Handling of Scrutiny of Returns (ASMT-10) under GST | Notices, Assessments et al.

Table of Contents

1. Scrutiny of Returns under GST
2. Mismatch of the ITC

1. Scrutiny of Returns under GST

1.1 Handling Notices & Adjudication

• Notice to Return Defaulters. Sec-46 (GSTR-3A)
• Notice for Cancellation of Registration (REG17)
• Scrutiny of Returns (ASMT-10)
• Summons u/s 70
• Detention of Goods and/or Vehicles u/s 129
• Show Cause Notices u/s 73/74

1.2 Scrutiny Assessment Process

• Notice in ASMT-10
• Registered Person may accept and pay the Tax/Interest
• RP may furnish explanation in ASMT-11 (30 days or as may be permitted)
• Acceptance of explanation in ASMT-12 (within 30 days from receipt of reply)
• Proper officer may proceed further if required (15 days or 30 days)

1.3 Provisions of Section 61 of the CGST Act, 2017

• 61. (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.

1.4 Provisions of Rule 99 of the CGST Rules, 2017

• 99 (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.

1.5 Cases where ASMT-10 are being issued

• Mismatch of ITC in GSTR3B with GSTR-2A/2B
• Mismatch of Outward Supply as per GSTR-1 with GSTR-3B
• Availing of ITC on Blocked Credit Items
• Difference of Liability as per E-Way Bills & GSTR 3B
• Reversal of ITC due to fake invoices
• Returns reflecting exempted supplies

1.6 Scrutiny of Return – Sec 61/Rule 99

• 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.
• The proper officer shall issue a notice to the said person in FORM ASMT-10, informing him of such discrepancy and seeking his explanation
• 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
• Action by the proper officer
  • Audit u/s 65
  • Special Audit u/s 66
  • Inspection/Search u/s 67
  • Adjudication of Demand u/s 73/74

1.6.1 Quantification of tax/interest

Also where possible, quantifying the amount of tax, interest and any other amount payable in relation to such discrepancy in ASMT-10

1.6.2 Acceptance by the registered person

The registered person may accept the discrepancy mentioned in the notice and pay the tax/interest accordingly

1.6.3 Explanation by the registered person

The registered person may furnish an explanation for the discrepancy in FORM ASMT-11 to the proper officer

1.6.4 Acceptance by the proper officer

In case the explanation is found acceptable, the registered person shall be informed in Form ASMT-12

1.6.5 If no explanation furnished in allowed time

In case no satisfactory explanation is furnished within time allowed, the proper officer may initiate appropriate action

1.6.6 If Registered Person fails to take corrective measure

where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return the proper officer may initiate appropriate action

