Kohima: The Comptroller and Auditor General of India (CAG) report tabled at the Nagaland Legislative Assembly (NLA) on Thursday showed that the Nagaland finance department has irregularly deducted Value-added tax (VAT) from Centrally Sponsored Schemes (CSS) instead of deducting from the contractor’s bill.
The CAG in its report ended March 31, 2019, stated that the total deduction from the Government of India (GoI) grants was Rs. 7.48 crore, inclusive of department charges.
It said that as per Section 92(3) of the Nagaland VAT Act 2005 read with Section 48 of the same Act, “any person responsible for paying any sum to any dealer for execution of a work contract referred to in Section 8 wholly or partly in pursuance of a contract shall, at the time of payment of such sum in cash or by issue of a cheque or draft or any other mode of payment, deduct tax at applicable rate of such sum being paid in respect of such works contract”.
The report said that examination of records have revealed that the Nagaland Finance Department deducted Rs 3.17 crore as VAT [Rs 2.77 crore (87.38 per cent) was deducted from CSS grants] at the time of withdrawal of funds, the VAT deduction ranging from 4.24 per cent to 7.5 per cent on the total grants, instead of deducting the same from the contractor’s bills.
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“The deduction was irregular and also diluted the quantum of funds available to the State for program implementation under the Scheme,” it said.
Further, the CAG also observed that irregular deduction of VAT of Rs 45 lakh was made from funds available under Non-Lapsable Central Pool of Resources (NLCPR) for construction of housing units for judicial officers.
Ministry of Development of North Eastern Region (DoNER) in March 2014 conveyed administrative and financial approval of Rs 8.87 crore (90%) being Central Financial Assistance under NLCPR for the construction of 13 housing units for judicial officers in Nagaland at a total cost of Rs 9.85 crore in five Nagaland districts—Mokokchung, Kohima, Tuensang, Longleng, and Zunheboto.
In June 2020, the department of Justice and Law in its reply stated that VAT deductions were made as per the directives of the Finance Department at prevailing rates notified by the Government. The Justice and Law department also stated that the matter regarding deduction of VAT at source, instead of deducting from the contractor’s bills, will be reviewed with the finance department.
When the issue was reported to the Finance Department in October 2020 to ascertain the deduction of VAT at source, department in December stated that matter will be examined as and when Department of Justice and Law would forward the case for review.
The CAG pointed out that irregular deduction of departmental charges amounting to Rs 5.48 crore was also made at source [Rs 4.71 crore (86 per cent) being deducted from the CSS grants].
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“It would not be out of place to mention here that despite this irregular deduction being pointed out previously by the CAG, the same irregularity continued,” it said. It added that irregular deduction of Rs 7.83 crore at source towards departmental charges from the funds allocated out of NEC/NLCPR funded projects had also been highlighted in CAG Audit Report-Government of Nagaland, ending March 2013.
The CAG added that during 2014-17, the DoNER ministry released Rs 8.09 crore in three instalments and accordingly, the Nagaland government released its share of Rs 90 lakh in two instalments. However, the Justice and Law department drew a net amount of Rs 8.54 crore, after deduction of VAT of Rs 45 lakh at source.
“The irregular deduction of VAT at source is not only a violation of codal provisions but also reduced the amount available to the executing agencies to undertake works,” it said.
On cross examination of receipt and utilization of fund revealed that the division received only Rs 4.70 crore during 2014-19 for settlement of claims of contractors.
In reply to this audit report, the Justice and Law department stated that in June 2020, Rs 3.84 crore meant for expenditure against the ongoing construction of judicial officer quarter at Kohima and Tuensang was available at the Bank account of the department out of the balance of Rs 9.75 crore.
However, the CAG stated that the utilisation certificates furnished were incorrect to the extent of funds of Rs 3.84 crore not utilized.
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