CAG

Subject: Polity

Context:

• Finance Minister told Parliament last week that there was no provision in the law to compensate states for loss of GST revenue out of the Consolidated Fund of India (CFI).
• However, the Comptroller and Auditor General (CAG) of India has found that the government itself violated the law by retaining Rs 47,272 crore of GST compensation cess in the CFI during 2017-18 and 2018-19, and used the money for other purposes, which led to overstatement of revenue receipts and understatement of fiscal deficit for the year

Concept:

• As per the provisions of the GST Compensation Cess Act, the entire cess collected during a year is required to be credited to a non-lapsable fund (GST compensation cess fund) which is part of the Public Account, and is meant to be used specifically to compensate states for loss of revenue.
• However, the government, instead of transferring the entire GST cess amount to the GST compensation fund, retained it in the CFI, and used it for other purposes.
• 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
• Apart from the GST compensation cess, the CAG has also mentioned instances of non-transfer of entire amounts of other cesses to their respective Reserve Funds, including the Road and Infrastructure Cess, Cess on Crude Oil, Universal Service Levy, and National Mineral Trust Levy.