Who's afraid of CAG watching over GST — and income tax?

If Parliament doesn't intervene in the days to come, the Goods and Services tax (GST) may stay out of the purview of the Comptroller and Auditor General (CAG).

The GST Council, aiming for a July rollout, has conveniently avoided CAG's oversight with respect to the GST's functioning. CAG enjoys constitutional authority to certify the accounts (revenue expenditure) of the Centre and states.

Despite a special mandate for CAG in the original GST draft bill to audit the review of GST system, the GST Council agreed to delete the said proviso in the final draft.

What explains the sudden detour?

Has the CAG's activism during the UPA government's tenure alarmed the current administration or is it a plan to discreetly clip the wings of constitutional institutions?

Section 65 under the preliminary draft of the GST authorised the CAG to seek information and clarifications from GST Council. In October 2016, the move to dilute CAG's authority in GST affairs slowly kicked off.

CAG had, in fact, written a letter to the government requesting to maintain its power in GST act as per constitutional norms.

Although it is still authorised to verify the formula on which the Centre will compensate the states for their losses post GST, the Centre and state are in sync to keep the constitutional auditor at bay in other GST affairs.

If this decision fructifies and gets Parliament's nod, the constitutional auditor's role to oversee the central and state governments' revenue will be extremely limited.

Interestingly, this is not the only bone of contention between the auditor and the budding GST administration. The CAG has been denied permission to audit the GST network (GSTN) as well.

GSTN is a non-government, private limited company. The government of India holds 24.5 per cent equity in GSTN whereas all states of the Indian Union and the Empowered Committee of State Finance Ministers together hold another 24.5 per cent. The 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, taxpayers and other stakeholders for the implementation of the GST.

The central and state governments have invested Rs 4,000 crore in this company. The finance ministry's expenditure department has expressed doubts over its functioning.

Even then the finance ministry is unwilling to get it audited by CAG.

It is not surprising that the finance minister referred to the Income-Tax Act while announcing the decision to keep the CAG away from the GST. The CAG does not hold any special powers under I-T Act, which has always kept CAG and I-T dept at loggerheads.

In the late '90s, the government had launched a Voluntary Disclosure of Income Scheme (VDIS), but barred CAG from auditing it.

The auditor had then formally lodged a complaint along with the police against income tax officers to get access to VDIS documents.

A 1997 redux is in the making. The CAG wants to audit the new Income Disclosure Scheme (IDS), but the finance ministry stands against it, citing the limited role of CAG in income tax laws.

Of course, CAG has not revealed or may not have got the chance to reveal any significant information in its audits over the last two years.

However, three occasions in the past stand out: First, when the CAG exposed the government's claims that giving up LPG cylinders would lead to savings worth Rs 22,000 crore. Second, when the CAG found holes in NDA's coal block auction. Third, when it questioned the Gujarat government's investment (2005) in KG basin.

BR Ambedkar had once remarked that the CAG is an institution more important than the Supreme Court. He intended to make it the backbone of federal financial administration, which is why the Constituent Assembly rejected the proposal to make separate CAGs for states.

Fast forward to 2016: even constitutionally-established norms of transparency have begun to scare successive governments. Surprisingly, NDA, which had come to power blowing the trumpet of clean governance, appears oddly anxious of the CAG's oversight.

Also read: What Arun Jaitley did not tell you about taxes in his Budget 2017 speech