Govt Fails to Submit GST Compensation Fund Account for 4 Consecutive Years: CAG Report

The Comptroller and Auditor General of India ( CAG ) once again raised concerns over the Central Government's failure to submit GST Compensation Fund Accounts for audit for four consecutive years from 2017-18 to 2020-21. This was revealed in the latest CAG report, pinpointing the long-standing issue despite repeated reminders and proposed solutions.

Mandate of GST Compensation Fund

The GST ( Compensation to States ) Act, 2017 was established to compensate states for revenue losses arising from the introduction of the Goods and Services Tax ( GST ) in 2017. The compensation is funded through the GST Compensation Cess, levied on specific luxury and sin goods such as tobacco, coal, and motor vehicles.

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Under Section 10(4) of the Act, the Compensation Fund's accounts must be audited by the CAG and laid before Parliament. The government has failed to fulfill this statutory obligation for four years which stopped the CAG from conducting its mandatory audit.

Previous Efforts and Continued Lapses

The CAG report shows that in its Audit Report No. 1 of 2021, the non-submission of Compensation Fund Accounts was flagged for the financial years ending March 2019 and March 2020. After this, the Ministry of Finance claimed that provisional year-wise GST Compensation Fund data had been submitted to the Controller General of Accounts ( CGA) for formalization.

In September 2021, the CGA opined that there was no specific requirement for separate Compensation Fund accounts. After discussions, the CAG suggested including a note or annexure in the relevant Finance Accounts with critical details such as:

• Compensation dues to each State/UT.
• Compensation paid to each State/UT.
• Balance funds remaining, if any.

The Department of Revenue gave its “no objection” to the proposed sample format in December 2022, but the accounts have still not been finalized or submitted for audit.

Impact on Transparency and Accountability

The continued delay has raised huge concerns about financial transparency. The lack of audited accounts deprives states and the public of crucial information about:

• How much GST compensation cess was collected?
• Whether states received their due compensation.
• The overall status of the Compensation Fund.

The CAG explained the need for the Ministry to expedite the finalization and submission of the accounts to enable audit under Section 10(4) of the Act.

“The Ministry may expedite finalization and submission of Compensation Fund Accounts, in the light of Audit’s suggestion for a note to the relevant Statement in the Finance Accounts, so that the CAG’s mandate of auditing the accounts under Section 10 of the Act could be completed.”

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

CAG's Findings on GST Trends

The report further highlights the growth in indirect tax revenue in FY22:

• Indirect tax collections rose by ₹2.16 lakh crore (20%) over FY21.
• Central GST revenue increased by 27.3% (₹1.5 lakh crore) in FY22 compared to FY21.
• However, Central GST as a percentage of GDP remained lower at 2.97% in FY22 compared to 3.08% in FY19.

Conclusion

Despite repeated recommendations and clear statutory obligations, the government has failed to submit GST Compensation Fund Accounts for audit. The CAG has urged the Ministry to act urgently to address this lapse and uphold financial accountability. As the GST Compensation Cess collection continues until March 2026, the issue assumes even greater importance for both the Centre and States.

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