1.7 Important Judicial Pronouncements

• Marvel Associates V. The State Tax Officer: 2023 (7) TMI 875 – Kerala High Court- Dated.- July 10, 2023
  1. Issue: The petitioner had availed excess Input Tax Credit (‘ITC’, in short) in GSTR-3B when compared to GSTR-2A
  2. Observation: On an appreciation of the pleadings and materials on record, I find there is wilful negligence on the part of the petitioner because it has failed to submit the ASMT 10 form on time, avail the benefit of getting the alleged error rectified under Section 39 (9) of the CGST Act and has not challenged the impugned orders in appeal. Without taking recourse to the above statutory remedies, the petitioner has assailed the impugned orders in the writ petition, that too after a year.
• Devi Traders V. State of Andhra Pradesh: [2023] 152 taxmann.com 22 (A.P.)
  1. Issue: Whether proceedings u/s 74 of APGST Act cannot be independently initiated without having recourse to the scrutiny u/s 61 of the said Act?
  2. Observation: It should be carefully observed that Section 74 starts with the clause “where it appears to the proper officer that any tax has not been paid”. The word “appears” has a wider amplitude subsuming in it not only Section 61 and 65 but also any other credible information from a different source. If the intendment of legislature is to make Section 74 bound by Section 61 and 65 alone, that fact would have been clearly depicted in Section 74. However, we will not find any specific reference to Section 61 or 65 in Section 74 except the usage “where it appears”.
• Devi Traders V. State Of Andhra Pradesh: [2023] 152 taxmann.com 22 (A.P.)
  1. Issue: The impugned order is apparently made pursuant to the Scrutiny of the GST returns filed by the petitioner under Section 61 of the Tamil Nadu Goods and Service Tax Act, 2017.
  2. GST DRC-01 dated 15.02.2022 and the impugned order in GST DRC-07 dated 09.05.2022 are made on the basis of issues that are completely different from what was set out in Form ASMT 10 dated 22.12.2021.
  3. Observation: In the present case, though ASMT 10 was issued on 22.12.2021 pointing out certain discrepancies, the GST DRC-01 dated 15.02.2022 and the impugned order in GST DRC-07 dated 09.05.2022 are made on the basis of issues that are completely different from what was set out in Form ASMT 10 dated 22.12.2021. As this Court is of the view that ASMT 10 is mandatory before proceeding to issue GST DRC-01, failure to issue the same in respect of the discrepancies forming the subject matter in GST DRC-01 dated 15.02.2022 culminating in GST DRC-07 dated 09.05.2022 would vitiate the entire proceedings. It is trite law that when the Act prescribes the method and manner for performing an act, such act shall be performed in compliance with the said method and manner and no other manner.

1.8 Instructions Issued for ‘Scrutiny of Returns’

Instruction No. 02/2022-GST dated 22.03.2022

Standard Operating Procedure (SOP) for Scrutiny of returns for FY 2017-18 and 2018-19

Instruction No. 02/2023-GST dated 26.05.2023

Standard Operating Procedure for Scrutiny of Returns for FY 2019-20 onwards

1.8.1 Highpoints

• 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.
• Scrutiny of returns of one GSTIN shall mean scrutiny of all returns pertaining to a financial year for which the said GSTIN has been selected for scrutiny.
• It may be noted that at this stage, the proper officer is expected to rely upon the information available with him on records.
• As far as possible, scrutiny of return should have minimal interface between the proper officer and the registered person and, there should normally not be any need for seeking documents/records from the registered persons before issuance of FORM GST ASMT-10.
• 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.
• The notice in FORM GST ASMT-10, issued by the proper officer through scrutiny functionality on ACES-GST application, shall be communicated by the system to the concerned registered person on the common portal.
• Therefore, there will be no need for sending any manual communication of notice in FORM GST ASMT-10 by the proper officer to the registered person separately.
• 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.
• It may also be ensured that the discrepancies so communicated should, as far as possible, be specific in nature and not vague or general.
• 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.
• Scrutiny of returns is to be conducted in a time bound manner, so that the cases may be taken to their logical conclusion and that too expeditiously.

Dive Deeper:
GST Show Cause Notices under Sections 25 and 29 of CGST Act

2. Mismatch of the ITC

2.1 Dichotomy of ITC Mismatch

• Non-availability of system of matching as per sec. 42 (Now deleted)
• Genuine mistakes in claiming ITC
• Wrong columns filled in GSTR-3B
• B2B supply reported as B2C in GSTR-1
• RC of recipient cancelled and restored later.
• Wrong ‘place of supply’ reported in invoice/ GSTR-1
• RC of supplier cancelled retrospectively
• Allegation of fake invoices
• Claim of ITC as per rule 36(4) earlier

2.2 Amendment in section 16(2) by insertion of clause (aa)

• Amendment in section 16(2) by insertion of clause (aa): Inserted vide THE FINANCE ACT, 2021 dated 28-03-2021 w.e.f. 01-01-2022
• (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;
• Earlier rule 36(4) applicable up to 31st December 2021:
• (earlier it was deferment)
• (4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been [furnished] by the suppliers under sub-section (1) of section 37 [in FORM GSTR-1 or using the invoice furnishing facility], shall not exceed [5 per cent.] of the eligible credit available in respect of invoices or debit notes the details of which have been [furnished] by the suppliers under subsection (1) of section 37 [in FORM GSTR-1 or using the invoice furnishing facility]

