(Last Updated On: January 6, 2016)

MUMBAI: In what could spark off fresh tension between the government and the RBI, the Union finance ministry has blamed the central bank for improperly deducting Rs 1,274 crore of income tax demand from the account of Telangana and directed the RBI to reverse the transaction.

In an extremely rare move, the finance ministry on Monday issued a press statement stating that RBI’s move went against the principle of cooperative federalism. It also said that the RBI has been advised to keep a note that money from the consolidated fund of any state shall be transferred or withdrawn only after following the constitutional and legal requirements.

The dispute over tax dues pertain to a pending demand on the erstwhile Andhra Pradesh Beverages Corporation, an undertaking of the erstwhile undivided state. Following the tax deduction by RBI, Telangana state officials represented the finance ministry that sharing of assets and liabilities of the erstwhile state were not complete. They also pointed out that the state government was not an income tax assessee and I-T department action was unwarranted.

All state governments maintain an account with RBI where funds transferred by the Centre are maintained. RBI besides being a banker also helps the state governments raise funds by selling bonds which are guaranteed by the accounts. The bonds sold by RBI, known as state loans, carry very low interest as RBI virtually guarantees repayment because of access to the state government accounts.

Last month during his visit to Mumbai, finance minister Arun Jaitley had said that there was no disconnect with RBI. He also indicated that RBI had full autonomy, pointing out that although the government had the power to issue directions to RBI, the same were never utilized in the history of the central bank.

The statement issued by the finance ministry on Monday said, “Since the money in the principal account of Telengana held by the RBI formed part of the Consolidated Fund of Telengana, Article 204 (3) of the Constitution of India mandates that the consolidated fund of a State can be debited only after the due process of appropriation. Any decision to debit the cash balance of any State by RBI should be based on some executive order issued by the Competent Authority after following the legislative process of appropriation”.

By Anupama

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