SEPTEMBER 30, 2020

By Vijay Kumar

THINGS are not as they ought to be in the Government's books of accounts and the government's top auditor, the CAG is not too happy. In his latest report to Parliament, the CAG has pointed out serious lapses in the way the GST Cess and IGST was accounted for. The CAG stated,

As a result of the continued adoption of the erroneous process of devolution of IGST to states and retention of unapportioned balance in the CFI instead of first apportioning IGST between the Centre and States/UTs and then devolving States' share from the amount apportioned to the Centre, States had overall received less funds on account of IGST. This also implies that tax receipts of the GoI were overstated to that extent and the revenue deficit understated during the year.

So, the States lost pretty good amount of money, all because somebody in North Block did not understand arithmetic, accounting, law or all of them or a combination of two of them. It is surprising that no State found out this and it was left to the CAG to discover this accounting misdeed whereby the States lost money and the Centre gained unjustly, unfairly and illegally.

The CAG recommended that the devolution/apportionment of IGST and its accounting, be reviewed and aligned with the extant Constitutional and Statutory provisions. Will anyone listen to the CAG? The States may raise this issue in the ensuing GST Council meeting.

The CAG has found more accounting bloomers and observed, "The GST Compensation Cess Act, 2017 provides for levy of a cess for the purpose of providing compensation to the States for loss of revenue arising due to implementation of GST for a period specified in the Act. As per the Act and the accounting procedure, the entire cess collected during the year is required to be credited to a non-lapsable Fund (the GST Compensation Cess Fund) which shall form part of the Public Account and shall be used for the purpose mentioned i.e., for providing compensation to the States for loss of revenue. Audit examination of information with regard to collection of the cess and its transfer to the GST Compensation Cess Fund, shows that there was short crediting to the Fund of the GST Compensation Cess collections totalling to Rs. 47,272 crore during 2017-18 and 2018-19".

The CAG further observed,

- The short-crediting was a violation of the GST Compensation Cess Act, 2017.

- 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.

- Ministry accepted the audit observation and stated (February 2020) that the proceeds of cess collected and not transferred to Public Account would be transferred in subsequent year.

- Short crediting of cess collected during the year led to overstatement of revenue receipts and understatement of fiscal deficit for the year. Further, any transfer in the subsequent year would become an appropriation from the resources of that year and would require Parliamentary authorisation.

The CAG recommended immediate corrective action. Even before the Government could, Corona took over and though accounting principles are wrong, when there is no money in the kitty to share, it makes no difference as to where you want to see it recorded.

If a taxpayer does this kind of accounting acrobatics, he will be thrown into a jail, with no bail in the near future. But Government is the sovereign authority and they have immunity and Impunity, though there may be unwelcome authorities like the CAG pointing out these 'minor technical' mistakes. Already the government is on the job of defending itself and certifying that the CAG is not after all the best accountant in town. The 'Times of India' reported that a government source said that whatsoever was the compensation due to the states for the year 2017-18 and 201819 were fully paid and the time taken in reconciliation of compensation receipts can't be termed as diversion of GST Cess Fund when the dues were fully released by the central government.

Who is this government source who was authorised to enlighten 'Times of India' that the CAG was wrong, especially when the CAG states that the government has accepted the CAG's observation?

What is day and date?

A Notification is issued on 20.09.2020 and is uploaded on the e-gazette at 20:46:58. From when is it effective? A notification is generally said to be effective from the date of its publication. It can be effective only when it is made known to the public. The official available means of making it known to the people, is not Twitter, Facebook, selective leaks and rumours. The most recognised way is the government's gazette, which is now electronic and online. Actually, the GST Act specifically states that "notification" means a notification published in the Official Gazette and the expressions "notify" and "notified" shall be construed accordingly. So, from when is the notification uploaded on the e-gazette at 20:46:58 on 20.09.2020, effective?

There are three possibilities:

1. From 00:00 hrs of 20.09.2020 - the day of issue

2. From 00:00 hrs of 21.09.2020 - the day after the day of issue

3. From 20:46:58 of 20.09.2020 - the time of issue

What could be ideal choice? This was recently decided by the Supreme Court.

Supreme Court in an earlier order had observed, "The word "day" as per English calendar begins at midnight and covers a period of 24 hours thereafter, in the absence of there being anything to the contrary in the context."

The Supreme Court in the recent case noted that the legislature does not always say everything on the subject. When it enacts a law, every conceivable eventuality which may arise in the future may not be present to the mind of the lawmaker. Legislative silences create spaces for creativity.

The Court answered questions like:

1. Does a notification under Section 8A of the Customs Tariff Act, 1975 increasing the import duty published late in the evening of 16th Feb 2019, date back to the midnight of the previous day?

2. Does a day include its fractions? 

Courts have held that:

1. the law in general neglects fractions of a day.

2. the common law rule obtains that you ought to neglect fractions of a day.

3. either that a fraction of a day is to be taken as a whole day or that it is to be excluded altogether from the calculation. 

4. date does not mean the hour or the minute, but the day of delivery, and in law there is no fraction of a day. 

5. the principle that fractions of the day are eschewed from consideration, is not a universal principle which knows no exceptions.

In the above-mentioned case, the Supreme Court observed,

In other words, as far as the Notification issued under Section 8A of the Tariff Act is concerned, the Notification would come into force on the date on which it is published in the Gazette. The question, however, which arises in this case is, as far as this Court is concerned, res integra, viz., whether having regard to the time at which it was published, whether Notification would come into force on 16.02.2019, by including the whole of the day or will it operate from the time of its publication, or whether the Notification is to be enforced only after excluding 16.02.2019.

The question would pointedly arise whether it was to have effect for the whole of the day, viz., 16.02.2019, which means, since the day 16.02.2019 was born, immediately after the midnight on 15.02.2019, does a day mean the first moment after the midnight? If that were the effect, what would be its impact on the Bills of Entry which were electronically presented under Section 46(1) of the Customs Act read with Rule 4(2) of the 2018 Regulations.

For more on this, please see 2020-TIOL-157-SC-CUS-LB

Until next week