Service tax department serves summons on the backbone of the goods and services tax

Infosys had, in September 2015, won a contract worth Rs1,380 crore to build the technology network for implementing the GST and to maintain it for five years. (PTI)

GST Network (GSTN), the fledgling technology backbone for the goods and services tax, seems to have been caught in the crossfire of bureaucratic wars. While the CAG wants to audit GSTN for the reason that it spends substantially government funds, despite being incorporated as a private limited company in which Union and state governments hold 49%, the service tax department has now summoned its CEO for possible evasion of tax on some software services received from IT major Infosys.

However, the tax department’s move is seen by many as a reflection of its unease with the formula for sharing of administrative powers with the states adopted by the GST Council recently.

“You are hereby summoned under Section 14 of the Central Excise Act, 1944 (as made applicable to the service tax matters under Section 83 of the chapter 5 of the Finance Act, 1994) to appear before me in person or through your authorised representative on (February 22, 2017),” a designated official at the office of the principal commissioner of service tax wrote to GSTN’s CEO on Tuesday. Unless GSTN is able to comply with the summons, which include producing relevant documents to disprove the charges, the CEO will be liable to be “punished under the law”.

The GST Council had decided that 90% of the assesses with GST turnover up to R1.5 crore would be assessed by the states and only 10% by the administrative machinery of the Centre; the assessee base of those with a turnover of above R1.5 crore would be shared between the Centre and states equally. The tax officials at the Centre had made a strong pitch for a vertical split of the nearly 10 million indirect tax assessee base and wanted to keep all service providers under its exclusive control.

Infosys had, in September 2015, won a contract worth Rs1,380 crore to build the technology network for implementing the GST and to maintain it for five years. GSTN procured the required hardware in August last year and is in the final stages of complementing it with the software support. Between 2013 and 2016, the government has released an additional Rs 143.96 crore to GSTN, of which the body has spent R62.11 crore.

However, to pay Infosys, GSTN has taken loans; while it tried to load part of the interest burden on to the state governments, they refused to oblige. GSTN’s main source of income will be the user charges to be levied on users of the IT network.

The Indian Express had reported that GSTN sent a reply to the CAG (which sought to conduct supplementary audit of GSTN’s annual financial statements) on January 17, claiming that its articles of association do not “bestow” any right to either the state government or the Centre to “exercise control” over it. Financial institutions such as HDFC Bank, ICICI Bank and LIC Housing Finance are stakeholders in GSTN.