Temporary retention of GST cess pending reconciliation not diversion: Finance ministry

Finance ministry sources have countered 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 Comptroller and Auditor General (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 yr 2017-18 and 2018-19 was absolutely paid to states.

Time taken in reconciliation of compensation receipts can’t be termed as diversion of GST cess fund when the dues to states have been absolutely 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 fee of GST compensation dues.

For the yr 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 may achieve this with the unutilised cess of Rs 47,271 crore.

The GST (Compensation to States) Act ensures all states an annual progress price 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 aid 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 present 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 accrued funds on this account.

However, as an alternative of transferring all the 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 yr.

If for that purpose 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 below compensation cess fund has been frequently and absolutely distributed to states as per their dues and budgetary provisions and by the tip of July 2020, all the things 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.

In the next yr (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 “other purposes” which “led to an overstatement of revenue receipts and understatement of fiscal deficit for the year”.

Sources defined that every one quantities together with taxes and cess which might be collected by the Centre ought to, below the Article 266 of the Constitution, get credited first to the CFI after which solely it could possibly be transferred to every other fund by way of a price range head in Union Budget.

The authorities makes all efforts to switch all quantities collected by the tip of each monetary yr into the fund by making crucial price range provisions, they mentioned.

In case of compensation cess, because the remaining accounts of quantities collected are recognized solely after the tip of monetary yr, any quantity collected over and above the estimate will stay within the CFI quickly, they mentioned including after reconciliation, the quantity is transferred to Compensation Fund and from that fund to states as per their compensation method.

Therefore, such non permanent retention of GST cess in CFI pending reconciliation can’t be handled as diversion by any stretch of creativeness, sources mentioned.

Since the cess collected by the Government has been used for full fee of due compensation, then it can’t be alleged that unutilized cess quantity has been diverted for different functions, they insisted.