GST Section 61 Scrutiny: What Proper Officer Can and Cannot Examine

Summary: Section 61 of the CGST/RGST framework empowers the proper officer to scrutinize returns and related particulars to verify their correctness, with Rule 99 providing the process through FORM GST ASMT-10, ASMT-11 and ASMT-12. Scrutiny is not itself a demand or final adverse determination; it is a process through which discrepancies are communicated and the taxpayer is given an opportunity to explain them. The expression “return” is not confined to GSTR-3B and, where GSTR-9C has been furnished, the financial statements, profit and loss account and balance sheet uploaded with it can be examined as part of the material furnished by the taxpayer. However, Section 61 cannot be used to demand an entirely new set of books or records that were never furnished with a return, which would move the exercise toward audit under Section 65 or search under Section 67. The article also considers discrepancies relating to sundry creditors and sundry debtors, the significance of the word “may”, and the phrase “where it appears to the proper officer” under Sections 73, 74 and 74A. It distinguishes scrutiny from audit by explaining that scrutiny begins with information already available to the department, whereas audit involves calling for and examining books, registers and records. CBIC Instructions No. 02/2022-GST and 02/2023-GST and judicial decisions including Sri Ram Stone Works, Pepsico India Holdings and Vadivel Pyrotech are discussed in relation to the permissible scope of scrutiny and the requirement to follow the statutory procedure.

Section 61: What “Scrutiny” Really Means Under GST

Every few months, a taxpayer or his consultant comes to my office holding a printed copy of Section 61, with one line highlighted: “the proper officer may scrutinize the return.” Their argument is almost always the same — scrutiny is only about the return, nothing else can be looked at, no document can be asked for, and any officer who does more has crossed a line. Some of this is true. Some of it is not. Section 61 is a short section, but it needs a careful reading.

What Does “Scrutiny” Mean?

Scrutiny simply means a close look. Section 61 gives the officer the power to look closely at a return, and the papers that come with it, to check if the return is correct. That’s all it is at this stage. It is not a punishment. It is not a final decision against the taxpayer.

The Process Under Rule 99

The process has three simple steps under Rule 99:

– If something looks wrong, the officer tells the taxpayer in a notice called ASMT-10.

– The taxpayer explains, in a form called ASMT-11.

– If the explanation is good enough, the matter is closed quietly in ASMT-12— no tax demand, no penalty.

So scrutiny is really just the department asking a question and waiting for a proper answer.

What Does “Return” Mean?

Most people think “return” means only GSTR-3B, the monthly summary. It means much more. The law defines “return” as any document a taxpayer is required to file — this includes GSTR-1 (sales details), GSTR-3B (monthly summary), GSTR-9 (annual return), and, for bigger taxpayers, GSTR-9C (the reconciliation statement matched with audited accounts).

Section 61 does not say “GSTR-3B only.” It says “the return and related particulars.” That phrase is wide on purpose. It covers the whole family of returns, plus e-way bills and e-invoices connected to the same sales and purchases.

Can the Officer Look at GSTR-9C Along With the Profit & Loss Account and Balance Sheet?

This is the question I get asked the most, usually as a challenge: “Can you even open our Balance Sheet during scrutiny?”

For a taxpayer who has filed GSTR-9C, the answer is yes — and the reason is simple. When a taxpayer files GSTR-9C, he signs a declaration saying he is also uploading, along with it, his financial statement, profit and loss account, and balance sheet. This is required under Rule 80(3). Once the taxpayer himself has uploaded these papers with his return, they are no longer “outside” documents. They are part of what he has “furnished” — the exact words used in Section 61. So comparing GSTR-9C figures with the profit and loss account and balance sheet is simply scrutiny doing its job.

But there is a limit. The officer cannot use Section 61 to demand a brand-new set of books that were never filed with any return. That kind of demand belongs to a different provision — Section 65 (audit) or Section 67 (search). The rule is simple: if the taxpayer already gave it with his return, the officer can look at it. If he never gave it, the officer cannot suddenly demand it under scrutiny.

Can a Discrepancy Be Raised on Sundry Creditors?

Yes, and this one follows directly from the law. Under the second proviso to Section 16(2), if a buyer does not pay his supplier — both the price and the tax — within 180 days of the invoice, he must reverse the input tax credit he had claimed, along with interest. He can claim it back only after he actually pays.

If the taxpayer’s accounts (filed along with GSTR-9C) show creditors outstanding for a long time, and the credit was never reversed, this is a genuine, provable discrepancy. It is not a random inquiry — it is simply checking whether Section 16(2) has actually been followed, using the taxpayer’s own figures.

Can a Discrepancy Be Raised on Large Sundry Debtors?

Here, I would advise more caution. A very large “Sundry Debtors” figure can sometimes mean something specific: goods that were actually sold over the counter to ordinary customers (B2C) were later shown on paper as sales to registered dealers (B2B), so that credit could be passed on to someone who was never entitled to it.

That is a real pattern, and it deserves attention. But a plain, high number in the Balance Sheet — with no party-wise list or ageing details attached — is only a hint. It is not proof by itself. My own practice is to compare it with the B2B sales already shown in GSTR-1 and ask for an explanation. If the explanation does not hold up and a detailed, party-wise breakup is needed to settle the matter, the honest next step is to seek explanation along with relevant documents or in certain cases send it for a proper audit under Section 65 — not to treat it as a finding under scrutiny alone.

