Scrutiny of GST returns is an important tool in tax administration to ensure compliance with the provisions of tax laws. The CGST/SGST/UTGST Act 2017 provides for scrutiny of returns of the registered taxable person to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess compliance with the provisions of the Act or the rules made there under. The activity requires a detailed examination with focused and clinical approach.
The objective of this activity is to standardize and streamline the procedural aspect with regards to the scrutiny of returns as per section 61 of the Act,. it also envisages the subsequent actions as per section 73/74 of the CGST/SGST/UTGST Act, 2017 if needed to be undertaken, for demand and recovery. Scrutiny provides for procedure and guidelines in respect of issuance of notice, communication of discrepancies to taxpayers, verification of records and explanation submitted, if any, the manner of reporting the action taken, maintenance of record and overall conduct of scrutiny function by the officers of the Excise and Taxation Department too.
In this given article, I want to explore the relevant sections read with the rules and how to tackle such notices in a prudent manner to avoid any future litigation.
Analysis of section 61 read with rules 99 –
> Section 61 of GST Act has empowered GST officer to verify the correctness of returns and the related particulars furnished by the registered persons. After scrutiny of the returns if any discrepancies is noticed then the proper officer shall inform by serving notice in FORM ASMT-10.
> The registered person shall within a period of 30 days or further extended period as allowed by the CGST officer, shall either accept the discrepancies and pay the tax including interest and penalty or furnish an explanation for the said discrepancies in FORM ASMT 11.
> Where the explanation in ASMT 11 is found acceptable then the proper officer shall inform the acceptance in ASMT 12 and no further action is required and accordingly the proceeding is dropped.
> Where the explanation in ASMT 11 is not satisfactory, then the proper officer may initiate appropriate action under section 65 or 66 or 67 or proceed to determine tax under section 73 or 74. Here no personal hearing is required before the proper officer to explain the case.
The notice issued by the tax official may indicate some discrepancies which were observed during scrutiny of return by him. If due to any of the indicated discrepancy, taxpayer is liable to pay differential tax, and he agrees to the discrepancy and pays the tax due on this count, he may mention the said agreed amount paid and enter the payment particulars in its reply to notice in Form GST ASMT 11. If he is yet to pay the admitted amount, he can pay it either by using Form DRC-03 or he may furnish the outward supply invoice/debit note/amended invoice/amended debit note, in Form GSTR-1 or by paying tax, as the case may be, at the time of filing Form GSTR-3B, in reply to the notice.
Departments Claw
The Goods and Services Tax Act (GST) has come into force in India with effect from the 1st July 2017. This new taxation system is stabilizing on one hand, and on the other hand GST Authorities, throughout India, have detected large number of fraud cases of bogus invoices, availing credit without receipt of goods or services, etc. It is interesting that most cases have been detected based upon intelligent scrutiny of data base available with tax authorities. The GST Council has initiated analytics of a large pool of data and text gathered during the past year, and based on results of analytics work will catch hold of wrong doers with aim to prevent frauds under GST. The fraud analytics activity is also aimed to weave in more intelligence, tax accountability, and widen the tax base.
Any activity carried by the department aimed to arrest the leakage of revenue in different and various modes and department raise their claw in the following scenarios..
Incidence of Bogus Bills issued by Registered Tax Payer.
One must observe that, Why and How the tax payer issued Bogus Bills….
Why…
> Availment of ITC without receipt of goods or Services or Both.
> To increase turnover for higher valuation.
> For banks overdraft facility/ overcome NPA status.
> Financial Difficulties.
How…..
For example, A B C D and E are registered tax payers, and E is exporter (bogus export and claim refund)
Assumption-1, A do not file return and does not pay GST and vanishes but B to E file returns.
Assumption-2, A pays tax, disclose in his return too but raises invoice without any supply. Mostly to increase the turnover or bank facilities.
Assumption-3, A issue invoice to B who takes credit but goods are given to C without invoice.
Assumption-4, Encasement of accumulated ITC.
Assumption-5,A – B – C – D – E : A does not pay tax and do not file returns. But, B to E files return by availing credit.
Departments Methodology for detection
1. Analyze data of Non-fillers of GSTR 1 and GSTR 3B (A in this case)
2. Analyze data of Non-fillers of GSTR 3B but who have filed GSTR 1
3. Mismatch between E Way bill and GSTR 1 transactions leading to inference that only Bills have been issued
4. Analyze cases where full tax payment is through ITC coupled with sensitive commodities.
- Butter manufacturer taking credit on Ghee.
- HDPE user taking credit on PVC.
- Ground nut oil manufacturer taking credit on Castor seeds.
5. Cases of substantial higher GST invoice value (on which IGST paid and claimed refund) as compared to FOB value declared in Shipping bill
6. Compare ITC as per GSTR 3B and GSTR 2A – Cases where ITC as per 3B is much higher that 2B. It will highlight cases where ITC availed but supplier has not filed GSTR 1.
