We all have become familiar and almost adapted by now to receive letters from the GST Department informing about mismatch in returns and statements. Such letters often advise/ direct/ instruct for payment of differential tax amount/ reversal of excess Input tax credit with applicable interest and penalty, if any mismatch is seen in the data for a particular period by the ‘willing officer’. I beg pardon when I use the term ‘willing officer’ to refer to this issue, because it is often difficult to determine whether the term ‘proper officer’ or ‘jurisdictional officer’ is appropriate to these communications or not. It may sound weird or loud to some of the readers, but the truth is that the delegation of powers in GST law is such that, at times, it is not clear enough who is the proper officer for which issue or how to determine the scope of the term ‘proper officer’ when certain proceedings are initiated. Even if the intent of law is clear, the stakeholders especially those who need to administer the law and collect revenue for the Government often feel the burden of certain task is coming heavily upon them, even when it is not so. In some cases, it may appear vice versa as well.
The letters regarding mismatch as were being referred to, are sometimes issued by an officer having jurisdiction over the taxpayer as ‘administrative office’ and sometimes by an officer having jurisdiction over the taxpayer as ‘other office’ as appearing on the GST Portal under “Search Taxpayer” tab, and at many other times, it is even by an enforcement officer in GST. Surprisingly though, even in cases where the enforcement officer issues the letter, the ground for issuing the letter is merely mismatch in returns/ statements. I have been often guided to brainstorm whether this is a worthy matter for initiating enforcement or does the GST law provide for any proceeding for verifying and thereafter for recovery of such mismatches.
To my mind, after deep thoughtfulness and reading of the law in place, it appears that unless there is no reason to believe that there would be any risk of loss of revenue or attempted evasion of tax, enforcement or intelligence does not require to step in. The matter is not worthy to be taken up such officers at all. However, the checking of mismatches and initiating appropriate proceedings for assessment or recovery based on the findings of the checking/ scrutiny is an important tax administration measure. To facilitate this, provision for scrutiny by proper officer has been made under Section 61 of the CGST Act and the respective State GST Acts. Rule 99 of the CGST Rules prescribes the procedure for implementing the parent Section 61.
A mismatch is nothing but a verification of the correctness of any return. As per Section-61, proper officer may scrutinize the return and related particulars furnished by the registered person. The purpose of this scrutiny is :
- To verify the correctness of the return;
- To inform the registered person of the discrepancies noticed, if any, in such manner as may be prescribed; and
- To seek his explanation thereto.
Thus, it is clear that the cases where there appears a mismatch and there is a need to verify the correctness and seek explanations for discrepancies / mismatches, Section 61 provides the administrative machinery for the appropriate proceeding in this regard. However, scrutiny under GST is not mandatory and no periodicity for scrutiny has been prescribed. Only those cases, where it seems appropriate, the returns may be selected for scrutiny, but it seems no criteria or method for selection of cases for scrutiny have been prescribed yet, due to which the manner of these proceedings has not evolved even after lapse of period of annual filing for three financial years post implementation of GST. Who will select cases for scrutiny and how is not known largely. In such a situation, scrutiny proceedings are being replaced by enforcement/ vigilance type proceedings in vague / random manner.
Some taxpayers are replying to these letters considering them as notices, while some are ignoring them. The replies are hardly being responded or properly proceeded to close the proceeding initiated in whatsoever manner. It is rather seen that in most cases, even if scrutiny under Section 61 is initiated, it is not being closed or terminated in proper manner after filing of response by the registered person. It so appears that the purpose of initiating any mismatch proceeding is to recover taxes by initiating such proceedings under the fear of registration getting suspended or ITC getting blocked or inspection or search being conducted upon the taxpayer, if tax is not paid as sought.
Mismatches in returns is very common and not out of place in the initial years of GST, more so, because revision of returns is not allowed in GST and amendments, if any, continue under returns of subsequent periods. For a better understanding of stakeholders and as an effort to increase awareness and understanding of the provisions relating to scrutiny, this article is conceived and written.
The manner prescribed for operating Section 61 is prescribed under Rule 99, and can be understood as below:
♦ The proper officer shall issue notice to the registered person in the FORM GST ASMT-10, informing of any discrepancies observed during scrutiny and seeking his explanation.
♦ The time allowable for submitting explanation by registered person is 30 (thirty days) from date of service of notice or even higher time may be permitted by the proper officer.
♦ As far as possible, the tax, interest and any other amount payable in relation to such discrepancy should be quantified and included in the notice.
♦ The registered person may accept the discrepancy mentioned in the notice issued and pay the tax, interest and any other amount arising from such discrepancy and inform the same. Such correction is required to be made in the return in which the discrepancy is accepted as per Section 61(3).
