Temporary retention of GST cess in CFI is not diversion, says FinMin official

Temporary retention of GST cess in CFI is not diversion, says FinMin official

The temporary retention of Goods and Services Tax (GST) cess in the Consolidated Fund of India (CFI) in FY18 and FY19 is no diversion of the funds, a finance ministry official said in response to an observation made by the Comptroller and Auditor General of India, (CAG).

The government’s statutory auditor had said in the financial audit report for FY19 tabled in Parliament that there was short crediting of the GST compensation cess collection, totalling ₹47,272 crore, during FY18 and FY19 to the GST Compensation Cess Fund, which is part of the public account.

Unlike the CFI, withdrawals from the public account does not need Parliament’s approval and the funds do not belong to the central government.

The audit report pointed out this short crediting was a violation of the GST Compensation Cess Act of 2017. It also said the fund retained in CFI became available for use for purposes other than what was provided for in the Act, a view the finance ministry does not concur with.

The central government retained the amount unutilized after making full compensation payment to states for the years. Also, in FY20, the Centre released ₹1.65 trillion as GST compensation to states although only ₹95,444 crore was collected as the cess in that year. This was done with the previously unutilized cess collection and therefore cannot be called a diversion, the official clarified.

The ministry is of the view that temporary retention of GST compensation receipt in CFI pending reconciliation cannot be termed as ‘diversion’. The compensation due to the states for the two years were fully paid and the time taken in reconciliation of compensation receipts cannot be termed as diversion of GST cess fund, said the official, who spoke on condition of anonymity.

The CAG report had pointed out that the short crediting of cess collected led to overstatement of revenue receipts and understatement of fiscal deficit.

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