CAG, GSTN hold ground on audit

Finance Ministry to decide on the controversial issue, as both cite legal and past precedents

As the central government prepares ground for rolling out the goods and services tax (GST), what remains unclear is whether the Comptroller and Auditor General (CAG) of India can audit the goods and services tax network (GSTN).

At the core are three issues — access to the GSTN’s own books, the GST tax data and the information technology (IT) infrastructure created by the GSTN. It’s only on the last issue that the CAG and the GSTN are on the same page. The other two remain contentious.

On the first issue, GSTN has objected to the CAG’s proposal to review its books, citing it’s a private company. The GSTN says it is a not-for-profit company, where the central and the state governments together hold 49 per cent stake. The balance 51 per cent is held by private entities such as HDFC, HDFC Bank, ICICI, LIC Housing Finance and NSE Strategic Investment Corporation.

“The CAG has no power to review a private company and the GSTN is a private company. The CAG draws it mandate from the Companies Act, 2013, which categorically differentiates between a private and a government company,” says Gautam Guha, former director general, CAG.

Sections 139 and 143 of the Companies Act, 2013, which deal with the audit of companies, categorically mention that the CAG can audit a company, which is either owned or controlled by the state. The GSTN was set up as a Section 8 (under the amended Companies Act, 2013) non-government, private limited company in 2013 to provide IT infrastructure and services to the central and state governments, taxpayers and other stakeholders for implementation of the GST.

But officials in the CAG argue that when the GSTN was being set up, it was decided that strategic control of the company would rest with the Centre. There are nominees of both the central and state governments on the GSTN board.

But, in the past, the CAG has audited the GSTN. “The CAG has audited our accounts for three years when we took grants from the government,” said a high-ranking GSTN official.

Technically, the CAG can audit all receipts and expenditures of a body or an authority, if it receives substantial grants and loans from the governments for a specific purpose. The GSTN has received a non-recurring grant of Rs 315 crore from the central government. Till the end of FY16, the government had released Rs 143 crore.

However, officials in the GSTN contend this rule doesn’t apply to them anymore. “We have not taken any new grant after March 2016 and have returned the remaining grants to the government,” said the official. On its part, the CAG says its audit of the GSTN was limited in scope.

On the issue of tax data, which is arguably the most contentious issue, the GSTN says it holds the data in fiduciary capacity and that the CAG can gather the data from the states and the Centre. It further adds that the data will also be available with the Central Board of Excise and Customs.

But officials in the CAG say that access to the entire dataset is needed for a holistic review. For instance, in case of interstate transactions, standalone state data will not provide a complete picture and they wouldn’t be able to observe the entire trail of transactions. They further contend that the GSTN is not simply a “pass-through” portal but more than that. The CAG also wants to use this dataset to create a risk profile of all states.

In extreme cases where no middle ground is found, the CAG can also invoke the DPC Act, which authorises the CAG to seek the President’s approval, so that he be “authorised to undertake the audit of accounts of any body or authority, which has not been entrusted to him by law,” provided the CAG should be of the opinion that such “audit was necessary because a substantial amount has been invested in such body or authority by the central or state government.” The CAG officials say this clause has never been invoked.

The Upshot

• The GSTN objects to CAG audit, citing it is a private company
• The GSTN says its needs government permission to allow CAG to access the data
• The GSTN and the CAG are on the same page when it comes to review of infotech infrastructure
• The CAG under the DPC Act has power to audit any body, authority after seeking permission from the President or the Governor