Audit of Goods and Services Tax Network
By Mr. K. Srinivasan, Asstt. Admn. Officer(GST), Office of the CAG of India, New Delhi.
1. About GSTN
Goods and Services Tax Network (GSTN) is a key player in Goods and Services Tax (GST) regime and is created to provide the technology backbone for GST. GSTN is incorporated as a non-Government, private limited company under Section 8 of Companies Act, 2013 on 28 March 2013. The Government of India holds 24.5 per cent equity in GSTN and all States of the Indian Union, including National Capital Territory of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (now GST Council), together hold another 24.5 per cent. Balance 51 per cent equity is with non-Government financial institutions. The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the GST.
2. Motive to set up GSTN
The GST System Project is a unique and complex IT initiative. It is unique as it seeks, for the first time to establish a uniform interface for the taxpayer and a common and shared IT infrastructure between the Centre and States. Currently, the Centre and State indirect tax administrations work under different tax laws, rules, regulations, procedures, formats and consequently the IT systems work as independent sites. Integrating them for GST implementation would be complex since it would involve integrating the entire indirect tax ecosystem so as to bring all the tax administrations (Centre, State and Union Territories) to the same level of IT maturity with uniform formats and interfaces for taxpayers and other external stakeholders.
Besides, GST being a destination based tax, the inter-state trade of goods and services where Integrated Goods and Services Tax(IGST) is applicable, would need a robust settlement mechanism amongst the States and the Centre. This is possible only when there is a strong IT Infrastructure and Service backbone which enables capture, processing and exchange of information amongst the stakeholders (including taxpayers, States and Central Governments, Accounting Offices, Banks and RBI).
3. Functions of GSTN
The functions of the GSTN would, inter alia, include: (i) facilitating registration; (ii) forwarding the returns furnished by the tax payers to Central and State authorities; (iii) computation of apportionment of IGST; (iv) matching of tax payment details with banking network; (v) providing various MIS reports to the Central and the State Governments based on the tax payer return information; (vi) providing analysis of tax payers’ profile; and (vii) running the matching engine for matching, reversal and reclaim of input tax credit.
The GSTN had developed a common portal for registration, payment, return and MIS/reports. The GSTN is also responsible to integrate the common GST portal with the tax administration IT systems and to build interfaces for tax payers. Further, the GSTN is developing IT applications for carrying out statutory functions like assessment, audit, refund, appeal etc. for 20 States and five UTs (Model II States). The CBEC and Model I States/UTs are themselves developing IT application for carrying out their statutory functions on their own. Integration of GST portal with tax department IT application is crucial for smooth implementation of GST.
The Centre and States will pay user fee based on the number of assessees registered with each of them to meet the running expenses of the GSTN. It will work on a no-profit-no-loss basis.
4. Audit of GSTN : Legal provisions
4.1 Section 16 of DPC Act
Section 16 of CAG’s DPC Act regarding Audit of Receipts of Union or of States provides that it shall be the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose such examination of the accounts as he thinks fit and report thereon.
The functions carried out by GSTN very much form a part of the 'rules and procedures designed to secure effective check on assessment, collection and proper allocation of revenue'.
Thus GSTN clearly falls under the audit mandate of CAG, and this view has been upheld and articulated in the Telecom judgement of Supreme Court also, the gist of which is given below: -
Telecom judgement:
Supreme Court, in telecom case judgement held that:
- When nation’s wealth/natural resources , like spectrum, is being dealt with either by the Union, State or its instrumentalities or even the private parties, like service providers, they are accountable to the people and to the Parliament.
- Section 13 read along with Section 16 makes it clear that the expression “to audit all transactions” so also “audit of all receipts”, payable into Consolidated Fund of India would take in not only the accounts of the Union and of the State and of any other authority or body as may be prescribed or under any law made by the Parliament but also to audit all transactions which Union and State have entered into which has a nexus with Consolidated Fund.
Revenue collected by government is part of nation's wealth and transactions flowing through GSTN's IT application have a nexus with Consolidated Fund.
4.2 Regulations on Audit and Accounts, 2007
These Regulations were made by CAG in pursuance of power to make rules under Section 23 of CAG’s DPC Act, 1971. These regulations shall apply to the officers and staff of the Indian Audit and Accounts Department and all ministries and departments of the Union Government, State Governments and Union Territory Governments as well as bodies, authorities and enterprises, to which the audit or accounts jurisdiction of the Comptroller and Auditor General of India extend.
In Chapter 11 “Auditing in IT Environment” of the Regulations, section 164 that deals with “Right of access to Audit” provides that the auditable entity shall ensure that Audit has the right of access to the IT systems, irrespective of the fact whether the systems are owned, maintained and operated by the auditable entity or by any other agency on behalf of the auditable entity.
4.3 Audit of Accounts of GSTN
Audit of Accounts of GSTN needs to be carried out by CAG as per Section 19 of the CAG’s DPC Act, 1971 and the provisions of the Companies Act, 2013. The Companies Act provisions1 regarding CAG audit stipulate that in case of a Government Company or any other company owned or controlled, directly or indirectly by the Central and/or State Government(s), CAG shall appoint an auditor and can conduct test audit of such companies.
The Articles of Association of GSTN make it amply clear that GSTN has to be construed as a Company controlled by Government and thus falling under the ambit of CAG’s audit of accounts as: -
- Seven of the 14 Directors on the Board of GSTN are Government nominees
- At least 50% of the Directors present to be Government nominees for Board of Directors meeting
- Business can be transacted in a General meeting of shareholders only if a nominee of the Central Government and majority nominees of State Government are present
- Critical matters can be decided only through special resolution, which requires 75 percent of members present to vote in favour
The statutory auditor for the audit of accounts of GSTN was appointed by the CAG and its supplementary audit entrusted to the office of the Director General of Audit Central Receipts, New Delhi.
5. Conclusion
CAG has a responsibility to ensure accountability of GSTN to Parliament and state legislatures as it has a key role in the statutory function of tax administration. To carry out mandate assigned under the CAG's (DPC) Act, 1971, especially in Section 16,it is essential that the organisation of CAG conducts IT audit of GSTN’s IT application, verifies the flow of data between GSTN portal and Central / State IT applications and audits the apportionment of IGST. Further, the accounts of GSTN also should be audited by the CAG as per provisions of Companies Act, besides verifying compliance to rules, policy / management decisions and government directives that apply to GSTN. Audit of GSTN is thus a very important component of revenue audit in GST regime.
- 1. sections 139(5) and 143 (7)
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