SCRUTINY UNDER GST

[Dr. Sanjiv Agarwal]

There are specific provisions under GST laws on Scrutiny and Audit, both of which are different.

There are fundamental differences in the three terms – reconciliation, scrutiny and audit. The scope of audit would include the first two which aid in conduct of audit.

The purpose of preliminary scrutiny of returns includes:

• ensuring the completeness of the information furnished in the return,
• arithmetic correctness of the amount computed as tax and its timely payment,
• timely submission of the return and identification of non-filers and stop-filers.

Scrutiny of documents viz. ledger accounts, returns of tax, compliances etc is nothing but a strong compliance verification procedure or mechanism. For example, in case of a return, the purpose of detailed scrutiny of returns is to ensure the correctness of the assessment made by the assessee. Such scrutiny plan only supplement the audit programme. It is expected that for an effective scrutiny, it shall follow best audit practices.

The scope of audit, on the other hand, is to inspect the financial records of a company for a complete financial year in order to identify non-compliance issues and to evaluate the assessee’s internal control system. The two processes of audit and scrutiny are, in fact, complementary to each other.

Simply put, auditing is an examination or verification of books of accounts and financial records so as to arrive at truth and fairness of such statements. It is that branch of accounts that deals with the examination and verification of accounts or books based on evidence, procedures and principles of auditing.

Statutory Provision

Section 61 of the GST Act, 2017 authorizes the proper officer to scrutinize the return for verification of correctness of the return and if any discrepancies are noticed by the officer, then, he shall inform about the same to the taxable person. Where the explanation regarding such discrepancies are found acceptable, then, no further action shall be taken against the assessee but where no explanation is furnished or the explanation furnished is not satisfactory within thirty days of being informed by the proper officer, the proper officer may initiate appropriate action against such taxable person.

Notice of scrutiny of returns

As per sub rule (1) of rule 99 of the GST Rules, 2017 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.

Consequences of not providing an explanation against scrutiny

As per Section 61(3) of the GST Act, 2017 in case no satisfactory explanation is furnished regarding the discrepancies found by proper officer 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.

Essential ingredients of scrutiny

According to Section 61 of the GST Act, 2017 relating to scrutiny of returns:

• scrutiny shall be done by the proper officer;
• scrutiny shall be done of return and related particulars furnished by taxable person;
• purpose of such scrutiny shall be to verify the correction of return;
• manner of scrutiny of return as prescribed under Rule 99
• proper officer shall inform the taxable person (assessee) about the discrepancies noticed during the course of scrutiny;
• by such intimation, explanation is sought from the assessee;
• where explanation furnished by assessee is found acceptable, no further action shall be required and assessee be informed accordingly.

Manner of dealing with discrepancies

As per rule 99 of the GST Rules, 2017, discrepancies shall be dealt with as under:

(a)   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.

(b)   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.

Situation when no further action can be taken

According to Section 61(2) of the GST Act, 2017 where the explanation given by the tax payer in response to discrepancies informed by the proper officer, is found acceptable, the taxable person shall be informed accordingly and no further action shall be taken in this regard by the proper officer.

Actions for non-compliance

According to Section 61(3) of the GST Act, 2017 where –

• no explanation is furnished, or
• explanation furnished is not found satisfactory, or
• taxable person fails to take corrective action/measures after accepting the discrepancies,

proper officer may initiate appropriate action against such taxable person which may include –

• audit by tax authorities under Section 65
• special audit under Section 66
• inspection, search or seizure under Section 67
• proceed to determine tax and other dues under Section 79 providing for recovery of dues.

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