Who’ll audit GSTN?

If the GST Council is going to be the most powerful body in the GST era, the GST Network (GSTN) would be the most critical one. GSTN is a not-for-profit company set up primarily to provide IT infrastructure and services to the Centre and States, tax payers and other stakeholders for implementing the GST.

The objective of GSTN is to ensure that there is a strong IT infrastructure and service back bone, which enables capture, processing and exchange of information among the stakeholders, which would include tax payers, States and the Centre, Accounting Offices, banks and the RBI. Even before it could process the first invoice under the GST, GSTN is already hitting the headlines.

First, it was in the news for its shareholding pattern — the Centre and States each hold 24.5 per cent in GSTN; LIC Housing Finance holds 11 per cent; while HDFC, HDFC Bank, ICICI Bank and NSE Strategic Investment Company hold 10 per cent each. Questions are already being asked as to what business private companies have with an organisation mainly supporting the Government in managing a large tax database. Principally, it centres around a concern over data security.

The Government says the data would be confidential but right now it is nothing more than an assurance. Another question is whether the Comptroller and Auditor General of India (CAG) can audit the GSTN. The CAG feels it has all the powers to do so; while the GSTN says it is best audited by a third party.

Sections 139 and 143 of the Companies Act, 2013 categorically mention that the CAG can audit a company which is either owned or controlled by the state. The GSTN website is full of facts as to how several measures of strategic control of the Government over GSTN have been envisaged and included in the Articles of Association of GSTN.

An audit of GSTN can be segregated into three areas: GSTN’s own books, the GST tax data, and the IT infrastructure created by the GSTN. The CAG and GSTN have no dispute on the technology bit but disagree on the rest. 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.

In its startup phase, the GSTN has funded itself with grants from the Government as well as some bank borrowing. Once the GST is rolled out, GSTN has a revenue model in place and would not depend on the Government. On the contentious issue of tax data, the GSTN says it holds the data in fiduciary capacity and that the CAG can gather the data from the States and the Centre or the Central Board of Excise and Customs.

This argument may not fly with the CAG because past experience in terms of accuracy of tax data from State governments has not been good. The Centre had to get into long and protracted negotiations with States to settle their promise of compensating them loss of revenue due to reduction of Central Sales Tax — primarily due to lack of authentic data with both on the quantum of revenue loss.

The solution to this impasse between CAG and GSTN on audit doesn’t need much deliberation. The arithmetic accuracy of the books of account of the GSTN can be audited by any firm of accountants. Since the CAG mostly do proprietary audits, it is necessary that the tax data and infrastructure be audited by the government auditor.

The writer is a chartered accountant

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