NEW DELHI: Finance ministry sources have countered Comptroller and Auditor Normal (CAG) audit discovering of central authorities wrongly retaining Rs 47,272 crore of GST compensation cess meant for states, saying non permanent retention can’t be termed as diversion.
Days after the CAG flagged that the Centre in first two years of the GST implementation wrongly retained GST compensation cess that was meant for use particularly to compensate states for lack of income, ministry sources mentioned compensation due for the 12 months 2017-18 and 2018-19 was totally paid to states.
Time taken in reconciliation of compensation receipts cannot be termed as diversion of GST cess fund when the dues to states had been totally launched by the central authorities, they mentioned.
Sources mentioned that in 2017-18, Rs 62,611 crore was collected, out of which the federal government launched full compensation dues of Rs 41,146 crore to the states and union territories (UTs).
In 2018-19, an quantity of Rs 95,081 crore was collected, out of which Rs 69,275 crore was paid as full compensation dues to states and UTs.
They mentioned an quantity of Rs 47,271 crore collected within the 2017-18 and 2018-19 had remained unutilised for reconciliation publish full cost of GST compensation dues.
For the 12 months 2019-20, the central authorities launched Rs 1,65,302 crore as GST compensation towards a cess assortment of Rs 95,444 crore which it might achieve this with the unutilised cess of Rs 47,271 crore.
The GST (Compensation to States) Act ensures all states an annual progress fee of 14 per cent of their GST income within the first 5 years of implementation of GST starting July 2017. It was launched as a reduction for states for the lack of revenues arising from the implementation of GST.
If a state’s income grows slower than 14 per cent, it’s speculated to be compensated by the Centre utilizing the funds particularly collected as compensation cess. To supply these grants, a GST compensation cess is levied on sure luxurious and sin items.
The collected compensation cess flows into the consolidated fund of India (CFI), and is then transferred to the Public Account of India, the place a GST compensation cess account has been created. States are compensated bi-monthly from the collected funds on this account.
Nevertheless, as an alternative of transferring the complete GST cess quantity to the GST compensation fund throughout 2017-18 and 2018-19, the CAG discovered that the Centre retained these funds within the CFI and used it for different functions.
The finance ministry sources mentioned the compensation receipt within the CFI was topic to reconciliation within the coming months, as ordinary, within the forthcoming monetary 12 months.
If for that motive the quantity remained within the CFI, how can that be handled as diversion, they requested including even the CAG in its report has not mentioned so.
The quantity collected underneath compensation cess fund has been repeatedly and totally distributed to states as per their dues and budgetary provisions and by the top of July 2020, every thing has been accounted for and launched, supply added.
The CAG in its report tabled in Parliament earlier this week mentioned out of the Rs 62,612 crore GST Compensation Cess collected in 2017-18, Rs 56,146 crore was transferred to the non-lapsable fund.
Within the following 12 months (2018-19), Rs 54,275 crore out of Rs 95,081 crore collected was transferred to the fund.
The brief switch in 2017-18 was Rs 6,466 crore and in 2018-19 it was Rs 40,806 crore, the CAG mentioned including the Centre used this cash for “different functions” which “led to an overstatement of income receipts and understatement of fiscal deficit for the 12 months”.
Sources defined that every one quantities together with taxes and cess which might be collected by the Centre ought to, underneath the Article 266 of the Structure, get credited first to the CFI after which solely it could possibly be transferred to another fund by a finances head in Union Price range.
The federal government makes all efforts to switch all quantities collected by the top of each monetary 12 months into the fund by making needed finances provisions, they mentioned.
In case of compensation cess, for the reason that closing accounts of quantities collected are recognized solely after the top of monetary 12 months, any quantity collected over and above the estimate will stay within the CFI briefly, they mentioned including after reconciliation, the quantity is transferred to Compensation Fund and from that fund to states as per their compensation method.
Subsequently, such non permanent retention of GST cess in CFI pending reconciliation can’t be handled as diversion by any stretch of creativeness, sources mentioned.
Because the cess collected by the federal government has been used for full cost of due compensation, then it can’t be alleged that unutilized cess quantity has been diverted for different functions, they insisted.

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