FinMin withdrawals from CFI don't comply with provisions: CAG

The Finance Ministry has been withdrawing money from Consolidated Fund of India (CFI) "in contravention" of Constitutional provisions while making interest payments on tax refunds, resulting in an outgo of over Rs 5,000 crore in 2014-15, says a CAG report.
While, in the previous six years, the interest outgo on tax refunds stood at Rs 42,903 crore.
"As in the past, no budget provision for payment of interest on refunds was made in the Budget Estimates for the financial year 2014-15.
"An expenditure on interest on refunds amounting to Rs 5,332 crore was incurred by the Department, in contravention of provisions of the Constitution," CAG's audit report on Accounts for 2014-15, released earlier this week, has revealed.

The Comptroller and Auditor General of India (CAG) report said it is breach of Article 114 (3) of the Constitution as it stipulates that no money shall be withdrawn from the CFI except under appropriation made by law.
"Since interest on refund of taxes is paid out from and out of the CFI, the withdrawal of money from the CFI for payment of interest requires authorisation of Parliament under Article 114(3)," said the CAG report.

CAG said payment of interest on refunds of excess tax is a charge on the CFI. The payment of "interest" being an expenditure is, therefore, to be incurred only after having been authorised under due appropriation made by law.

Pulling up the Ministry, it said the Department of Revenue/Central Board of Direct Taxes has been classifying interest payment on refunds of excess tax as reduction in revenue which is an incorrect practice.
"This incorrect practice has been commented upon successively in CAG's Audit Reports on Union Government Accounts, as well as in CAG's Reports on Direct Taxes, but no corrective action has been taken by the Department," it said.
The Public Accounts Committee (PAC), which examined the issue, in 2013-14 had advised the Finance Ministry to devise a procedure so that the interest payments on tax refunds are shown in the Annual Financial Statement and Demand for Grants and receive Parliamentary approval.

Besides, the CAG report cited PAC's observations that the Department of Revenue mostly relied on the provisions of the Income Tax Act, disregarding the Constitutional provisions which are supreme and override all Acts, Rules and Sub-Rules, inconsistent with the Constitution.
"The Committee cautioned the Department that mere provision of refunds and interest payment on such refunds in the Income Tax Act cannot be a ground to override the mandatory Constitutional requirement," CAG said.
The report also said that an excess disbursement of Rs 16,201.33 crore was incurred over and above authorisation from the CFI during 2014-15.