7.Compare import data (value and IGST) from Custom’s with sales as per GSTR 1 and GSTR 3B – Cases where there is Import but no sale – Mostly Consumer goods cases
8.Compare purchase data (value and IGST) as per GSTR 2A with sales as per GSTR 1 and GSTR 3B
9.Returns are Filed but only part credit taken or part utilization of ITC leading to regular accumulation of ITC for traders (other than inverted duty structure) – Part goods are sold without invoices (Table Sl 8 (E) of GSTR 9) For import 8 J )
10. Non-filers – GSTR 3B or GSTR 1 or both
11. E-way bill details comparison with GSTR-I/GSTR 3B information may show cases of unaccounted sale – E-Way bill but no GSTR 1
12. Sale to URD ( B 2 C) by manufacturers/wholesalers (cash bills) – Indication of sale to actual user without invoice and bill raised to fake person.
Selection of non-filers Cases.
1. Substantial purchases as per GSTR 2A/ import data but no GSTR 3B filed
2. Past tax payments –Trend Analysis to find out riskier cases
3. Use of Section 150 : Check TDS deduction by customers of Non – filer entity – Use of Income Tax data (It means there is sale by Non-filer but not declared for GST purpose) – Can be very useful for default by Service providers like Contractors, Commission Agent, Security providers
4. NPA cases as per Bank/RBI report – Airline’s cases
5. Analysis of E Way Bill : E way bill but no invoice.
Transfer of credit temporarily / permanently
1. Issue of sales invoice and later on reversal of transaction by issue of Credit Note to transfer credit temporarily
2. If accumulated Credit – Issue only invoices to transfer credit (mostly in Group company transactions)
3. Identify cases of substantial accumulated credit and supply to related person
SOP for Scrutiny of GST returns for FY 2017-18 and 2018-19.
Despite above, CBIC vide Instruction No. 02/2022-GST on 22nd March, 2022 released Standard Operating Procedure (SOP) for Scrutiny of returns for FY 2017-18 and 2018-19 which consists of provisions under Section 61- Scrutiny of returns, Rule 99-Scrutiny of returns), Basis for Selection of GST returns for scrutiny, Proper officer for scrutiny of returns, Scrutiny Schedule, Process of scrutiny by the Proper Officer, Timelines for scrutiny of returns, Scrutiny Schedule, Indicative List Of Parameters For Scrutiny, Scrutiny Register To Be Maintained By The Proper Officer and Monthly Scrutiny Progress Report format.
The aforementioned provisions suggest that scrutiny of returns, as under
(a) Selection of returns furnished by a registered person for scrutiny, preferably based on robust risk parameters.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
Process of scrutiny by the Proper Officer
1.The Proper Officer shall scrutinize the returns furnished by the registered person. 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.
2. For convenience of proper officers, an indicative list of parameters to be verified. The proper officer may also consider any other parameter, as he may deem fit, for the purpose of scrutiny.
3. Scrutiny of returns 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 taxpayers before issuance of FORM GST ASMT-10.
4. The proper officer shall issue a notice to the registered person in FORM GST ASMT-10 informing him of the discrepancies noticed and seeking his explanation thereto. While issuing such notice, the Proper Officer may 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 may be specific in nature and not vague or general. There may be cases where the registered person may already have made additional payment of tax, cess, etc., after filing of the returns for the relevant tax period, through FORM GST DRC-03. The payments thus made through FORM GST DRC-03 may also be taken into consideration while communicating discrepancies to the taxpayer in FORM GST ASMT-10.
5. For each GSTIN identified for scrutiny for a financial year, the proper officer is required to scrutinize all the returns pertaining to the corresponding Financial Year under consideration and a single compiled notice in FORM GST ASMT-10 may be issued to the taxpayer for that financial year.
6. The registered person may accept the discrepancy mentioned in the notice issued in FORM GST ASMT-10, and pay the tax, interest and any other amount arising from such discrepancy through FORM GST DRC-03 and inform the same or may furnish an explanation for the discrepancy in FORM GST ASMT-11 to the proper officer within the time period prescribed under rule 99 of CGST Rules.
7. 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.
8. 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. Needless to mention, for proceeding under section 73 or section 74, monetary limits as specified in Circular No. 31/05/2018-GST dated 9th February 2018 shall be adhered to. However, if the proper officer is of the opinion that the matter needs to be pursued further through audit or investigation to determine the correct liability of the said registered person, then he may refer the matter to the jurisdictional Principal Commissioner / Commissioner through the divisional Assistant / Deputy Commissioner, for the decision whether the matter needs to be referred to Audit Commissionerate or Anti-evasion Wing of the Commissionerate, as the case may be.
