CAG Audit Uncovers Massive ₹1,721 Crore Revenue Shortfalls in Tamil Nadu
The Comptroller and Auditor General of India has revealed significant revenue lapses totaling ₹1,721 crore in Tamil Nadu for the fiscal year 2022–23. According to the recently released 'Report on State Revenues for 2023,' the state government managed to recover only ₹11.5 crore during the subsequent year, highlighting substantial gaps in tax enforcement and recovery mechanisms.
Centralized GST Audits Reveal Systemic Irregularities
The audit specifically identified irregularities worth ₹1,538 crore through centralized GST audits alone, involving 337 separate cases. While tax authorities issued notices in all instances and formally accepted the audit findings, actual recoveries amounted to a mere ₹8.64 crore. The CAG report noted that in numerous cases, assessments remained incomplete for more than three years even after taxpayers submitted their responses, creating significant delays in revenue collection.
Critical Blind Spots in GST Registration Cancellations
A particularly alarming finding concerns GST registration cancellations. Of approximately 2.98 lakh cancelled registrations, an overwhelming 2.64 lakh businesses failed to file mandatory final returns. This oversight prevented the tax department from assessing potential dues in over 2.81 lakh cases, creating substantial revenue leakage.
Compounding this issue, fresh GST registrations were granted to more than 16,500 applicants who had not filed final returns from their previous registrations. This practice significantly weakened the controls designed to safeguard state revenue and prevent tax evasion.
Registration Process Vulnerabilities and Composition Scheme Misuse
The audit further identified vulnerabilities at the entry stage of the tax system. GST registrations were granted without completing required physical verification in cases where Aadhaar authentication was not performed or where verification orders were issued but not executed. The CAG warned that such gaps increase the risk of non-genuine registrations and future tax revenue losses.
Additionally, the report found 952 taxpayers who were incorrectly allowed to opt for the composition scheme—a concessional tax route intended exclusively for small businesses. These ineligible taxpayers paid GST at reduced rates, resulting in further revenue losses for the state.
Mounting Arrears and Broader Revenue Concerns
The weak recovery performance occurs against a backdrop of escalating arrears. Outstanding revenue dues across various departments reached ₹44,289.54 crore as of March 31, 2023, with over ₹22,595 crore pending for more than five years. These figures indicate prolonged enforcement delays and systemic challenges in revenue collection.
Beyond GST irregularities, the audit flagged additional revenue losses in stamp duty and registration fees. These losses stemmed from property undervaluation, unregistered transfers during corporate restructuring, and inconsistencies in land transactions, with individual cases involving losses amounting to several crores of rupees.
The comprehensive CAG report underscores the urgent need for strengthened tax administration, improved verification processes, and more effective recovery mechanisms to protect Tamil Nadu's revenue base and ensure proper fiscal management.
