SCRUTINY OF GST RETURNS

[Dr. Sanjiv Agarwal]

Meaning of Scrutiny

The literal meaning of ‘scrutiny’ is critical observation for examination of any paper / document etc. The purpose of scrutiny is different in different enactments. For example, for the purpose of voting in elections, scrutiny means examination of anything; an official examination of votes cast at an election in order to eliminate any votes that are invalid and to rectify or confirm the numbers stated in the return.

What is meant by scrutiny has not been defined in GST law. Though, scrutiny cannot be considered as detailed and independent as of audit, scrutiny implies verification of correctness of information submitted in the returns by the taxpayers. It is basically a scrutiny of information submitted, its timeliness, its authentic accuracy and corroborative verification from other documents.

The term ‘scrutiny assessment’ has been explained in Advanced Law Lexicon by P. Ramanatha Aiyar in following terms:

“Scrutiny assessment – It arises where an assessing officer considers it necessary to ensure that the assessee has not (a) understated his income, (b) returned excessive loss, or (c) underpaid the tax. He may serve a notice on the assessee requiring him to appear on the specified date or to furnish any documents/ evidence in support of his return.

There are various factors guiding the selection of a case for scrutiny. Some of these are: (a) continuous losses from year to year, (b) low profitability declared compared to the general profitability in similar business, (c) extraordinary expenditure booked, and (d) huge private borrowings made.”

Section 61 of CGST Act, 2017 contains the provisions of scrutiny of GST returns which empowers proper officer to scrutinize the return and related particulars furnished by the taxable person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in a manner as may be prescribed.

Rule 99 of CGST Rules, 2017 provides for manner of scrutiny of returns.

The aforementioned provisions suggest that scrutiny of returns, inter-alia, entails the following:

1. Selection of returns furnished by a registered person for scrutiny, preferably based on robust risk parameters.
2. Scrutiny of the returns and related particulars furnished by the registered person to verify the correctness of the return. Information available with the proper officer in various returns and statements furnished by the registered person and the data/details made available through various sources like DGARM, ADVAIT, GSTN, E-Way Bill Portal, etc. may be relied upon for this purpose.
3. Informing the registered person of the discrepancies noticed, if any, along with quantification of the amount of tax, interest and any other amount payable in relation to such discrepancy and seeking his explanation thereto.
4. Where the registered person accepts the discrepancy and pays the tax, interest and any other amount arising from such discrepancy or where the explanation furnished by the registered person is found acceptable, conclude the proceedings after informing the registered person.
5. Where no satisfactory explanation is furnished by the registered person or where the registered person, after accepting the discrepancy, fails to pay the tax, interest and any other amount arising from such discrepancy, initiate appropriate action including those under section 65 or section 66 or section 67, or determination of tax and other dues under section 73 or section 74 of the CGST Act.

Gist of provisions of Section 61 of CGST Act, 2017

• The proper officer can scrutinize the return to verify its correctness.
• It is a non-compulsory pre-adjudication process.
• It is not mandatory for the officer to scrutinize return.
• Scrutiny of returns is not a legal or judicial proceeding, i.e., no order can be passed.
• The officer will ask for explanations on discrepancies noticed.
• The proper officer may issue SCN, if required.
• Department can select returns for verification – Can seek explanation for discrepancies detected or observed.
• GST officers can scrutinize a GST return and related particulars furnished by the registered person to verify the correctness of the return.
• In case of any discrepancies noticed by the Officer, he/she would inform the same to the registered person and seek his explanation on the same.
• On the basis of the explanations received from the registered person, the Officer can take following actions:
• If the explanation is satisfactory, Officer will inform about the same to the registered person and no further action shall be taken.
• If the explanation provided is not satisfactory or the registered person has failed to take corrective measures after accepting the discrepancies, Proper Officer shall initiate appropriate action, viz:
  • Conducting audit of registered person,
  • Conducting special audit,
  • Inspecting and searching the place of business of registered person, or
  • Initiating demand and recovery provisions.

How Scrutiny is done ?

