PAC flags failure to transfer Rs 9,222 cr. in cess collections

Why in the News

The Public Accounts Committee (PAC) has flagged the failure to transfer Rs 9,222 crore of cess and levy collections to their designated reserve funds. Members questioned the Union Finance Ministry’s explanation on the issue. The committee reiterated its earlier recommendation that such collections be used only for the purposes for which they were raised. It had made that recommendation once already, in its 69th report tabled in August 2023, and the stated position of the chairperson is that ignoring the directions of a parliamentary standing committee amounts to an insult to Parliament. The tension is that a cess is justified to the taxpayer by an earmarked purpose. Its proceeds can still remain unmoved and available for ordinary expenditure.

What is the Public Accounts Committee?

1. A parliamentary financial committee: The PAC examines the appropriation accounts and the finance accounts of the Union government, along with the audit reports of the Comptroller and Auditor General (CAG).
2. Its composition: It has 22 members, 15 elected by the Lok Sabha and 7 by the Rajya Sabha, each serving a one-year term. Ministers cannot be members.
3. Chaired from the Opposition: By convention followed since 1967, the chairperson is drawn from the Opposition benches.
4. It works after the money is spent: The committee scrutinises expenditure already incurred, so its function is post-facto accountability rather than approval of spending.

What did the audit find?

1. Collections that never reached their funds: An audit examination for 2024-25 found that money collected through various cesses and levies was not transferred to four designated reserve funds during the year.
2. Where the finding is recorded: The finding forms part of Paragraph 3.3.1 of the CAG’s Report No. 6 of 2026.
3. The explanation was not accepted: Members of the committee questioned the Finance Ministry’s account of why the transfers did not happen.

What had the committee already recommended?

1. Assess the amount and the duration: The 69th report called for scientific assessments of how much a cess should raise and for how long it should run.
2. Review whether the purpose was served: It called for periodic reviews to evaluate whether the objectives a cess was raised for had actually been achieved.
3. Credit the proceeds regularly: It called for regular crediting of cess proceeds to the reserve funds created to hold them.

Why does the non-transfer matter?

1. Purpose is the entire justification: The committee’s position is that cess collections must go to the purposes for which they were raised, and not toward financing the government’s budgetary deficit.
2. The burden falls on everyone: A cess is collected from the whole population, whether or not a person pays income tax, and reaches the middle class and the poor alike.
3. An unfunded fund is a fund in name only: A reserve fund that exists on paper but is never credited cannot finance the programme it was created for, so the earmarking becomes a description rather than a constraint.

Conclusion

A cess earns its political acceptance from a named purpose, and that acceptance is spent at the moment of collection whether or not the money ever reaches the fund. The committee can record the lapse and can repeat itself, but it cannot compel a transfer, which is why the same paragraph returns to it audit cycle after audit cycle. The current status is a recommendation standing reiterated and unimplemented for a third year. The next test is whether the Finance Ministry files an action taken note committing to a crediting timetable, rather than one restating the accounting position that produced the audit finding.

Back2Basics: Cess

1. What it is: A cess is a tax imposed on top of an existing tax, levied for a specific stated purpose rather than for general revenue.
2. It stays outside the divisible pool: Article 270 keeps cesses and surcharges out of the pool of central taxes shared with the States, so a State receives no share of the collections.
3. How the earmarking is meant to work: Proceeds are credited to the Consolidated Fund of India and are then to be transferred to a designated reserve fund from which the stated purpose is financed.
4. Examples in force: The Health and Education Cess, the Road and Infrastructure Cess and the Goods and Services Tax Compensation Cess.

Matching Previous Year Question

“[2013] Consider the following statements : The Parliamentary Committe on Public Accounts 1. Consists of not more than 25 members of the Lok Sabha 2. Scrutinizes appropriation and finance accounts of the Government 3. examines the report of the Comptroller and Auditor General of India Which of the statements given above is/are correct? (a) 1 only (b) 2 and 3 only (c) 3 only (d) 1, 2 and 3 ANSWER: (b)”