What Does “The Proper Officer May” Mean in Section 61?

The word “may” here is about one thing only: whether to pick a return for scrutiny in the first place. Not every taxpayer’s return is checked every year. Selection today is mostly done through risk-based computer systems run by the department. That is where the choice, or discretion, lies.

But once a real discrepancy is actually found, the officer’s freedom to act narrows. He is expected to tell the taxpayer about it and give him a chance to explain — that is the whole purpose of Rule 99. Courts have gone further and said that once a discrepancy is found, issuing the ASMT-10 notice becomes compulsory before any tax demand can be raised under Section 73 or 74. So “may” gives the officer the choice to start scrutiny — it does not give him the choice to skip the taxpayer’s right to be heard once a problem is found.

What Does “Where It Appears to the Proper Officer” Mean Under Sections 73, 74, and 74A?

This is a different phrase, used for a different, more serious purpose. Section 61’s “may” is about starting a conversation. Sections 73, 74, and the newer Section 74A use “appears to the proper officer” when deciding whether to raise an actual tax demand — one that can end in tax, interest, and penalty.

This phrase sounds like it depends only on the officer’s opinion, but it is not a blank cheque. The officer must have some real basis for that opinion — a discrepancy found in scrutiny, an audit finding, a data mismatch, or credible information. A notice that simply copies standard wording, without stating the actual facts that led the officer to that view, does not meet this requirement. Courts have said this clearly in several recent rulings.

How Is Scrutiny (Section 61) Different From Audit (Section 65)?

The easiest way to tell them apart is by looking at the order of steps, not just the subject.

Scrutiny Begins With Information Already Available

In scrutiny, the officer starts with information already available with the department — returns, GSTR-9C papers the taxpayer filed, e-way bills, e-invoices. He studies this information first, and only after finding something wrong does he frame a specific question for the taxpayer.

Audit Begins With Examination of Books and Records

In audit under Section 65, the order is reversed. The department first calls for books, registers, and records under Section 65(3). These are examined — either at the taxpayer’s premises or at the department’s office — and only after this examination are the findings written down in FORM ADT-02.

In short: scrutiny looks at the record first and then asks a question. Audit collects the record first and then draws a conclusion. If an officer cannot point out a discrepancy without first calling for a fresh set of books, he has quietly moved from Section 61 into Section 65 — whether he realises it or not.

Answering the Argument: “No Documents Can Be Sought Under Section 61”

This argument is not baseless, and it deserves a proper answer, not a dismissal. The CBIC’s own instructions — Instruction No. 02/2022-GST and its follow-up, Instruction No. 02/2023-GST — say that scrutiny should involve as little back-and-forth with the taxpayer as possible, and that there should “normally not be any need for seeking documents/records from the registered persons before issuance of FORM GST ASMT-10.” The Jharkhand High Court, in Sri Ram Stone Works v. State of Jharkhand (decided 9 May 2025), cancelled a batch of ASMT-10 notices because the department had gone beyond checking the return and started comparing prices with the general market rate — something the Court said belongs to audit or a proper case-by-case examination, not scrutiny.

Both of these are correct, and they do not actually clash with what has been said above — they are answering a different question. What they stop the department from doing is using Section 61 to go looking for brand-new material, outside the return, just to manufacture a problem that the return itself does not show. Neither of them says that a document the taxpayer has already filed with his own return — like the financial statements attached to GSTR-9C — is somehow off-limits. The Gauhati High Court, in Pepsico India Holdings Pvt. Ltd. v. Union of India (decided 13 December 2023), and the Madras High Court, in Vadivel Pyrotech (P) Ltd. v. Assistant Commissioner (decided 27 September 2022), both work on the same basic idea — that the ASMT-10 notice is a compulsory step precisely because scrutiny is meant to work with what the taxpayer has already put on record, before anything stronger is done. That is not the same as saying the taxpayer’s own record can never be examined.

So the CA’s and Tax Consultants are right about one part of their argument and wrong about the other. They are right that Section 61 cannot be used to demand fresh proof just to go looking for trouble. They are wrong when they say that nothing beyond GSTR-1 and GSTR-3B can ever be examined, or that no supporting document can ever be asked for once a real, return-based discrepancy has already come up. The law itself says “*return and related particulars*” — not “return alone” — and the GSTR-9C declaration, signed by the taxpayer himself, proves exactly that point.

The Bottom Line

Scrutiny stays lawful only as long as it stays a desk job, built on records that are already available — the returns, whatever the taxpayer has chosen to attach to them, and the trail left by e-way bills and e-invoices. When that record itself throws up a problem — a stock and credit mismatch, unpaid creditors sitting against unreversed credit, or a gap in the GSTR-9C reconciliation — the officer is fully within his rights under Section 61 to raise it and ask for proof behind the taxpayer’s explanation. But the moment scrutiny starts reaching for papers the taxpayer never filed, just to dig up a problem the return never showed, it has stopped being scrutiny. At that point, the fair thing to do — for the officer and the taxpayer alike — is to say so plainly and move the matter to Section 65, where that kind of deeper examination truly belongs.

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Aijaz Hussain Malik, JKAS State Taxes Officer Circle-C, Srinagar writes about GST Compliance.