The Comptroller and Auditor General of India (CAG) has flagged serious deficiencies in Himachal Pradesh’s tax administration, public procurement framework and management of State Public Sector Enterprises (SPSEs), pointing to weak oversight, delayed recovery of government dues and inadequate use of digital monitoring systems.

The findings form part of the CAG’s audit report for the financial year ended March 31, 2023, which was tabled in the Himachal Pradesh Legislative Assembly on the concluding day of its monsoon session.

According to the report, shortcomings in the state’s e-procurement and GST systems exposed the government to potential revenue losses and anti-competitive practices. The audit also raised concerns over the deteriorating financial position of several state-owned enterprises.

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Excess ITC of Over ₹20 Crore Detected in E-Way Bill Audit

The CAG identified significant discrepancies while examining transactions recorded through the e-way bill system.

A test-check of 120 e-way bills relating to 45 taxpayers revealed that nine taxpayers had claimed Input Tax Credit (ITC) of approximately ₹335 crore on inward supplies. However, the credit reflected as available in their respective GSTR-2A statements was only about ₹314 crore.

The difference resulted in the taxpayers allegedly claiming excess ITC of more than ₹20 crore, leading to a corresponding potential loss of revenue to the state government.

The findings indicate deficiencies in the mechanism used to cross-verify e-way bill data with GST returns and auto-populated tax-credit statements. Effective integration of these datasets could have enabled the tax authorities to detect the discrepancies at an earlier stage and initiate appropriate proceedings.

Only ₹2 Crore Recovered Against GST Demands of ₹49 Crore

The audit also highlighted substantial delays in recovering confirmed GST demands.

In 256 cases, the tax authorities had issued demand orders involving approximately ₹49 crore during the financial year 2020–21. However, the government recovered only a little over ₹2 crore in 75 cases.

The limited recovery, despite the issuance of demand orders, reflected inadequate monitoring and follow-up by the department. The CAG’s findings underline the need for a centralised system to track outstanding demands, initiate recovery proceedings within prescribed timelines and fix responsibility for avoidable delays.

Failure to promptly recover confirmed dues not only affects government revenue but can also make subsequent recovery difficult, particularly where taxpayers close their businesses, dispose of assets or become financially untraceable.

Nil Turnover Returns Point to Possible Suppression of ₹121 Crore

In another significant finding, the audit noticed inconsistencies between GST returns and Tax Deducted at Source records.

A total of 323 taxpayers had reported nil taxable turnover despite claiming TDS credit through 569 returns. Since GST-TDS is ordinarily deducted from payments made against taxable supplies to specified government bodies and other notified entities, the availability of TDS credit was inconsistent with the declaration of nil turnover.

The CAG observed that the mismatch indicated possible suppression of taxable turnover amounting to approximately ₹121 crore. Applying GST at the rate of 18%, the potential tax liability was estimated at more than ₹21 crore.

The audit findings suggest that the department did not effectively use TDS data to identify taxpayers who may have underreported their taxable supplies. Automated comparison of TDS credits, outward supply returns, turnover declarations and e-way bill information could help detect such discrepancies.

Several Government Entities Failed to Use E-Procurement Portal

The CAG also found that the state’s e-procurement platform was not being used uniformly by government departments and public institutions.

Of the 100 procuring entities examined during the audit, 16 had not used the e-procurement portal since its inception. These included Dr Rajendra Prasad Government Medical College at Tanda, the Directorate of Youth Services and Sports, the Himachal Pradesh Legislative Assembly and the Himachal Pradesh Institute of Public Administration.

Another 15 entities had published fewer than 10 contracts on the portal up to March 2023.

The limited adoption of the system reduced transparency in public purchasing and prevented the government from fully using electronic data to identify irregular procurement patterns. It also weakened the intended benefits of e-procurement, including wider bidder participation, competitive pricing and a traceable audit trail.

Audit Finds Indicators of Collusion and Bid-Rigging

An analysis of procurement data revealed several red flags indicating possible collusion, manipulation or bid-rigging.

The suspicious patterns included contracts being awarded at inflated rates, tenders being granted to bidders other than the lowest bidder, and large procurement requirements being divided into smaller tenders to avoid financial thresholds and stricter scrutiny.

The audit also identified instances in which multiple bids were submitted from identical or departmental Internet Protocol addresses within short intervals. Such patterns could suggest coordination among bidders or improper assistance from officials, although each case would require an independent investigation before responsibility could be established.

The CAG stressed the importance of incorporating integrated fraud-detection and data-analytics tools into the e-procurement system. Such tools could automatically flag common IP addresses, repeated bidder combinations, unusual price differences, frequent awards to non-L1 bidders and artificial splitting of contracts.

State-Owned Enterprises Accumulate Losses of ₹4,985 Crore

The report painted an equally concerning picture of the financial health of Himachal Pradesh’s state-owned enterprises.

Of the state’s 30 SPSEs, 14 had accumulated losses exceeding ₹4,985 crore as of March 31, 2023. The net worth of nine enterprises had been completely eroded, leaving them with negative net worth.

Negative net worth means that the accumulated losses and liabilities of an enterprise have exceeded the value of its assets and invested capital. Such entities may remain operational only through continued financial assistance, guarantees or budgetary support from the government.

The poor financial condition of these enterprises could consequently place an additional burden on state finances. The findings call for closer performance monitoring, timely finalisation of accounts and a review of whether chronically loss-making enterprises remain commercially or socially viable.

CAG Calls for Stronger Digital Monitoring

Taken together, the findings show that Himachal Pradesh possesses digital platforms capable of generating valuable procurement and tax information, but the data is not being used effectively for enforcement and risk assessment.

The irregularities relating to excess ITC, nil-turnover declarations, slow recovery of GST demands and suspicious bidding patterns could potentially have been identified through real-time data integration and automated alerts.

The report underscores the need for the state government to ensure mandatory use of the e-procurement portal, strengthen GST data reconciliation, introduce risk-based scrutiny and closely monitor the recovery of confirmed tax dues.

It also highlights the importance of investigating procurement red flags, improving accountability among procuring entities and preparing a time-bound strategy to address the accumulated losses and negative net worth of state-owned enterprises.

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