Clearing the air: No diversion of GST compensation cess funds, says finance ministry

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September 27, 2020 8:30 AM

The auditor further noted that “the amount by which the cess was short-credited was also retained in the Consolidated Fund of India and became available for use for purposes other than what was provided in the Act.”

The CAG also took exception to the finance ministry transferring the cess proceeds to the compensation fund as ‘grant in aid’, rather than as 'other fiscal services', as the compensation is the state’s ‘right” not a ‘grant in aid’.The CAG also took exception to the finance ministry transferring the cess proceeds to the compensation fund as ‘grant in aid’, rather than as 'other fiscal services', as the compensation is the state’s ‘right” not a ‘grant in aid’.

The finance ministry on Saturday asserted there was no ‘diversion’ from the GST compensation cess fund during FY18-FY19 as reported by sections of the media, adding, “even the Comptroller and Auditor General (CAG) hasn’t said so”.

According to a ministry source, there was only temporary retention of the excess cess in the Consolidated Fund of India under Article 266 of the Constitution, pending reconciliation, which usually happens by the end of June in the subsequent financial year.

The source pointed out that, “the amount collected under compensation cess fund have been regularly and fully distributed to states as per their dues and budgetary provisions and by the end of July 2020 everything has been accounted for and released”.

The CAG in its audit report placed in Parliament recently highlighted ‘short-crediting’ of cess collections totalling Rs 47,272 crore to the GST Compensation Fund during FY18-FY19, and said this was in violation of the GST Compensation Cess Act, 2017.

The auditor further noted that “the amount by which the cess was short-credited was also retained in the Consolidated Fund of India and became available for use for purposes other than what was provided in the Act.”

Noting the finance ministry’s defence, presented to it in February 2000 that the proceeds of cess collected and not transferred to the designated public account would be transferred in subsequent year, the CAG said short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit for the year. “Further, any transfer in the subsequent year would become an appropriation from the resources of that year and would require parliamentary authorisation,” it noted.

The CAG also took exception to the finance ministry transferring the cess proceeds to the compensation fund as ‘grant in aid’, rather than as ‘other fiscal services’, as the compensation is the state’s ‘right” not a ‘grant in aid’.

For FY20, the central government released Rs 1,65,302 crore as GST compensation against a cess collection of Rs 95,444 crore. The finance ministry source noted that unutilised (excess) cess of Rs 47,271 crore (from FY18 and FY19) was also distributed to states during FY20. Also, as FE reported earlier, Rs 33,412 crore of unutilised I-GST collections for FY18 was also used to compensate the states in FY20.

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