This article has not been discussing the issues like selection of returns for scrutiny, proper officer for scrutiny of returns, scrutiny schedule, timelines for scrutiny of returns, reporting and monitoring, indicative list of parameters for scrutiny of returns being that the entire saga available n the said notification. However, I am herewith put-forth major chunk for scrutiny.
And whereas, taxpayers while claiming fraudulent ITC do have genuine transactions as well. They deal with a large number of genuine taxpayers who deal with them in good faith. However, once such taxpayers are red flagged in the data analysis being done by the department, all their transactions come into the ambit of scrutiny resulting sometimes in perceived harassment to genuine taxpayers too.
Some scenarios of differences and important tips to tackle the issues
1. Difference in liability declared in GSTR 3B and GSTR 1:
Scenario- There may a case that there is a difference between GSTR 3B and GSTR 1 with
respect to the liability amount.
RTP first reconcile its books with respect to GSTR 3B. It may happen that some credit note has not been considered while filing GSTR 1 or debit note, as the case may be. It may also happen that at the time of filing GSTR 1 credit note has wrongly been entered as debit note and as a result there is a double difference in GSTR 3B and GSTR 1.At the time of furnishing reply to the notice, it is advisable to upload the respective credit note/ debit note along with the reconciliation statement. A certificate from CMA may be taken towards the reconciliation statement.
2. Difference in input tax credit declared in GSTR 3B and GSTR 2A:
Scenario- There may a case that there is a difference between GSTR 3B and GSTR 1 with
respect to the input tax credit.
This is very common matter. Till date most of the persons have taken input tax credit based on the valid tax invoices of the suppliers as entered in their books of accounts. There are several cases where suppliers have issued tax invoices but they have not filed the returns in GSTR 1 or filed GSTR 3B returns but not filed GSTR 1 returns. As a result there is a difference in 2A and 3B. There are several other cases where recipient has availed input tax credit of the tax paid under reverse charge basis as well as IGST paid on import of goods. These are not reflected in GSTR 2A and as a result there are differences. A clear reconciliation, GSTN number wise, is advisable so that the main reason could be found out. Reply to such difference should be made carefully so that any future litigation issues will be properly dealt with.
3. Difference in e-Way bill generated and outward supply in GSTR 1:
Scenario- There may a case that there is a difference between total amount of supply declared in GSTR 1 or 3B and the value of outward e-way bills generated.
E-way bills are generated for movement of goods and all movement of goods may not be the supply of goods. Movement of goods may be other than supply e.g. repairing of goods, supply for job work, returns of goods etc. Detailed reconciliation is to be uploaded and for every e-way bill number the reason will be properly defined in order to avoid future litigation.
The above scenarios are examples only. There could have been many reasons. RTP may reconcile its books with GSTR 1return and 3B returns. If there are no discrepancies in books and 3B then RTP upload the suitable reply reconciling the turnover of books with 3B and tax payable is NIL. If any difference is noticed during reconciliation then prefers to pay tax voluntarily to ignore penalty or proceedings for tax determination under section 73 or 74, as the case may be.
Finally, as registration process has a low entry barrier, scrutiny/verification and subsequent monitoring of registered taxpayers through risk profiling and verification for early identification of fraudsters indulging in fake invoices is critical. This would include maintenance of offence database of those figuring in frauds to prevent re-entry in the System. There is a need for an independent risk profiling module to parse registration data having access to third party databases like vehicle registration, Aadhar, PAN, addresses etc. The module will flag risk indicators against registered taxpayers based on risk rules which can be verified by jurisdictional Divisions/ranges. Post cancellation profiling of such persons based on Aadhar/PAN etc. so that re-registration by such persons is dealt with differently than normal registration. Re-applying for registration if cancelled once should be flagged and officers granting such registration should be alerted. There should be no deemed registration in such cases. Physical verification should be a must for such cases. If this is done, it would discourage fraudulent taxpayers to a large extent. Re-registrations are very rampant by camouflaging or changing some of the parameters. Aadhar based validations of authorized signatory, directors; partners will help in identifying some such cases. Those not agreeing for aadhar based validations can always be subjected to more scrutiny and denial of deemed registration etc.
GST Returns Scrutiny Manuals/ SOP’s provides for procedure and guidelines in respect of issuance of notice, communication of discrepancies to taxpayers, verification of records and explanation submitted, if any, the manner of reporting the action taken, maintenance of record and overall conduct of scrutiny function by the department.
References
1. GST Circulars on returns from CBEC,
2. SOP issued CBIC-20006/4/2022-GST bearing instruction No. Instruction No. 02/2022-GST dated 22.03.2022.
3. Article published by CMA Utpal Kumar Saha AGM – Indirect Tax, McNally Bharat Engineering Co. Ltd.
4. Articles extracted from Sushil Solanki, FCA Principal Commissioner of Service Tax (Rtd) for BCAS.
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