GST- SCRUTINY OF RETURNS AND ITS IMPLICATIONS ON TAXPAYERS

[RAMESH JENA]

Return means the summary of information or statement in prescribed format pertaining to a tax period. Every registered person other than an Input Service Distributors and a non-resident taxable person are required to furnish, electronically the details of outward supplies of goods or services as well as inward supplies of section 37 of the CGST Act and section 39 of the CGST Act respectively including tax payable on reverse charge basis.

The scrutiny of returns means verifying the genuineness of the returns furnished by the registered person and scrutinize by the proper officer of CGST / SGST to ascertain the tax liabilities and trace out the discrepancies if any, in order to protect the Government revenues.

Statutory provisions: Section 61 of the CGST Act, 2017 read with Rule 99 of the CGST Rules, 2017 prescribed for scrutiny of returns in GST. The relevant statutory provisions of scrutiny of returns are reproduced as under:

"Section 61. Scrutiny of returns.-

(1)		The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.
(2)		In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.
(3)		In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74."

"Rule 99. Scrutiny of returns.-

(1)		Where any return furnished by a registered person is selected for scrutiny, the proper officer shall scrutinize the same in accordance with the provisions of section 61 with reference to the information available with him, and in case of any discrepancy, he shall issue a notice to the said person in FORM GST ASMT-10, informing him of such discrepancy and seeking his explanation thereto within such time, not exceeding thirty days from the date of service of the notice or such further period as may be permitted by him and also, where possible, quantifying the amount of tax, interest and any other amount payable in relation to such discrepancy.
(2)		The registered person may accept the discrepancy mentioned in the notice issued under sub-rule (1), and pay the tax, interest and any other amount arising from such discrepancy and inform the same or furnish an explanation for the discrepancy in FORM GST ASMT-11 to the proper officer.
(3)		Where the explanation furnished by the registered person or the information submitted under sub-rule (2) is found to be acceptable, the proper officer shall inform him accordingly in FORM GST ASMT-12."

On perusal of the cited statutory provisions it is ample clear that the proper officer has to scrutinize the returns of the taxpayers to ascertain correctness of the returns and whether the tax liabilities have been correctly discharged by the taxpayers or not?

Standard Operating Procedure (SOP): In absence of a Scrutiny Moudle for online scrutiny of returns is made available on the CBIC-GST application, as an interim measure, standard operating procedure (SOP) is being issued by the board vide Instruction No. 2/2022-GST, dated 22-03-2022  for scrutiny of returns for the financial year 2017-18 and 2018-19 and further instruction No. 2/2023-GST, dated 26-05-2023  for scrutiny of returns for the financial year 2019-2020 as an interim measure till the time a Scrutiny Moudle for online scrutiny of returns is made available on the ACES-GST application.

Selection of returns for scrutiny: Selection of returns for scrutiny will be done by the Directorate General of Analytics and Risk Management (DGARM) based on various risk parameters identified by them. DGARM will select the GSTINs registered with the Central Tax authorities, whose returns are to be scrutinized for a financial year, based on identified risk parameters. The details of GSTINs selected for scrutiny for a financial year will be made available by DGARM through DG Systems on the scrutiny dashboard of the concerned proper officer of Central Tax on ACES-GST application.

Proper officer for scrutiny of returns: C.B.I. & C. vide Circular No. 3/3/2017-GST, dated 05.07.2017, "Superintendent of Central Tax" has been assigned the functions as the proper officer in relation to sub-section (1) and sub-section (3) of section 61 of the CGST Act. Accordingly, scrutiny of returns of a taxpayer may be conducted by Superintendent of Central Tax in-charge of the jurisdictional range of the said taxpayer.

Scrutiny Schedule: Once the list of GSTINs, whose returns have been selected for scrutiny, is communicated to the field formations, the proper officer, with the approval of the divisional Assistant / Deputy Commissioner, shall finalize a scrutiny schedule. Such scrutiny schedule will specify month-wise schedule for scrutiny in respect of all the GSTINs selected for scrutiny. While preparing the scrutiny schedule, the scrutiny of the GSTINs, which appear to be riskier based on the likely revenue implication indicated by DGARM, may be prioritized.

Process of scrutiny by the Proper Officer: The Proper Officer shall scrutinize the returns and related particulars furnished by the registered persons to verify the correctness of the returns. Information available with the proper officer on the system in the form of 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.

