, but the government did not do so and thus violated the GST law.
“The GST Compensation Cessation Act of 2017 establishes the imposition of cessation in order to provide compensation to states for loss of revenue arising due to the implementation of GST for a period specified in the Act,” said CAG .
In accordance with the Law and the accounting procedure, the entire tax collected during the year must be credited to an unexpired Fund (the GST Assignment Compensation Fund) that will form part of the Public Account and will be used for the purpose mentioned. that is, to provide compensation to states for lost revenue.
CAG said outside the ₹62,612 crore GST Compensation Cess raised in 2017-18, ₹Rs 56,146 million were transferred to the non-refundable fund.
In the following year (2018-19), ₹54,275 crore of ₹Rs 95,081 million raised were transferred to the fund.
The short transfer in 2017-18 was ₹6,466 crore and in 2018-19 it was ₹Rs 40,806 crore, CAG said it added that the Center used this money for “other purposes”, which “led to an overstatement of revenue and an underestimation of the fiscal deficit for the year.”
The short credit was a violation of the GST Offset Cessation Act of 2017.
The issue of the compensation rate is driving a wedge between the Center and the states in the GST Council, the highest decision-making body of the GST regime that had subsumed 17 different central and state taxes, such as excise and tax. VAT.
States have not been paid the promised compensation for giving up their powers to collect taxes on goods and services since the last fiscal year. The Center says that a slowdown in the economy has meant that not enough money is being raised through the luxury and sin tax.
The Center has asked states to apply for loans to cover the revenue shortfall. States governed by Congress, Left, TMC and AAP have completely opposed the measure arguing that the Center should borrow and provide to the states, as the states have given most of their tax powers to the Center under the GST regime. Introduced in July 2017.
The CAG’s findings run counter to Finance Minister Nirmala Sitharaman’s presentations to Parliament last week that states could not be compensated for the revenue shortfall from the Consolidated Fund of India (CFI) based on an opinion. of the Attorney General of India who stated that there was no such provision of the law.
“The audit examination of the information contained in statements 8, 9 and 13 regarding the collection of the termination and its transfer to the GST Compensation Fund, shows that there was a short credit to the Fund of the proceeds of the transfer of GST compensation for a total of ₹Rs 47,272 crore during 2017-18 and 2018-19, “CAG said in the audit report.
The short credit, CAG said, was a violation of the GST Compensation Cessation Act of 2017.
“The amount for which the tax was paid short was also withheld in the CFI and made available for use for purposes other than those provided by law,” he said.
According to CAG, the Ministry of Finance accepted the audit observation and 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.
“The short credit of taxes collected during the year led to an overstatement of revenue income and an underestimation of the fiscal deficit for the year,” said CAG.
In addition, any transfer in the following year would become an appropriation of the resources of that year and would require parliamentary authorization, he said, asking the Finance Ministry to take immediate corrective measures.
According to the approved accounting procedure, the cessation of the GST compensation had to be transferred to the Public Account by debiting the Chief Major ‘2047-Other fiscal services’. Instead, the Ministry of Finance operated the Principal Chief “3601-Transfer of grants in aid to the States”.
“The illegal operation has implications for aid grant notification, as the GST offset Cess is a right of the states and is not an aid grant,” CAG said.
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 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, the CAG found that the Center retained these funds in the CFI and used them for other purposes.
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