2.3 Amendment in section 16(2) by insertion of clause (ba)

• Amendment in section 16(2) by insertion of clause (ba): Inserted vide THE FINANCE ACT, 2022, yet to be notified.
• (ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;

2.4 Earlier rule 36(4) applicable up to 31st December 2021: (Earlier it was deferment)

Rule-36(4): Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been [furnished] by the suppliers under sub-section (1) of section 37 [in FORM GSTR-1 or using the invoice furnishing facility], shall not exceed [5 per cent.] of the eligible credit available in respect of invoices or debit notes the details of which have been [furnished] by the suppliers under sub-section (1) of section 37 [in FORM GSTR-1 or using the invoice furnishing facility

2.5 Limitation u/s 73 and 74 for issue of SCN for FY 2017-18

U/s 73

• Last date for filing Annual Return for 2017-18 extended up to 05.02.2020/07.02.2020
• SCN u/s 73 can be issued up to 04.11.2022/06.11.2022 (Order within 3 years from the due date for furnishing of annual return for the financial year. Limitation extended for the financial year 2017-18, up to the 30th day of September, 2023)

U/s 74

• Last date for filing Annual Return for 2017-18 extended up to 05.02.2020/07.02.2020
• SCN u/s 74 can be issued up to 04.08.2024/06.08.2024 (Order within 5 years from the due date for furnishing of annual return for the financial year)

2.6 Applicability of Extended Period u/s-74

• by reason of fraud, or
• any wilful-misstatement or
• suppression of facts to evade tax
• “suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer.

2.7 Case Study

Mahendra Feeds and Foods (Trading Division) v. Dy. Commissionerof GST and Central Excise: [2022] 143 taxmann.com 248/66 GSTL 328/94 GST 886 (Mad.)

• SCN treated as communication u/s 42(3)
• Where it was held that if communication u/s 42(3) was not made by revenue for mismatch of ITC and SCN was issued for that mismatch, the supporting documents to substantiate that the output tax had been paid by the supplying dealer at their end should have been procured and filed along with the reply submitted by the petitioner against SCN. Petition dismissed.

Bharti Airtel Limited. v. Union of India 2021 (3) Tmi 1128 – Andhra Pradesh High Court Dated. – February 11, 2021

Applied section 16(2)(c) of CGST Act, 2017

1. 1. 7) Learned Senior Counsel for the petitioners, while praying for an interim order, has submitted that though the petitioners had paid tax, the respondent no.6 had arbitrarily rejected the Input Tax Credit (ITC) on account of mismatch between ITC claimed in Form GSTR-3B vis-å-vis ITC reflecting in Form GSTR -2A on the GST portal. He submits that because of Section 16(2)(c) of the CGST Act, benefit of ITC is denied to the petitioners on account of default of the supplier, over whom the petitioners do not have any control, in paying tax to the Government after having collected the same from the petitioners. It is also submitted that in the Value Added Tax (VAT) regime, similar provision was struck down.
   2. 9) Learned counsel appearing for the Respondents submit that there is no illegality in the impugned order(s) dated 16.11.2020 and the petitioners will not be entitled to any benefit unless Section 16(2)(c) of the CGST Act is struck down and therefore, no interim order is called for. It is also submitted that there is fundamental difference between CGST regime and VAT regime, and so an analogy with VAT regime cannot be drawn.
   3. 10) Section 16 provides for Eligibility and Conditions for taking ITC. Entitlement for ITC is subject to certain conditions and Section 16(2)(c) provides that subject to Sections 41 and 43A of the Act, the amount claimed as ITC is actually paid to the Government. Admittedly, aforesaid condition precedent for taking ITC has not been fulfilled.