The proper officer shall issue a notice to the registered person in FORM GST ASMT-10 through the scrutiny functionality on ACES-GST application, informing him of the discrepancies noticed and seeking his explanation thereto. There may be cases where the registered person may already have made additional payment of tax, cess, interest, etc. after filing of the returns for the relevant tax period, through FORM DRC-03. The payments thus made through FORM DRC-03 may also be taken into consideration while communicating discrepancies to the taxpayer in FORM GST ASMT-10. While issuing such notice, the proper officer may, as far as possible, quantify the amount of tax, interest and any other amount payable in relation to such discrepancies. The proper officer shall mention the parameter-wise details of the discrepancies noticed by him in FORM GST ASMT-10 and shall also upload the worksheets and supporting document(s)/ annexures, if any.

On receipt of such notice in FORM GST ASMT-10 on common portal, the registered person may accept the discrepancy mentioned in the said notice, and pay the tax, interest and any other amount arising from such discrepancy and inform the same or may furnish an explanation for the discrepancy in FORM GST ASMT-11, through the common portal, to the proper officer within the time period prescribed under rule 99 of CGST Rules.

The reply furnished by the registered person in FORM GST ASMT-11on the common portal shall be made available to the concerned proper officer in the scrutiny dashboard on ACES-GST application. Where the explanation furnished by the registered person or the information submitted in respect of acceptance of discrepancy and payment of dues is found to be acceptable by the proper officer, he shall conclude the proceedings by informing the registered person in FORM GST ASMT-12 through the scrutiny functionality on ACES-GST application.

In case no satisfactory explanation is furnished by the registered person in FORM GST ASMT-11 within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to pay the tax, interest and any other amount arising from such discrepancies, the proper officer, may proceed to determine the tax and other dues under section 73 or section 74 of CGST Act. Needless to mention, for proceedings under section 73 or section 74 of CGST Act, monetary limits as specified in Circular No. 31/05/2018-GST, dated 9th February 2018 shall be adhered to. The user manual issued by DG Systems may be referred to for the procedure for initiating proceedings under section 73 or 74 of the CGST Act on the scrutiny functionality on ACES-GST application

CBIC- Press Release dated 11-05-2023:

During the recent review of the performance of the Central Board of Indirect Taxes & Customs (CBIC), Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman had given directions to roll out an Automated Return Scrutiny Module for GST returns at the earliest.

In order to implement this non-intrusive means of compliance verification, CBIC has rolled out the Automated Return Scrutiny Module for GST returns in the ACES-GST backend application for Central Tax Officers this week. This module will enable the officers to carry out scrutiny of GST returns of Centre Administered Taxpayers selected on the basis of data analytics and risks identified by the System.

In the module, discrepancies on account of risks associated with a return are displayed to the tax officers. Tax officers are provided with a workflow for interacting with the taxpayers through the GSTN Common Portal for communication of discrepancies noticed under FORM ASMT-10, receipt of taxpayer's reply in FORM ASMT-11 and subsequent action in form of either issuance of an order of acceptance of reply in FORM ASMT-12 or issuance of show cause notice or initiation of audit / investigation.

Implementation of this Automated Return Scrutiny Module has commenced with the scrutiny of GST returns for FY 2019-20, and the requisite data for the purpose has already been made available on the officers' dashboard."

Timelines for scrutiny of returns : Scrutiny of returns is to be conducted in a time bound manner, so that necessary action to safeguard revenue may be taken up expeditiously. Such as list of GSTINs selection by the Nodal officer of the Commissionerate from time to time. Distribution of list within 3 working days. Finalise scrutiny schedule within 7 working days. Sharing the scrutiny schedule by the zone with DGST within 30 days of receipt of GSTINs. Intimating discrepancy in FORM ASMT-10 within 30 days by the proper officer. Reply by the registered person in FORM GST ASMT-11 within 30 days or further extension period as per the proper officer. Issuance of Order in FORM ASMT-12 by the proper officer within 30 days of receipt of reply from the registered person in FORM ASMT-11. It may also be ensured that the requiste actions must be initiated well ahead of the time limits as specified in section 73 or section 74 of the CGST Act, as the case may be, in respect of a certain identified for scrutiny for a financial year.

