A Statement from Finance Ministers of State Governments, Prominent Economists and Public Finance and Accountability Researchers
The Constitution Amendment Act, effective from 16th September 2016, has provided that Parliament should, on recommendation of GST Council, provide for compensation to the States for loss of revenue arising on account of implementation of GST for a period upto five years. The GST (Compensation to the States) Act, 2017 was passed to give effect to these provisions. This act also provided for levy of a cess on pan masala, tobacco, aerated drinks, cars and coal for the purpose of GST compensation.
As per these provisions, it was agreed by the central government that the states should be compensated for any shortfall in getting a revenue of 14 percent over the base year (2015-16) revenue relating to taxes/ duties subsumed into GST. The shortfall in revenue was to be arrived at after taking into account the SGST collection (Collected as SGST as well as IGST settled as SGST) and collection of arrears of state taxes subsumed into GST. The GST compensation is payable bi-monthly and should be calculated finally for every financial year after the receipts of final revenue figures as audited by the CAG.
As per the provisions of the Article 266 of the Constitution of India, the GST Compensation Act and the accounting procedure as agreed to by the CAG of India, the compensation cess should be transferred to the Public Account. However, from the Finance Accounts 2017-18, it was noticed that there was a short transfer of Rs 6466 crore of GST Compensation cess to the Public Account. It was further noticed that as per the agreed accounting procedure, GST Compensation Cess should be transferred to the Public Account by debiting major head 2047-Other fiscal services, Minor Head 797-Transfer to reserve fund.
However, as per the Finance Accounts 2017-18, no such entry was found in the major head 2047. The reasons for the same were called for (February 2019) from the Ministry and their reply was awaited, stated the CAG Audit report on Indirect Taxes (Goods and Services Tax) for the year ending 31st March 2018.
While citizens still do not know why the agreed upon accounting protocols were violated by the central government while preparing the finance accounts for the year 2017-18as stated above, since finance ministry failed to file reply to audit observations till February 2019, this year while auditing finance accounts for the year 2018-19, CAG of India auditors came across similar issues with regard to accounting of GST Compensation Cess receipts and their transfer to the dedicated fund in Public Accounts of India.
What is extremely worrying is the efforts to present a picture that the GST compensation was being devolved to states as if these receipts were “grants-in-aid”, whereas agreed upon accounting process clearly had asked Finance Ministry and Control General of Accounts to book such transfers to state under the Major Head ‘2047-Other Fiscal Services’. CAG audit report clearly pronounces the audit objection against such practice by stating:
Rather than correcting such gross accounting mistakes, Finance Ministry appears to have chosen to gloss over these concerns from the national auditor by arguing that “short term retention of GST Compensation Cess receipts pending reconciliation cannot be termed as ‘diversion’” and planting such an arguments through friendly media. We understand this as an effort in confusing the people and would have liked to see the finance minister addressing media through PIB or issuing an official press release.
Constitutional audit institute starts its auditing exercise after the closure of fiscal year and the audit of finance accounts refer to finalized finance account statements produced by Controller General of Accounts. The audit remarks are based on Statement No 8, 9 and 13 of the Finance Accounts of Government of India and hence shall alert the citizens concerned about the principles of Fiscal Federalism that union government and Controller General of Accounts had failed to present the true picture on the GST Compensation Cess.
Citizens, including those who have an added constitutional duty of ensuring fiscal federalism and perform this duty by being judges in the Supreme Court of India that the constitutional auditor has pronounced the opinion without mincing words in a simple sentence in audit report that reads: “The short-crediting was a violation of the GST Compensation Cess Act, 2017”.
It is understood that when constitutional audit institute pronounce its opinion in such an unambiguous statement, the constitutional court must come in and take the matter to its logical conclusion by issuing appropriate directions.
GST Council and the Finance Ministry should ensure unhindered access to the complete universe of transactions to constitutional auditor so that the latter can perform its constitutional obligations fully. As we understand from the CAG audit report on State Finances that have entered the public domain during the monsoon session a full access had not been provided to CAG of India. Below is an extract from one such audit report that got tabled in a state assembly: