THE HINDU – CURRENT NOTE 05 APRIL
Confusion reigns on CAG audit of GST data
Auditor denied access to GST Network
•The crucial question about how and where auditors should get access to GST data continues to hang fire, even as hundreds of CAG auditors are being put through specialised training in anticipation of the implementation of the new tax regime from July 1.
•Various government officials, including ministers, have been insisting that the proposed tax regime will come into force as scheduled. The GST Network (GSTN), which is the nationwide electronic backbone of the tax regime, will go live for testing in early May.
•For full implementation of the GST regime, to decide the compensation for States and to determine their revenue share, auditors of the CAG (Comptroller and Auditor General) will require access to two different datasets, which are proving difficult to come by.
•One of them is data pertaining to revenue that would accrue to States from alcohol and petrochemicals, both of which are outside GST for now. The second issue of where and how CAG auditors will get access to the GST data continues to vex officials. Senior officials say the government needs to quickly settle it.
•An official pointed out that the GSTN has refused to give the CAG access to its network, saying it is only holding the data in a fiduciary capacity since the tax data originally belongs to the Centre and States. Officials also pointed out that the GSTN is owned by a private company, and thus cannot be audited by CAG.
•“The government will have to sort it out, or we would have serious problem on our hands,” another senior official said.
•The GSTN claims it is a private company as 51% stake in the company is held by private companies such as HDFC and ICICI Bank.
•The CAG has pointed out in official communications in recent times that under the new Companies Act, GSTN can be counted as government-controlled company since its strategic control will be with the government. Like any PSU, the CAG could depute chartered accountants to audit GSTN. “But that is a minor issue. The real issue is where would auditors get access to the data,” he said.
•“We are not so much interested in auditing GSTN, but the real issue to be sorted out is the massive tax data from all over the country that GSTN’s network will have,” he said. Accessing the data at various points — point of manufacture, point of sale etc. —would make the GST audit a complicated and almost impossible task, and will hamper other functions, which would include CAG certification about the share of GST for States.
Centralised location
•“There is no way out, other than auditors getting access to the entire GST data in a centralised location. Don’t forget the fact that all that tax data, whether it belongs to States or Centre, is already available to CAG under existing constitutional provisions,” the official said.
•Meanwhile, the auditors would be using data available from individual States to assess their share of taxes earned from alcohol and petrochemicals, which would be kept out of GST.
•Under the agreed terms, the States will be given full compensation for the first five years for any shortfall in revenue because of GST. The States’ revenue in 2015-16 will be used as the basis for calculating the compensation, with an assumption of 14% revenue growth in the subsequent five years.
•The total revenue of a State would be the total of income of States and local bodies from sales tax, value added tax, purchase tax, central sales tax, octroi etc
Dalai Lama’s Arunachal visit purely religious, says Rijiju
China must not interfere in India’s internal affairs, says Minister
•As China stepped up its protest against the Dalai Lama’s visit to Arunachal Pradesh, the Union government fielded Minister of State for Home Kiren Rijiju to make India’s stand clear.
•Mr. Rijiju, who represents Arunachal Pradesh in the Lok Sabha, said on Tuesday that the visit of the Tibetan spiritual leader was “purely religious” and “China shouldn’t interfere in India’s internal matters.”
Beijing’s protest
•China has objected to the Dalai Lama’s visit because Beijing considers Arunachal Pradesh its territory and has referred to the Dalai Lama as “separatist leader.” The Chinese Foreign Ministry has warned India that his visit would cause “serious damage” to bilateral ties.
•“China is trying to project the Dalai Lama as a political person. We don’t have any intention of engaging with the Dalai Lama so as to irritate China,” Mr. Rijiju told The Hindu in an interaction. The Dalai Lama is on a week-long tour of Arunachal Pradesh, where he will hold religious discourses in Tawang, Bomdila and other areas.
•He will also consecrate a gompa (Buddhist place of learning) at Nafra, Mr. Rijiju’s native village. Mr. Rijiju, a practising Buddhist, will accompany the Dalai Lama for two days during his visit to Bomdila and Tawang. The failing health and old age of the spiritual leader have worried the security agencies.
•“The poor weather conditions in Arunachal Pradesh have affected the schedule. So, instead of taking an aircraft, he will have to travel by road. His knees are not in good shape, and he has refused to be operated upon. The real worry is how he would undertake such long road trips,” a senior official said.