Areas of verification / scrutiny of records: The taxpayer has to take necessary pre-cautions for compliance of filing returns and records including the books of Account, profit & loss Account of his business transactions and keep ready for each financial year wise The most probable returns and records need reconciliation, which are subject to scrutiny or audit by the tax authority are listed as under:

Records / returns related to outward supplies:

(i)		Return GSTR-3B vs. GSTR-1
(ii)		Return GSTR-1 vs. E-way bills
(iii)		E-way bills vs. E-invoice
(iv)		E-invoice vs. third party data.

Input Tax Credits availed by the registered person:

(i)		Return GSTR-3B vs. GSTR-2A / GSTR-2B
(ii)		Return GSTR-2A / GSTR-2B vs. Purchase ledger
(iii)		Purchase ledger vs. payment ledger / bank payment details
(iv)		Return GSTR-2A / GSTR-2B vs. Table 8A of GSTR-9

Total turnover of the taxpayers:

(i)		Summary of GSTR-3B vs. GSTR-9 /9C (Annual return)
(ii)		GSTR-9 / GSTR-9C vs. Books of Account of the taxpayer
(iii)		Bank Accounts of the taxpayer vs. other third party data ( 26AS)
(iv)		Export turnover vs. Exempted supplies value

Implications on the taxpayers: The registered person or taxpayers should carry out periodical reconciliation of returns and records to ascertain the correctness of tax liabilities have been discharged by him. There is need of pre-audit should be conducted by the taxpayers in the following aspects to avoid mismatch and discrepancy in returns / statements to avoid litigation on account of liability of tax, interest and penalty.

1.		Matching of tax liability discharged against "Outward supplies of goods or services" furnished in GSTR-3B and GSTR-1
2.		Matching of tax liability against "Inward supplies of goods or services" as declared in GSTR-3B including Reverse Charge Mechanism, ITC availed in GSTR-3B vs. ITC auto-populated in GSTR-2A/GSTR-2B and Tax/Cess paid in cash as per GSTR-3B
3.		Matching of ITC availed against ISD / Cross charge mechanism as declared in GSTR-3B with GSTR-2A / GSTR-2B
4.		Matching of taxable value or turnover declared in GSTR-3B vs. GSTR-1 and GSTR-9 (Annual return) or GSTR-9C as applicable.
5.		Matching of value declared against outward supplies in GSTR-3B with net amount of tax liable for deduction of TCS and TDS credit as auto populated in GSTR-2A/GSTR-2B
6.		Matching of taxable value declared for outward supplies of goods vs. taxable value declared in e-way bills for movement of goods and taxable invoices.
7.		To ascertain ITC availed on invoices against inward supplies from the taxpayers whose GST registration has been cancelled retrospectively
8.		To verify ITC availed in respect of invoices / debit notes issued by the suppliers is eligible ITC under section 16 of the Act or not covered under section 17 of the Act.
9.		To verify whether suppliers have filed GSTR-1 have auto populated in GSTR-2A /GSTR-2B and the suppliers have filed their GSTR-3B against all inward supplies of goods or services.
10.		Matching of ITC availed against GSTR-3B returns furnished within time frame of 30th September / 30th November of the next financial year to satisfy section 16(4) of the Act.
11.		Matching of ITC availed in respect of "Import of Goods" in GSTR-3B vs. auto populated in GSTR-2A / GSTR-2B.
12.		Cases of dubitable supplies and exempted supplies, whether the taxpayers have discharged reversal of ITC under the provisions of rule 42 and rule 43 of the Act done or not.
13.		Cases where a registered person is required to pay interest liability under section 50 of the Act and the same have been discharged or not.
14.		Cases where a registered person is required to pay late fee for fling of returns under section 47 of the Act and the same has been done or not
15.		In cases of export of declared goods or services whether tax liability of IGST has been discharged or not.
16.		Consequent to scrutiny of returns by the proper officer, if any discrepancy communicated to the taxpayer by issuance of ASMT-10 then taxpayers have to explain / clarify his stand or defend the allegations by submitting reply in ASMT-11 or pay admitted tax liability in DRC-03 to avoid litigation.

Relevant judicial decisions:

The Hon'ble High Court of Andhra Pradesh in the case of M/S DEVI TRADERS VERSUS THE STATE OF ANDHRA PRADESH, REP. BY ITS PRINCIPAL SECRETARY TO GOVERNMENT, STATE TAX DEPARTMENT - 2023 (6) TMI 1300 - ANDHRA PRADESH HIGH COURT, wherein held that "Scrutiny of returns under section 61 of CGST Act is not an essential condition for initiating proceedings to demand tax under section 74."