The scrutiny of returns could be manual, desk review or an online evaluation. The scrutiny of returns becomes important in an era of self assessment where the need for a strong compliance mechanism cannot be over emphasized.  The person who does the scrutiny is called scrutineer and the process is called scrutiny or to scrutinize

When any return is selected for scrutiny, the proper officer verifies the information with reference to the information available with him. In case of observance of any discrepancy, to issue notice to the taxable person and seek his explanation to the discrepancy observed by him.

There could be following different scenarios in response to such notice received from proper officer, viz,

(a)   The taxable person accepts the discrepancy, deposits the shortfall in the payment of tax along with interest thereon and informs to proper officer.

(b)  The taxable person submits the explanation to the points raised by proper officer in his reply, the explanation is found to be acceptable to proper officer, the proper officer closes the matter and informs the taxable person.

(c)   The explanation is not found to be acceptable or after accepting the discrepancy, the taxable person fails to deposit the tax with interest, the proper officer takes the following actions.

1. Orders for audit by tax authorities – section 65 of the CGST Act, 2017
2. Orders for special audit – section 66 of the CGST Act, 2017
3. Initiates inspection, search or seizure – section 67 of the CGST Act, 2017
4. Determination of tax not paid or short paid – section 73 of the CGST Act, 2017
5. Determination of tax not paid or short paid by reason of fraud or willful mis-statement – section 74 of the CGST Act, 2017

Guidelines for Scrutiny of GST returns (FY 2017-18 and 2018-19)

CBIC has issued Instruction No. 02/2022-GST dated 22.03.2022 containing Standard Operation Procedure (SOP) for scrutiny of returns under section 61 of CGST Act, 2017 read with rule 99 of CGST Rules, 2017 for the financial year 2017-18 and financial year 2018-19. This will serve as guidelines for GST officials.

• This SOP contains the methodology for scrutiny and inter alia covers :
  • Statutory provisions (Section 61 / Rule 99)
  •  Selection of returns for scrutiny
  • Proper officer for scrutiny of returns
  • Scrutiny Schedule
  •  Process of scrutiny by the Proper Officer
  •  Timelines for scrutiny of returns
  •  Reporting and Monitoring

•  Annexures covering –

1. Scrutiny schedule
2. Indicative list of parameters for scrutiny
3. Scrutiny register to be maintained by proper officer
4. Monthly scrutiny progress report

• This SOP is aimed to ensure uniformity in selection / identification of returns for scrutiny, methodology of scrutiny of returns and related procedures.
• Schedule of Scrutiny
• Indicative list of parameters for scrutiny
• Maintenance of scrutiny registered by proper officer
• Proper officer to submit monthly scrutiny progress report of scrutinies undertaken by him.

Guidelines for Scrutiny of GST returns (FY 2019-20 and onwards)

CBIC has issued instructions vide instruction No. 02/2023-GST dated 26.05.2023 in the form of Standard Operating Procedure (SOP) for scrutiny of returns for the FY  2019-20 onwards on the manner, procedure and methodology to conduct scrutiny of returns under section 61 of CGST Act, 2017 read with Rule 99 of the CGST Rules, 2017.

DG, system has developed functionality ‘Scrutiny of Returns’, containing the online workflow for scrutiny of returns in the CBIC ACES-GST application. Advisory No. 22/2023- Returns dated 16.05.2023 has also been issued by DG Systems along with a User Manual providing for the detailed workflow of the said functionality.

CBIC has modified the earlier instructions dated 22.03.2022 for the FY 2019-20 onwards. This SOP also provides for :

• Selection of returns for scrutiny and communication of the same to the field formations
• Scrutiny Schedule
• Process of scrutiny by the Proper Officer
• Timelines for scrutiny of returns
• Reporting and Monitoring

The monitoring and reporting requirements have been modified to ensure objectivity and purpose. The progress of the scrutiny exercise as per the scrutiny schedule shall be monitored by the jurisdictional Principal Commissioner/ Commissioner on regular basis. Further, since the scrutiny functionality has been provided on ACES-GST application only for the Financial Year 2019-20 onwards, the procedure specified in Instruction No. 02/2022 dated 22.03.2022 shall continue to be followed for the scrutiny of returns for the financial years 2017-18 and 2018-19.

The online scrutiny functionality on ACES-GST application will further boost the efforts of the department to leverage technology and risk-based tools to encourage self-compliance and to conduct scrutiny of returns with minimal interaction with the registered person.