Finmin clarifies GST Compensation Cess Fund not diverted

Finance Ministry on Saturday defended itself against Comptroller & Auditor General’s (CAG) remark regarding short crediting to the Fund of the GST Compensation Cess during FY 2017-18 and 2018-19. The Ministry also made it clear that it was not diversion.

The CAG, in its report tabled last week in the Parliament, calculated short credited amount of ₹47,272 crore for two fiscals.

“The short-crediting was a violation of the GST Compensation Cess Act, 2017. The amount by which the cess was short credited was also retained in the CFI and became available for use for purposes other than what was provided in the act,” the report had said.

Reacting on the report, Finance Ministry sources said though CAG finding is being interpreted as diversion, but the report no-where used the word diversion.

“It may be worth noting 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. If this is so, then where is question of any diversion?” a source aid.

Sources explained that all amounts including taxes, cesses, that are collected by the Centre should, under the Article 266 of the Constitution, get credited first to the Consolidated Fund of India (CFI) and then only it could be (is) transferred to the any other Fund through a budget head in Union Budget. The Government makes all efforts to transfer all amounts collected by the end of every financial year into the Fund by making necessary budget provisions

Report details

CAG report said that as per the approved accounting procedure, GST Compensation cess was to be transferred to the Public Account by debit to Major Head ‘2047-Other fiscal services’. Instead, Finance Ministry operated the Major Head ‘3601-Transfer of Grants in aid to States’. The wrongful operation has implications on the reporting of Grants in aid, since the GST Compensation Cess is the right of the States and is not a Grant in aid. The report recommended that Finance Ministry to take immediate corrective action, the report mentioned.

In the FY 2017-18, ₹62,611 crore were collected, out of which the Government released full compensation dues of ₹41,146 crore to the States and UTs; further, in the FY 2018-19, an amount of ₹95,081 crore were collected, out of which ₹69,275 crore were paid as full compensation dues to States and UTs.

Finance Ministry sources accepted that an amount of ₹ 47,271 crore collected in FY2017-18 and 2018-19, had remained unutilized for reconciliation post full payment of GST compensation dues to the States and UTs. “It is definitely not the case that in FY17-18 and FY18-19, the compensation was payable to the states but the Cess was kept in the CFI and not paid to the states,” a source said.

For the year 2019-20, the Central Government released ₹1,65,302 crore as GST compensation against a cess collection of ₹95,444 crore only during the FY 19-20, which it could do so with the unutilised cess of ₹47,271 crore.

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