•The Ministry of External Affairs has said the Dalai Lama has visited the State on six earlier occasions, from 1983 to 2009, and “no artificial controversy should be created over his present visit.”
•The government has said on several occasions that the Dalai Lama is respected as a religious leader by the Indian people.“As an Arunachali, it’s my duty to welcome our revered guest. China is trying to project him as a political person; he is our guest. There is no intention of engaging with the Dalai Lama to irritate China. For the people of Arunachal, it’s not a disputed territory. In a sovereign country, you cannot restrict the movement of a religious leader,” Mr. Rijiju said.
•He said he had accompanied the Dalai Lama during his visit to the State in 2009, and then too, China protested vociferously.
Liquor drives State Highways to turn local
The chief engineer of PWD, however, says that this has nothing to do with the SC liquor ban along highways.
•States are now re-classifying State Highways into local roads following the Supreme Court order on the ban of liquor outlets located within 500 metres of National and State highways came into effect.
•The Rajasthan government passed an order recently to convert a portion of their State Highway roads passing through populous areas into urban and district roads. However, some States such as Kerala will likely seek time from the Supreme Court to implement its order banning the sale of liquor along highways, taking into account the “special situation” in the State.
•“We passed an order to convert 129 km of State Highways into urban roads and a 63 km stretch into other district roads at 25 locations around ten days back,” Shiv Laheri Sharma, chief engineer of Rajasthan’s Public Works Department told The Hindu.
Justification for change
•Mr. Sharma, however, said that only certain sections of State Highways, which are passing through populous towns, have been de-notified and said that the Supreme Court’s order had “no influence on the State government’s decision”.
•“At many locations, bypass roads have been constructed. So, the portion of the State Highways passing through the city where bypass roads have been constructed are re-designated as urban roads and the old portion of the highways has been renamed as ‘other district roads’,” Mr. Sharma said. According to one estimate, around 450 liquor shops were located on such stretches.
•Similarly, the Chandigarh administration issued a notification on March 16 to convert a significant portion of its State Highways into major district roads (MDRs). “The administration had inadvertently turned all sector-dividing roads into State Highways a few years back, which was not the right way of classifying the roads. So, now, we have de-notified the State Highways into major district roads,” said an official from the engineering department of the Chandigarh administration.
•The Supreme Court in its March 31 order had said that liquor vends within 500 metres of National and State highways would have to shut down from April 1.
NHs not an easy task
•Experts said the State government can issue a notification to convert State Highways into district roads. However, the de-notification of national highways can only be affected by the Union Road Transport and Highways Ministry.
•“Classification of MDRs and State Highways is the Statesx’ prerogative. So, they can notify or de-notify the road stretch as per their own requirements. However, once it gets classified as a National Highway, the de-notification can only come from the Central government,” said Rajeshwar Burla, Assistant Vice President at ICRA Ltd.
•The Union Road Transport and Highways Ministry has not received any request from State governments yet to de-notify National Highways, a top Ministry official said. However, experts cautioned the Central government of such a move.
•“The implications of converting National Highways into State Highways would certainly be significant. The maintenance responsibility in such cases will shift to the States, which lack the capacity in some cases, compared to Central authorities,” said Manish Agarwal, partner and leader, infrastructure, PwC India.
The right to recall legislators
It must coexist with the right to vote in order to deepen our democratic roots
“ There can be no doubt, that if power is granted to a body of men, called Representatives, they like any other men will use their power not for the advantage of the community but for their own advantage, if they can. ”
— James Mill
•The ancient Athenians, under their unique democracy, came up with a social custom. Each year, in the sixth or seventh month of their 10-month calendar, all the men were asked in their assembly whether they wished to hold an ostracism. If it was a yes, an ostracism was held two months later, in a reserved section of the local agora. Here, citizens wrote down the names of those they wished to be ostracised on shards of pottery, which were then deposited in urns. Officials counted the shards. Whoever had the largest pile of ostraka — the pieces of broken pottery that were used in voting — was banned from the city for 10 years.
•Even though such methods lacked due process and the course of justice, many would-be tyrants and individuals accused of corruption were banished this way.
•The modern-day right to recall is a direct successor of such methods. A recall election is typically a process by which voters seek to remove elected officials through a direct vote before their term is completed. It has been in place in Canada’s Legislative Assembly of British Columbia since 1995. Voters can petition to have their parliamentary representatives removed from office, even if the MLA is the premier, with a by-election ensuing soon after. In the United States, the states of Alaska, Georgia, Kansas, Minnesota, Montana, Rhode Island and Washington allow for recall on specific grounds such as misconduct or malfeasance.
