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CAG Audit guillotined? - Should Parliament necessarily go with GST Council?

TIOL - COB( WEB) - 545
MARCH 16, 2017

By Shailendra Kumar, Founder Editor

THE GST Council is scheduled to meet today. And it is expected to endorse the legally-vetted SGST and UTGST Model Laws. In all probability it would be done today as there is not much to debate over. First, they are almost mirror-images of the CGST. Secondly, all major bones of contention were put to rest at the last meeting as the Union of India virtually accepted all the demands of the States. But a close post-mortem of the solutions hammered out to get over many issues may appear to be serious lapses from the Constitutional perspective. In a rush to implement GST which carries huge political capital quotient for the demonetisation-smeared Government, the Union of India has tangibly diluted the Unitary Bias character of the Constitution.

First, it conceded a large chunk of its administrative turf to the States so far as the tax base below Rs 1.5 Crore threshold goes. Secondly, it 'gifted away' its jurisdiction in the territorial waters to the Coastal States. Thirdly, it went beyond its constitutional Laxman Rekha and once again performed the act of 'gentleman's gifting' by offering IGST jurisdiction on a platter. And the latest one which bodes ill for the emerging indirect tax regime in India is the unanimous and conscious decision to keep the Constitutional Oversight Body of CAG miles away! The proposed Section 65 (Power of CAG to call for information for audit) in the Model GST Laws is learnt to have been guillotined in a French ishtyle! It is learnt that when the Council was discussing each Section of the legally-vetted Model Law, virtually all the States breathed fire together against the proposal to allow CAG to seek information for the purpose of revenue audit. Poor Union of India, which is largely held as the custodian of the interests of Constitutional institutions in the country, failed to honour the wishes of our immortal Constitution-makers. And the legal sanctity to allow CAG in the GST regime was quickly given a burial place in the dustbin. I am told that the final GST Bill which is going for the Cabinet approval for tabling the same in the Parliament would not have the proposed Section 65.

What may upset the constitutional purists is the contempt and disdain being demonstrated against this critical oversight body in new legislations by our democracy-minded governments! How do they legitimise such decisions can be a good folklore for tomorrow. How do our elected legislators wield their arguments to put up a shield against the role of CAG when it happens to be the most powerful eyes and ears for the institution of Parliament? Is it not a dent into the privilege of the Parliament itself? Does it not amount to dilution of the powers of the Parliament which alone is going to permit the right to compensate the States for possible revenue losses? Who would audit the leakage of revenue in the SGST regime? Should the Union really rely on the locally-audited loss figures of the States for compensating them with a promised growth rate of 14%? When the Parliament is going to pass the Compensation Bill, should it really forego its right to debate over audited figures? The tax authorities will have their own audit in place for their own purposes and they can even go for Special Audit (Section 64 of the Model Law) but why should the Parliament allow the NDA Government to trade off its privileges to satisfy the whims of the States? Is it because they have the majority in the Lok Sabha? If so, does it mean that the Parliament's own identity has got diffused in the Government!

The CAG is the most important constitutional oversight body in our system. As per the Articles 149 and 279 of the Constitution, it has its role nicely defined and cut out for ensuring transparency and correctness in our governance umbrella. But it can increasingly be seen that most modern governments tend to cut CAG into size. When the GST is going to be such a complex IT-driven tax regime where the Central and the State revenue are going to decided based on huge volume of data, the exclusion of CAG from having a say in its audit is certainly baffling.

But the most fundamental question is - Why did the State Finance Ministers gang up against the CAG? Is it a case of fear psychosis originating from the good work done by the CAG during the UPA-II regime? One of the possible reasons could be the dominant mindsets of the States that since the next five years are going to be a cosy time for them and not-so-cosy for the Centre which has committed itself to compensate them for all possible losses, they need not allow very professional audit of their revenue generation efforts at least for this golden period of five years. And the second possible reason could be - they know for sure that their tax administrations( in the States) are corruption-prone and prefer to work in an ad hoc manner which certainly suits politicians politically and also socio-economically. In this fashion, they would have ladoos in both hands!

If this is not the case then why should a Constitutional body be humiliated by exiting it out of this historic reform? How can it be ill-treated when the Central revenue is at stake? Is the NDA Government going to chase the CAG out of its other revenue domains such as Customs and corporate tax also? When it is the most professional oversight body why should the Union really agree to dismantle all its supervisory arms? Is it going to rely totally on the GST Network-collected data to know how much Input Tax Credit under the IGST and the CGST have been availed to pay SGST? More interestingly, even the GST Network has recently refused the CAG an entry into its premises. Since it enjoys the status of a private sector company, it thinks that it has all the legal rights to shut its doors on the face of CAG.

A bad precedent is indeed being created against a Constitutional body and our Parliamentarians need to sit up and mull over it before they endorse the decision of the GST Council. The Union Cabinet is unlikely to take a contrary view as one of its Cabinet Ministers is party to this decision. But the two institutions which need to flag queries, are the Rashtrapati Bhawan and the Parliament. It is tough but important to restore the privilege of the House which cannot be sliced away in this fashion, scheme by scheme and legislation by legislation. It is equally important for the Government of the day to restore the confidence of the enlightened taxpayers in the proposed reform by offering a role to a respectable constitutional body like the CAG.

Before I wrap up and make an appeal to the Prime Minister and the Parliamentarians to bring back the CAG into the GST-fold let me share the views of a well-informed netizen. He has observed that the CAG is being victimised for puncturing the Government's claim that giving up LPG cylinders led to savings worth Rs 22,000 crore. It was followed by a serious hole in the NDA's claim relating to the coal block auction. Then the CAG questioned the Government's investment in the KG Basin.

I guess in today's information-dominated era any elected Government can only ill-afford to ignore an oversight body like the CAG.

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