Recently the Prime Minister in his meeting with some editors of newspapers has "criticised the CAG for going into policy issues that were not a part of its Constitutional mandate" (Business Standard 30th June, 2011). He said this in the background of some of the recent scams, particularly the 2G auction and allotment of Krishna -Godavari gas fields, where the CAG went into certain policy matters. In this treatise I shall try to evaluate the constitutional provisions which deal with this particular aspect in view of its great importance in the national scenario today. I am not discussing here the veracity or otherwise of the CAG`s findings on the issues but shall only examine if the CAG has the power under the Constitution to say that if a particular policy was followed, the receipts in the Consolidated Fund of India would have been higher by certain amounts.
CAG`s is an exalted post created by the Constitution. Articles 148 to 151 deal with his appointment, functions and reporting system. Under Article 148 (5) the "administrative power of the CAG shall be such as may be prescribed by rules made by the President after consultation with the CAG." Accordingly the CAG`s (Duties, Powers and Conditions of Service) Act 1971 was passed by the Parliament.
For receipts, the crucial section is Section 16 which reads thus : "It shall be the duty of the CAG to audit all receipts which are payable into the Consolidated Fund of India and of each State and each Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed (italics mine) to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed ...". Here we notice that the above Section has two portions. First portion which is in italics gives the power to the CAG to satisfy himself that the rules and procedures are designed to get proper receipts. That is to say, he has the power to discuss the design of the rules and procedures. That brings in policy. He can say , for example, that if the procedure was followed to sell something by auction , it would be a better procedure, since in that case the receipts to the Consolidated Fund of India would have been much more. Second part of the Section 16 is , "are being duly observed". This portion is for ensuring compliance. The first part of the Section entitles him to go into the merit of the existing rule and procedures and say that an alternative procedure (system) would lead to better and more just collection of receipt. This type of approach is known in audit circle as System audit. It is going on for more than three decades. It is not for the first time that such suggestion to change the policy has been given by the CAG. In Customs the then existing rule of giving refund was just to grant it if it was due. The CAG pointed out that it might lead to unjust enrichment of the recipient of the refund since he would have most probably already passed on the burden of higher tax to the buyer. At the insistence of the CAG and the PAC, the Customs law was amended. Section 27 was amended by incorporating a proviso w.e.f. 23.12.1991 by the Section 2 of Customs Amendment Act, 1991 . Similarly laws on excise and service tax were amended. Section 125 of the Customs Act was also amended to incorporate a subsection (2) at the suggestion of the CAG. The then Finance Minister or the Parliament did not take exception to the change of law which took place at the behest of the CAG .
So it is quite clear that on the receipts side the law is certain that CAG is authorised to delve into and suggest change in policy ( rules and procedures) and he has been doing so for long enough .
On the expenditure side the relevant section is Section 13 which reads thus: "It shall be the duty of CAG to audit all expenditure from the Consolidated Fund of India and of each state....and to ascertain whether the monies shown in the accounts as having been disbursed were legally available and applicable to the service or purpose to which they have been applied or charged and whether the expenditure conforms to the authority which governs it." This gives the only power to the CAG to audit to verify if the expenditure is according to the Budget allocation . If the CAG finds wasteful expenditure he is entitled to point out that since it is against the implementation of the Budget allocation. It is not a policy matter.
The conclusion is that the Constitution does definitely provide a clear mandate to the CAG to delve into policy in respect of receipts but not in respect of expenditure . 2G issue and the KG gas field allotment issue were matters of receipt . So it was within the mandate of the CAG to say that if the policy was different, the receipts would have been so many thousands of crores of rupees more . But if the government strongly feels that the Constitution does not give such a mandate, then the best course would be to make a Presidential Reference to the Supreme Court under Article 143 of the Constitution for settling the issue once for all . It would be better than publicly debunking the Constitutional post of the CAG . It is no good for public morale. Above all Article 38 (1) of the Constitution (Directive Principles ) enshrines the provision that the State should promote welfare of the people. CAG`s reports in 2G and KG have exactly done that.
Sukumar Mukhopadhyay
Former Member CBEC
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