Its progress in India
•This is not a new concept for India. The concept of “Rajdharma”, wherein the lack of effective governance was a cause for removal of a king, has been spoken about since the Vedic times. One of India’s leading humanists, M.N. Roy, proposed, in 1944, a shift to a decentralised and devolved form of governance, allowing for representatives to be elected and recalled. Jayaprakash Narayan, in 1974, spoke extensively on the subject. Section 47 of the Chhattisgarh Nagar Palika Act, 1961, provides for holding of elections to recall elected officials due to non-performance. The Right to Recall also exists at local level bodies in Madhya Pradesh, Bihar and Chhattisgarh. Nearly a decade ago, Lok Sabha Speaker Somnath Chatterjee sought the introduction of a system of a “Right to Recall” of a legislator to ensure accountability. According to a media report of 2011, in Gujarat, the State Election Commission had advised amendments to introduce a right to recall of elected members in municipalities, districts, talukas and village panchayats.
•In a first-past-the-post system in a democracy, unfortunately, not every elected representative truly enjoys the mandate of the people. Logic and justice necessitate that if the people have the power to elect their representatives, they should also have the power to remove these representatives when they engage in misdeeds or fail to fulfil their duties. There exists no recourse for the electorate if they are unhappy with their elected representative. The Representation of the People Act, 1951, only provides for “vacation of office upon the commission of certain offences and does not account for general incompetence of the representatives or dissatisfaction of the electorate as a ground for vacation”. However, due care must be taken in the introduction of legislation associated with such laws. California’s gubernatorial recall elections are notorious for the influence of special interests, with Governor Davis’ recall vote, in 2003, a classic example.
Some safeguards
•To encourage the process of the right to recall, legislative change is needed which seeks to introduce recall petitions, for elected representatives in the Lok Sabha and in respective Legislative Assemblies. While it is necessary to ensure that a recall process is not frivolous and does not became a source of harassment to elected representatives, the process should have several built-in safeguards such as an initial recall petition to kick-start the process and electronic-based voting to finally decide its outcome. Furthermore, it should ensure that a representative cannot be recalled by a small margin of voters and that the recall procedure truly represents the mandate of the people. To ensure transparency and independence, chief petition officers from within the Election Commission should be designated to supervise and execute the process.
•Having such a right offers a mechanism to ensure vertical accountability. Such a right would be a significant check on corruption along with ongoing criminalisation of politics. Numerous studies highlight that “elected representatives who are not up for election behave differently to those who are” — economic growth is typically higher and taxes, spending and borrowing costs are lower under re-election-eligible incumbents than those operating under fixed-term limits.
•A free and fair election is a right of the citizens of the country. When their elected representatives no longer enjoy the confidence of the people, the people must have a right to remove them. The true idea of democracy can only be achieved on this edifice of accountability for politicians. Having a process to recall could also limit campaign spending, as morally skewed candidates weigh the risk of being recalled. This right would help engender direct democracy in our country, broadening access and raising inclusiveness. To deepen democracy, the right to recall must be given hand in hand with the right to vote.
•Feroze Varun Gandhi, a Member of Parliament representing the Sultanpur constituency for the BJP, has introduced a bill in Parliament on the right to recall
My way on the highway
The top court’s orders banning liquor sale on highways encroach upon the executive’s domain of policymaking
•Decades ago, Lon Fuller, the famous American legal philosopher, coined the term “polycentric problems”. Certain social issues, according to Fuller, involved a complex set of interdependent relationships, where changing one feature could result in unforeseen and far-reaching changes to other features. A polycentric problem was like a spider web, where “a pull on one strand will distribute tensions after a complicated pattern throughout the web as a whole”. Fuller argued that the judiciary was particularly ill-suited to resolve polycentric problems. The structure of the judicial process was not oriented towards taking into account the effect that a ruling would have on the many interdependent strands of a polycentric situation. Furthermore, the judiciary did not have the time, the resources, or the institutional expertise to engage in the kind of fine-grained, evidence-based, compromise-requiring balancing act that was required to prevent the web from snapping altogether.
