Centre diverted GST compensation funds, observes CAG; Shiv Sena alleges 'breach of trust'

As per its report on accounts of Union government tabled in Parliament on Wednesday, Comptroller and Auditor General of India held that Centre violated GST Compensation Cess Act, 2017. This law mandates that entire cess collected during year must be credited to GST Compensation Cess Fund for providing compensation to states for loss of revenue. However, CAG observed that Modi government retained Rs.47,272 crore of collected cess in Consolidated Fund of India during 2017-18 and 2018-19. 

This violation of law comes amid Finance Ministry's directive to states to borrow for meeting shortfall in GST compensation. Moreover, Union Finance Minister Nirmala Sitharaman h replied in Lok Sabha on September 18 that re is provision in law to compensate states for loss of GST from Consolidated Fund of India. CAG maintained that GST Compensation Cess is right of states and t a "Grant in aid". 

Source: Accounts of Union Government, . 4 of 2020 (Financial Audit)

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report ds that cess that was short credited became available for use for purposes or than what was provided in GST Compensation Cess Act, 2017. According to CAG, this resulted in overstatement of revenue receipts and understatement of fiscal deficit for year. It recommended Finance Ministry to take corrective action. ditionally, report mentions that Finance Ministry h accepted audit observation stating that “ proceeds of cess collected and t transferred to Public Account would be transferred in subsequent year”.

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Centre's two options for states

Finance Ministry suggested that states could borrow Rs.97,000 crore ( revenue shortfall arising on account of GST implementation and t taking into account COVID-19) with entire principal and interest repayment of debt to be met through cess collection in subsequent years. Furrmore, states have been allowed to borrow an ditional 0.5% points under FRBM Act. But if states opt to borrow entire amount of Rs. 2.35 lakh crore, only principal amount shall be repaid from cess. In such a scenario, states will have to bear interest burden. 

Several states such as Delhi , Jharkhand, West Bengal ,Tamil Nu, Kerala,Telangana, Maharashtra and Chhattisgarh have urged Centre to rethink  GST compensation options. Reacting on CAG's observation, Shiv Sena MP Priyanka Chaturvedi contended that Centre was stealing from state's GST dues to hide its own failures. She said that this dealt a huge blow to state's faith in Union government to hour its commitment. Chaturvedi opined that asking states to borrow in such a scenario is criminal. 

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