Is GSTN – a state ?
Goods and Services Tax Network (GSTN) has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST).
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]F[/dropcap]urther, the website states that : The GST System Project is a unique and complex IT initiative. It is unique as it seeks, for the first time to establish a uniform interface for the tax payer and a common and shared IT infrastructure between the Centre and States. Currently, the Centre and State indirect tax administrations work under different laws, regulations, procedures and formats and consequently the IT systems work as independent sites.
Integrating them for GST implementation would be complex since it would involve integrating the entire indirect tax ecosystem so as to bring all the tax administrations (Centre, State and Union Territories) to the same level of IT maturity with uniform formats and interfaces for taxpayers and other external stakeholders. Besides, GST being a destination based tax, the inter- state trade of goods and services (IGST) would need a robust settlement mechanism amongst the States and the Centre.
To sum up, GSTN is unique tax portal which is the only exchange to be used by government and people alike to administer Goods and services tax in India.
Meaning of the “State”
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]A[/dropcap]ccording to Article 12 of Constitution of India, the term State can be used to denote the union and state governments, the Parliament and state legislatures and all local or other authorities within the territory of India or under the control of the Indian government.
Over the period of time, the Supreme Court has explained the ambit of ‘State’ to include Corporation such as LIC and ONGC since they perform tasks “very close to governmental or sovereign functions.” In fact, the term ‘State’ also accommodates any authority that’s created by the Constitution of India and has the power to make laws. It need not perform governmental or sovereign functions. The term ‘government’ also includes any department of government or any institution under its control. The Income Tax Department can be cited as an example.
‘Local authorities’, as used in the definition, refers to municipalities, Panchayats or similar authorities that have the power to make laws & regulations and also enforce them. The expression ‘Other authorities’ could refer to any entity that exercises governmental or sovereign functions.
Mathew J in his famous judgement Sukhdev Singh & Ors propounded a view which presaged the subsequent developments in the law. He said:
“[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]A[/dropcap] state is an abstract entity. It can only act through the instrumentality or agency of natural or juridical persons. Therefore, there is nothing strange in the notion of the state acting through a corporation and making it an agency or instrumentality of the State..”
For identifying such an agency or instrumentality he propounded four indicia:
“A finding of the state financial support plus an unusual degree of control over the management and policies might lead one to characterize an operation as state action.”
“Another factor which might be considered is whether the operation is an important public function.”
“The combination of state aid and the furnishing of an important public service may result in a conclusion that the operation should be classified as a state agency. If a given function is of such public importance and so closely related to a governmental functions as to be classified as a government agency, then even the presence or absence of state financial aid might be irrelevant in making a finding of state action. If the function does not fall within such a description then mere addition of state money would not influence the conclusion.”
“The ultimate question which is relevant for our purpose is whether such a corporation is an agency or instrumentality of the government for carrying on a business for the benefit of the public. In other words, the question is, for whose benefit was the corporation carrying on the business?”
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GSTN ticks all the above criteria to be qualified as “state/state agency/other authorities”.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]A[/dropcap]lso, the question as to when a body can be said to fall within the scope of the term “State” within the meaning of Article 12 was considered by a Constitution Bench of seven learned Judges of the S.C. in Pradeep Kumar Biswas v. Indian Institute of Chemical Biology. It was concluded that “ it should have been entrusted with such functions as are governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence governmental”.
Referring to Rajasthan S.E.B. v. Mohan Lal, it was held that “Those authorities which are invested with sovereign power i.e., power to make rules or regulations and to administer or enforce them to the detriment of citizens and others fall within the definition of “State” in Art. 12, and constitutional or statutory bodies which do not share that sovereign power of the State are not, in my judgment, “State” within the meaning of Art. 12 of the Constitution”.
QED : GSTN by virtue of discharging public functions is an extended arm of government. Being the only authority vested in GST management, it occupies unique position acting a sole agency in administering good and service tax. The definition of ‘State’ to be understood with reference to the remedies available against it, ie., a writ of mandamus is available for enforcement of statutory duties or duties of a public nature. Can GSTN be subject to one to amend its shareholding structure?
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.