•The Supreme Court’s order on December 15, 2016 — which it modified and expanded on March 31, 2017 — prohibiting the sale of alcohol within 500 metres of national and State highways highlights the perils of polycentric adjudication. While the stated reason for this order is the overriding imperative of preventing road accidents due to drunken driving, already there are reports about the collateral consequences: lost livelihoods and a substantial hit in tourism for States such as Goa, to name just two. The court’s clarification — that its initial order applied not merely to “liquor vends”, but also to bars, hotels, and restaurants — has led to the paradoxical consequence of even members-only clubs being forced to go dry because of their proximity to a highway.
•Fuller’s argument about polycentric disputes is reflected in the scheme of the Indian Constitution, which, like most other Constitutions, mandates a separation of powers between the executive, the legislature, and the judiciary, and places policymaking firmly in the domain of the executive. For this reason the Supreme Court’s order has come under criticism in the last few days. Apart from its polycentric consequences, it has been argued that banning alcohol — and micromanaging the distance from the highways where alcohol cannot be sold — is a classic example of policymaking, and that the Supreme Court has indulged in “judicial overreach”.
The court’s reasoning
•Importantly, however, unlike many other cases in which the Supreme Court has passed far-reaching orders in the course of “public interest litigation”, in this case, the court has gone to some lengths to defend its alcohol-banning order against claims of judicial overreach. We must therefore engage with the court’s reasoning, and examine whether it is persuasive on its own terms.
•In its December 15 order — which it then reiterated on March 31 — the court referred to a number of government policy documents that drew a correlation between alcohol consumption and road accidents. It also referred to the fact that the Central government had issued circulars “advising” State governments not to grant any new licences to liquor shops along the highways. On this basis, the court observed: “The issue is whether such liquor licences should be granted on national and state highways at the cost of endangering human lives and safety. In our view, which is based on the expert determination of the Union government, we hold that the answer should be in the negative.”
•This formulation, however, elides two different questions: what should be done about a problem, and who should do it. The point of Fuller’s argument about polycentric problems, and the point of a constitutional scheme of separation of powers, is precisely that certain questions — in this case, the question of whether the government should grant liquor licences in the proximity of highways — should not be answered by a court, whatever the answer may be. For this reason, the Supreme Court’s reference to the “expert determination” of the Union government does not help, because the question is not whether the government’s determination is correct or incorrect, but which body is authorised to act upon that determination.
•That the court was itself aware of the insufficiency of this argument is clear from the fact that it went on to justify its order under Article 21 of the Constitution, which guarantees the right to life and personal liberty (this argument was reiterated in the March 31 order). The court observed that it was “not fashion[ing] its own policy but enforc[ing] the right to life under Article 21 of the Constitution based on the considered view of expert bodies”.
Article 21 and weak evidence
•Now, it may be argued that Article 21 is not merely a right against state action that deprives an individual of her life, but also against state inaction that results in loss of life. In other words, the argument might be that road deaths could be prevented if the state was to refuse to grant liquor licences in the proximity of highways. The state’s failure to do so is a breach of its obligations under Article 21, and the court’s order merely enforced a fundamental right by requiring the state to act.
•If this is the legal foundation of the judgment, however, then it misses two crucial building blocks. First, the court ought to have provided a test for the degree of proximity between state (in)action and loss of life, for a finding that Article 21 had been breached. There are a lot of things that the state does, or does not do, which ultimately affect peoples’ lives. For instance, people would probably live longer, and there would be fewer deaths by heart attacks, if the state was to ban all junk food. That, however, would not justify the court invoking Article 21 and directing the state to ban all junk food, on the ground that it was failing in its obligations under Article 21 through its inaction.
•And second, the court’s conclusion ought to have rested on firmer evidentiary foundations than it did. The court did — as pointed out above — refer to the Union’s circulars and policy documents, which had found a correlation between access to liquor along highways and road deaths, and then observed that it would defer to these findings. However, this was not a case where the court was adjudicating upon the validity of administrative action, where a simple, deferential approach would be appropriate. Here, the court was using the Union’s policy documents to make a finding that the States were in breach of their obligations under Article 21. This, I would submit, required more exacting scrutiny (and a legal test of causation) than what the court engaged in.
Complete justice
•Lastly, the court concluded by clarifying that it was passing orders under Article 142 of the Constitution. Article 142 empowers the Supreme Court to do “complete justice” in any case before it. However, this power is bounded by the further requirement that the court act “within its jurisdiction”. Article 142, therefore, is not a carte blanche for the Supreme Court to implement its vision of justice, without regard to issues of institutional competence and legitimacy. In the liquor ban case, despite its efforts to do so, the court has failed to make out a compelling case for why its orders do not encroach upon the executive’s domain of policymaking. Its polycentric consequences — which are only now emerging — lend further credence to the view that the court has, indeed, overreached.