♦ If the registered person does not accept the discrepancy, he may furnish an explanation for the discrepancy in FORM GST ASMT- 11 to the proper officer.
♦ Where the explanation furnished by the registered person or the information submitted is found to be acceptable, the proper officer shall inform him accordingly in FORM GST ASMT-12.
♦ Where the explanation is not furnished or furnished by the registered person or the information submitted is not found to be acceptable, the proper officer cannot issue ‘order of demand’ out of Section 61 itself, but may rather initiate proceedings under the following provisions, considered appropriate considering the nature and severity of the discrepancy:
- Initiate Departmental Audit under Section 65; or
- Initiate Special Audit under Section 66;
- Initiate Inspection, Search and Seizure as per Section 67;
- Issue Show Cause Notice under Section 73 or 74.
It is important to note here that calling for books and records of the registered person for verification is not part of proceedings under Section 61, however, while furnishing explanation in response to Notice, registered person may like to enclose documents or information in support of explanation furnished. If the proper officer wants to call for books & records of the registered person, he may invoke the provisions of Section 65 or 66 as discussed above. Some common types of mismatches / discrepancies which are known to be taken up by the willing officers usually by writing letters/ emails are:
♦ Mismatch in Turnover in GSTR 1 and GSTR 3B
♦ Mismatch in Input tax credit claimed in GSTR 3B against Input Tax credit made available by GSTR 2A.
♦ Non-payment of Interest under Section 50 in spite of late filing of GSTR 3B
♦ Amendments in outward supplies in GSTR 1 but non-payment of differential tax under GSTR 3B of same month with interest
♦ GSTR 2A of trader showing inward supplies at particular tax rate but no outward supplies appearing at same tax rate.
♦ Filing of Nil returns for more than 6 months whereas inward supplies appearing in GSTR 2A in all months.
♦ ‘Nil’ EWB generated throughout the year, but inward and outward movement of goods is declared in books.
♦ Difference in E Way Bills generated and GSTR 1/ GSTR 2A against the same
♦ Debtors ageing for more than 180 days is Rs. 15,50,000/- as per Notes to Accounts under financial statements uploaded with GSTR 9C, but no credit reversals reported under Rule 37.
♦ Financial Statements uploaded with GSTR 9C showing “Income from Other Services” but no turnover reported in HSN Table against Chapter 99.
The above appear to be fit cases for Section 61 as the discrepancy pointed out is originating from the returns submitted by the registered person or related particulars furnished by the taxpayer. However, letters are seen to be flowing for some more discrepancies which appear to be from external sources/ third party information. Such discrepancies do not qualify for being covered or scrutinized in terms of Section 61 and thus, proceedings under Section 65, 66, 67 or Enforcement provisions may be applicable in such cases. Some examples in this regard may be:
- Non receipt of foreign exchange payments in Bank as per RBI records, but turnover reported as “exports” under GST Returns.
- No vehicle registered in taxpayer’s name under DTO records, but delivery charges for own vehicle delivery recovered from customers as per financial statements.
- On checking of financial statements of one supplier of the taxpayer uploaded by him with GSTR 9C, it was observed that the taxpayer owed Rs. 12,00,000/- to him, but taxpayers’ financial statements do not list him as creditor for same amount.
Such cases cannot be taken up under Section 61 and may need to face other proceedings. But most of the discrepancies noticed are emerging from returns and particulars furnished under GST by the registered person. There is periodicity prescribed for Scrutiny but it appears that it may be better to take up scrutiny for completed financial years after filing of annual returns. This would reduce the difficulties in scrutiny and shall reduce the hardship for repetitive or overlapping enquiries in many cases.
To sum up, two very important aspects of the provision of scrutiny are that this Section cannot be invoked upon any person other than registered person and it has to be performed based on the returns and information furnished by the registered person himself by issuing notice on the common portal. This Section cannot call for any records, returns, books or records as such. No personal hearing in this matter can be issued nor any assessment procedure be carried out under this provision. Thus, it also seems that instead of issuing ASMT 10 online which operates within a limited clear framework as per law and then paves way for further proceedings only in cases where discrepancy cannot be explained, issuing letters which can operate / administer proceedings in open manner without restrictions is taken up as the preferred way of scrutinizing and verifying, but such practice is not correct as per law. The discrepancy should be found from within the returns, and not from external source of additional information for issuing notice under Section-61. Such cases are fit cases for verification of straight mismatches in returns. If the registered person already attended to the mismatches by making appropriate amendments in subsequent returns, he can inform the facts with evidence in this regard to get the issue closed after receipt of notice in ASMT 10. If not, then the proper officer can proceed to invoke provisions for further proceedings to determine liability for recovery if any lies in the manner discussed above.
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By CA. Raginee Goyal, FCA, DISA (ICAI) | Email: raginee@gmail.com
Author Bio
Very good presentation of the facts