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GSTN - Onus Of Ownership

MAY 27, 2020

By Vijay Kumar

IS the GSTN a Private Company or a Government one? I asked this question to a GST expert. He replied, "Going by their irresponsible and irresponsive behaviour, it looks like a Government Company."

The GSTN website states,  "Goods and Services Tax Network (GSTN) is a Section 8 (under new companies Act, not for profit companies are governed under section 8), non-Government, private limited company. The Government of India holds 24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%. Balance 51% equity is with non-Government financial institutions. 

In the 27th meeting of the GST Council on 4th May 2018, it was decided to acquire the entire 51% of equity held by the Non-Governmental Institutions in GSTN, which was approved by the Union Cabinet on 26th September 2018. What happened after that? No news! It is reported that the States are not very keen to buy the shares surrendered by the private institutions.

During the debate on GST in the Parliament, Dr. Subramanian Swamy said,

I wish to bring to the notice of this House a grave national security issue which should receive precedence well before we consider the GST Bill. There is a body, a private limited company, which was created in 2013 called GSTN, which is the cyber brain of GST, that is, all data processing is to be done by that.

GSTN work is of strategic importance to the country - this is the point I want to emphasize - and the firm would be a repository of a lot of sensitive data on business entities across the country.

GSTN has been so designed that it cannot be audited by the CAG. Today's newspapers, particularly, the Hindu, says that the CAG is up in arms on that. All the money is public money. It has not yet been sent to the Home Ministry for security clearance. It cannot be questioned under RTI. I mean, this is a kind of a shady organisation that has come into being. Therefore, I would say this House should first discuss GSTN, whether they are going to restructure it according to the Bhupender Yadav Committee or not.

Mr. Kapil Sibal said,

This whole GST Network structure is under the control of a private entity. So, I want to know from the Finance Minister, as to how you are going to secure the data that is part of the GSTN structure. Data security is at the heart of doing business. What law have you put in place to ensure that there is going to be security of that data? What assurance have you given to the people of this country and to the business community, in particular, that the data which would travel on the GST system is going to be secure? And what if competitors get access to that data? Can you imagine the kind of havoc that access of that data by competitors can cause? How do you trust a private entity to ensure complete security of data?

You are responsible for the security of that data. The Finance Minister is responsible for the security of data. And, it just won't satisfy us by him saying, 'No, no; it is secure.' He must inform the House how it is secure, what is the legislation that is going to be put in place to ensure that it is secure and what proceedings will be initiated in the event that it is found that that data of mine has been stolen by somebody, by a competitor or otherwise?

And the then Finance Minister Mr. Arun Jaitley said,

There are billions of vouchers every month which GSTN is going to match and, therefore, the IT skills, as you yourself rightly mentioned, have to be of globally the best standard. It will be the biggest network in the country in that sense. Now should that network be run within the Government itself? Will you be able to have the flexibility inside the Government to get the best of the talent available within the scales, salaries, discipline of the Government itself, or, should there be a deep and pervasive Government control and yet flexibility to hire and function with the very best?

So, what was the arrangement of GSTN? To be able to hire the best talent pool that 30 billion vouchers in a month can be matched and this data maintained, you give it the flexibility of 49 per cent-Government so that you get the best pool, but the management structure has a deep and pervasive Governmental control, and then in the Act itself, we have put in Clause 133 that any information which is made public becomes a penal offence. So, not only do you build the firewalls around the structure but you also made this. Now this demand has been raised repeatedly to change the structure. At some stage, if we all feel that the structure is to be changed, structures can always be changed; Government can acquire one per cent or two per cent more shares. But then, I am not sure whether the same flexibility would remain or not. Therefore, we keep this issue open. At present, we have not felt the necessity of altering that arrangement, that there remains flexibility with 49 per cent Government, but the management structure is created with a deep and pervasive governmental control, with IT firewalls built around it and penal consequences if any information is made public in order to secure the information.

GSTN is a company with a share capital of 10 crore rupees. For this paltry sum of 10 crores, do you need shareholders like LIC Housing Finance Ltd, Housing Development Finance Corporation Limited, NSE Strategic Investment Corporation Ltd, HDFC Bank and ICICI Bank. Now the government is yet to acquire the 51 lakh shares worth 5.1 crores held by the private parties. The expenditure of GSTN for 2018-19 (as per the Annual Report) was 321.43 crores and we are stuck with that 5.1 Crores. As per the annual report, out of the total one crore shares;

The President of India holds

the private companies 51,00,000 shares and
the State Governments (30 of them) hold 23,70,000 shares, making a total of

What happened to the balance 80,000 shares? The Empowered Committee of State Finance Ministers holds those 80,000 shares. And among the 30 States mentioned in the Annual Report, I don't find Telangana. Thus, according to the report, Telangana is not a shareholder in GSTN. KCR will not be too happy about it. That is the confusion that the GSTN is in - all for sharing that 10 crores. Maybe after the Covid containment, we will come to know who all own GSTN and how much each.

What about the security concerns expressed by Parliamentarians? Are they addressed? Mr. Jaitley said that the GSTN is going to match billions of vouchers every month; maybe he meant invoices. In the last nearly three years, how many did they match and how many really matched? If they can really do the matching, perhaps the whole conundrum of GST can be solved. All that is required from a taxpayer would be to upload the invoice - the GSTN will do the rest. Will it?

GSTN - Some interesting facts:

The Annual Report states, "GSTN has built an organisation that has necessary expertise in both the IT and taxation domains". (fact or opinion?)

GSTN has an outstanding long-term loan of Rs. 49,994 from IDFC Bank as on 31 st March 2019, which they propose to repay by 2022-23, with an annual payment of Rs. 20,000 for each financial year 2019-20, 2020-21 and 2021-22 and Rs. 9994 in 2022-23. Never mind the math doesn't add up - we have time till 2023.

GSTN has a fixed deposit of 189.64 crores. They got an interest of 15.57 crores from the fixed deposits during 2018-19.

They spend 56.41 crores on call Centre and 17.41 crores on bandwidth. They had to spend nearly two crores on SMS charges. They pay rents amounting to 9.18 crores.

GSTN Income in 2018-19 was 339 crores and expenditure 321 crores.

The Economy may limp back in the next few months. Let us hope the GSTN is ready with its expertise in IT and taxation domains.

Until next week