Sting in the tale
A Kerala minister’s exit after a ‘sting’ operation spurs a debate on privacy vs public interest
•The matter is now under a judicial inquiry, but the resignation recently of a minister in the Kerala government turns the spotlight once again on the tricky journalistic terrain of the sting operation. A new Malayalam television channel, Mangalam TV, had debuted on March 26 with a splash. It broadcast an audio recording allegedly of the then Transport Minister of Kerala, A.K. Saseendran, purportedly seeking sexual favours from a woman who had come to him for assistance. Her end of the conversation was not put out, and the channel reported that it had got the tape directly from the woman. Mr. Saseendran put up a defence imputing that all was not what it appeared on the broadcast — but in the ensuing storm, resigned. Four days later, on March 30, the CEO of the channel went on air to render an apology, presumably for misrepresenting matters, though we must await the inquiry report to get a final picture of what transpired. The CEO, significantly, admitted that a woman journalist with the channel had conducted the sting, suggesting this was in reality a kind of honey trap. As things stand, the CEO and eight other Mangalam employees have been booked under sections of the Information Technology Act and the Indian Penal Code. Mr. Saseendran, who had been the lone minister from the Nationalist Congress Party in the Left Democratic Front government in Kerala, must wait out the inquiry process before making a bid to regain his portfolio.
•The ethics of sting operations is among the most fiercely debated issues in journalism. And while different jurisdictions and media groups around the world have varying guidelines on the subject, some things are generally agreed upon. Any such operation that uses false pretences, with its necessary violation of the interviewee’s trust and privacy, must serve a larger public interest that far outweighs such violation. It also must be used as a last resort, when there is no other means of acquiring the information sought, and must be the outcome of considerable editorial deliberation. Stings were never intended to entrap or induce people into committing wrongdoing or, as seems likely in this case, embarrassing themselves badly. Stings are an ethical minefield and it is imperative that publications and broadcasters explain the vital public interest for conducting them. Journalists count on the readers’ — indeed the public’s — goodwill to evade the establishment’s potentially vindictive response to an exposé. A sting cannot be an excuse to grab eyeballs with prurient (and essentially private) content, or a shortcut to make a point merely by shocking the reader or viewer. Doing so risks eroding that goodwill and leaving journalists facing harsh charges, often deservedly so.
Brexit’s shadow: India vows to deepen ties
Bilateral accord on fighting tax evasion
•Finance Minister Arun Jaitley and U.K. Chancellor of the Exchequer Philip Hammond discussed the post-Brexit scenario on Tuesday and issued a joint statement reiterating the two countries’ commitment to strengthen economic cooperation and collaborate on cross-border tax evasion and avoidance.
‘Masala,’ ‘green’ bonds
•The two Finance Ministers also welcomed the National Highways Authority of India’s proposal to issue a masala bond in London in the next few months, and also welcomed IREDA’s plans to issue a green bond in London and list their masala bonds on the London Stock Exchange within six months.
•This follows the successful issuances by HDFC (₹3,000 crore or £366 million) and NTPC (₹2,000 crore or £244 million), which were the first ever masala bonds to be issued by Indian entities.
•“At today’s meeting we discussed how, notwithstanding the U.K.’s triggering of Article 50, India and the U.K. can work together to: strengthen our existing economic partnership in order to further boost trade and investment and; build on the bold vision for the India-UK Strategic Partnership set out by our Prime Ministers during Prime Minister May’s November 2016 visit to India,” according to the joint statement.
•The two countries agreed to work together swiftly to encourage sustainable bilateral investment that benefits both countries, including through the Joint Working Group. They also welcomed the recent introduction of a fast-track investment promotion mechanism, which provides a single window for U.K. companies that are looking to either establish or expand their business in India.
Tax evasion
•“The U.K. and India share a common commitment to addressing cross-border tax evasion and avoidance and agree to collaborate in determining the status of wealth deposited in foreign financial accounts by nationals of both countries.”
•The two ministers said they encourage the timely implementation of the G20/OECD Base Erosion and Profit Shifting Project outputs and called on other nations to meet their commitments. The exchange of information between the U.K. and India under the Common Reporting Standards on Automatic Exchange of Tax Information will begin this calendar year.
