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Finance Minister Nirmala Sitharaman told Parliament that, there was no provision in the law to compensate states for loss of GST revenue out of the Consolidated Fund of India (CFI) but the irony is the Comptroller and Auditor General (CAG) of India has found that the government themselves violated the law by retaining ₹47,272 crore of GST compensation cess in the CFI during 2017-18 and 2018-19 and used the money for other purposes, which leads to overstatement of revenue receipts and understatement of fiscal deficit for the year.
Audit examination of information with respect to 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 ₹47,272 crore during 2017-18 and 2018-19. The short-crediting was a violation of the GST Compensation Cess Act, 2017.
As per the provisions of the GST Compensation Cess Act, the entire cess collected during a year is required to be credited to a non-lapsable fund which is GST compensation cess fund, which is part of the Public Account and is meant to be used specifically to compensate states for loss of revenue.
However, the government, instead of transferring the entire GST cess amount to the GST compensation fund, retained it in the CFI and used it for other purposes. The amount short credited 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.
According to the CAG report, the Ministry of Finance has accepted the audit observation and has stated that the proceeds of cess collected and not transferred to Public Account would be transferred in subsequent year. Further, any transfer in the subsequent year would become an appropriation from the resources of that year and would require Parliamentary authorization.
The CAG has also highlighted the violation of accounting procedure in respect of the GST compensation cess.
In addition to this, Apart from the GST compensation cess, the CAG has also mentioned instances of non-transfer of entire amounts of other cess to their respective Reserve Funds, including the Road and Infrastructure Cess, Cess on Crude Oil, Universal Service Levy and National Mineral Trust Levy.
In the Audit, it is observed that out of the ₹2,74,592 crore received from 35 cesses, levies and other charges in 2018-19, only ₹1,64,322 crore had been transferred to Reserve Funds during the year and the rest was retained in the Consolidated Fund of India.