The Hon'ble High Court of Calcutta in the case of A.C. BANERJEE & SONS. VERSUS STATE OF WEST BENGAL & ORS. - 2024 (2) TMI 120 - CALCUTTA HIGH COURT, held that "Where discrepancies found during scrutiny of returns, alleging short payment of tax on outward supply, order directing payment of interest on delayed payment of tax, provision inserted in Section 50(1) of GST Act providing payment of interest only on that part of tax which was paid in cash, substitution of proviso to section 50(1), with retrospective effect from 1-7-2017, impugned order was to be set aside."

The Hon'ble High Court of Allahabad in the case of M/S LARI ALMIRA HOUSE VERSUS STATE OF U.P. AND 3 OTHERS - 2023 (4) TMI 545 - ALLAHABAD HIGH COURT, held that" Irrespective of the outcome of the scrutiny of return under section 61 of the Act or the inspection carried out under section 67 of the Act, the burden of assessing the short payment of tax or wrong availment of input tax credit still lies on the department which is to be discharged by the department. In addition to the said, the burden is on the department to establish that the said non-payment was on account of fraud, wilful misstatement or suppression of facts. Mere report of inspection and discrepancy in the scrutiny of returns is not enough to assess and levy the tax, the said discrepancies, even if noticed by the department should be corroborated with materials in the form of either the evidence or in any other form as the department may deem fit. Without any corroborative material, merely on the basis of discrepancies found in the scrutiny of returns or discrepancies found during the inspection is not enough to assess the tax. Matter was to be remanded to adjudicating authority to supply copy of SIB report and to give opportunity of personal hearing"

The Hon'ble High Court of Karnataka in the case of EGK TECHNOLOGIES VERSUS THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES LGSTO-150 BENGALURU - 2024 (2) TMI 178 - KARNATAKA HIGH COURT, held that "Where assessee received a notice intimating certain discrepancies in returns and submitted a reply to said notice but department had not considered same. Department was to be directed to address grievance of assessee and pass appropriate orders within a period of one month. Assessee was also given liberty to submit additional reply, documents etc., to department which shall also be considered."

The Hon'ble High Court of Madras in the case of TVL. RIDA INDUSTRIES REPRESENTED BY ITS PARTNER, MR. MEER ABDUL HAFIZ VERSUS ASSISTANT COMMISSIONER (ST) HOSUR (SOUTH) – I. - 2023 (8) TMI 236 - MADRAS HIGH COURT, held that "Petitioner challenges order under Section 61, claiming lack of hearing opportunity, said claim was rejected due to failure of petitioner to appear for a personal hearing despite notice."

The Hon'ble High Court of Delhi in the case of DHAN PRAKASH GUPTA VERSUS CENTRAL GOODS & SERVICE TAX DEPARTMENT - 2023 (10) TMI 312 - DELHI HIGH COURT, held that "Where assessee alleged that in scrutiny assessment authority had taken into consideration material which was not included with return or other material that was provided by petitioner, since material was gathered from assessee's websites available in public domain, there was no merit in submission that principles of natural justice were violated."

Conclusion: The scrutiny of returns by the proper officer vide instruction No.02/2023-GST dated 26-05-2023 for scrutiny of returns for the financial year 2019-2020 as an interim measure till the time a Scrutiny Moudle for online scrutiny of returns is made available on the ACES-GST application. The DG System has developed functionality "Scrutiny of Returns", containing online workflow for scrutiny of returns in the CBIC ACES-GST application. The communication of discrepancies noticed, in relation to the details furnished in the returns, by the proper officer in FORM GST ASMT-10 to the registered person, receipt of reply from the registered person in FORM GST ASMT-11, if discrepancy is acceptable by the registered person , shall make payment of tax in FORM GST DRC-03, thereafter the proper officer shall take steps for the issuance of order in FORM GST ASMT-12 or taking further action for issuance of show cause notice in FORM GST DRC-01 under section 73 or section 74 of CGST Act,2017 or for referring matter for Audit under Section 65 or special Audit under section 66 or investigation under section 67 of CGST Act,2017. The progress of the scrutiny exercise as per the scheduled shall be monitored by the jurisdictional Commissioner on regular basis. The very objective of the scrutiny of returns to protect the Government revenues and controlled the tax evasion by the unscrupulous registered persons across the country.