The CAG has also highlighted the violation of accounting procedure in the GST compensation cess. As per the approved accounting procedure, GST compensation cess was to be transferred to the Public Account by debit to Major Head “2047-Other fiscal services”, the report says. “Instead, Ministry of Finance operated the Major Head ‘3601-Transfer of Grants in aid to States’,” CAG said. The auditor said this wrongful operation has implications on the reporting of grants in aid, since the GST Compensation Cess “is the right of the States and is not a Grant in aid”. “It is recommended that Ministry of Finance take immediate corrective action,” it added.

6. What are the drawbacks of GST system?

There are multiple drawbacks in the GST system already. Here we list four of them.

A) There is almost zero physical verification provision. A GST registration number is automatically issued within 3 working days after details like PAN number, bank account number, company office address etc are uploaded online by the applicant. But as we just saw, these details can be bought to create fake firms. Yet, GST officials confirmed in a reportthat physical verification of details filed by applicants almost never happens.

B) The PAN numbers of known fake firms are not blacklisted. For instance, the PAN number used by Banke Bihari Enterprises was not blacklisted or blocked. So, the owner of that PAN number remains free to create another fake firm and evade more GST.

C) Suprisingly, GST authorities do not conduct backend verification of tax credits. Before releasing tax credit to any company, GST authorities should check back in the transaction chain whether the company has actually paid the GST. But this is not happening.

D) GST officers also told us that in this whole racked of faking invoices, the masterminds of fake firms normally escape. It’s the dummy person whose PAN numbers and bank details were misused, who gets caught.

7. What was the Centre’s stand on GST collection this year?

The centre was hard-pressed on paying GST dues to states that have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis. GST collections including compensation cess to the states had been falling short of targets even before the coronavirus pandemic, making it difficult for the Centre to compensate the states. Twenty-one states gave their borrowing option proposed by the goods and services tax council to meet shortfall in compensation from the centre amid the coronavirus pandemic. These 21 states went with “option 1”, which allows them to borrow the tax collection shortfall due to the switch to the GST, estimated at ₹ 97,000 crore, by issuing debt under a special window coordinated by the Finance Ministry.

There was another option. “Option 2” allows states to borrow the entire compensation shortfall of ₹2.35 lakh crore, including the shortfall due to coronavirus crisis, by issuing market debt. If these remaining states do not give ttheir choices before another scheduled meet of the GST Council on October 5, then they will have to wait till June 2022 to get their dues, but on the condition that the GST Council extends the cess collection period beyond 2022. The GST Council is the highest decision-making body of the national tax introduced in July 2017.

But our question is so much rules and regulations for the states to follow to recover their GST money even amid the pandemic year which saw -23.9% GDP contraction. In such a year, the Centre has violated its own tax rules. Isn’t it a dejection and fraudulent behavior? We hope the Centre come up with a valid explanation to its people, otherwise it’ll lose its credibility.