Introduction
The scrutiny of returns is a critical mechanism under the Central Goods and Services Tax (CGST) Act, 2017, aimed at ensuring compliance with GST laws and minimizing discrepancies in tax filings. The scrutiny process is governed by Section 61 of the CGST Act, 2017, along with Rule 99 of the CGST Rules, 2017. It empowers the proper officer to examine returns filed by registered taxpayers to verify the correctness of tax liability, input tax credit (ITC) utilization, and other key parameters.
As per Section 61 of the CGST Act, 2017, the proper officer, shall scrutinise the return filed by the registered taxpayer for its correctness of input tax credit availment and discharge of tax liability and notify the discrepancies identified to the taxpayer. If the proper officer is satisfied with the taxpayer’s explanation on discrepancies pointed out, no further action will be taken.
As per Rule 99 of the CGST Rules, 2017, when a return is selected for scrutiny, the proper officer shall scrutinise the same as per Section 61 based on information available to him. The discrepancies shall be intimated to the taxpayer via Form GST ASMT-10 and seek his explanation within 30 days from the date of service of notice (Rule 99 of CGST Rules, 2017)
If the discrepancies pointed out in FORM GST ASMT-10 is not acceptable to the taxpayer then he has to submit his explanation electronically through common portal vide FORM GST ASMT-11 [Rule 99(2)].
If the reply of the taxpayer is found to be satisfactory and acceptable, then the proper officer may inform the taxpayer electronically in FORM GST ASMT-12 [Rule 99(3)].
If no explanation is provided by the taxpayer or if he fails to pay tax within 30 days of intimation, the proper officer may proceed to determine the tax and other dues as per Section 73 or Section 74 of CGST Act, 2017.
The officer may refer the matter to the Jurisdictional Principal Commissioner or Commissioner, if he believes that an audit or investigation is required to determine the correct amount of liability. The Principal Commissioner or Commissioner can decide the appropriate action, like audit by the tax officers under Section 65, special audit by a Chartered Accountant or a Cost Accountant nominated by Commissioner under Section 66 or inspection, search and seizure in terms of Section 67 to be referred to the Audit Commissionerate or Anti Evasion Wing. (Section 73 & 74 of CGST Act, 2017) (Section 65, 66 & 67 of CGST Act, 2017)
No order can be passed under scrutiny assessment as it is not a legal or judicial proceeding.
Objectives of Scrutiny
1. Ensure Revenue Accuracy: To detect underpayments, overclaimed ITC, and other discrepancies that may affect government revenues.
2. Promote Compliance: Encourage taxpayers to maintain accurate records and file correct returns.
3. Minimize Tax Evasion: Deter fraudulent practices such as fake invoicing and misuse of ITC.
Process of Scrutiny
1. Initiation:
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- Returns are selected for scrutiny based on specific risk parameters or discrepancies identified.
- The proper officer reviews returns using available data, including information from GSTR-3B, GSTR-1, GSTR-2A,GSTR-9 and other sources such as e-way bills and ICEGATE (in case of imports).
2. Notification to the Taxpayer: Discrepancies identified during scrutiny are intimated to the taxpayer using Form GST ASMT-10. The taxpayer is required to provide an explanation or rectify errors within 30 days of the notice.
3. Response and Actions:
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- If the explanation is satisfactory, the officer may close the proceedings and inform the taxpayer through Form GST ASMT-12.
- If no explanation is provided or discrepancies remain unresolved, the officer can initiate further proceedings under Sections 73 or 74 of the CGST Act for determining tax dues.
4. Escalation: In cases of suspected fraud or major discrepancies, the officer may escalate the matter to the Principal Commissioner or Commissioner for audits or investigations under Sections 65, 66, or 67.
The list of parameters for selection of GST returns for scrutiny are as follows–
1. The tax liability in Tables 3.1(a) and (b) of GSTR-3B must match with tax liability in Tables 4, 5, 6. 7A(1), 7B(1), 11A and 11B of GSTR-1 [Net of amendments in Tables 9, 10, and 11(II)]. {Outward Tax Liability- GSTR-3B Vs.GSTR-1}
2. Advances adjusted are accurately reflected by reporting the same in Table 11B and Tables 4, 5, 6 and 7 of GSTR-1.
3. Reporting and paying in cash the exact tax liability under the reverse charge mechanism using Tables 3.1(d) for tax liability and 4(A)(2) and 4(A)(3) for ITC claimed on it in GSTR-3B.
. The value in GSTR-3B should be more than the eligible ITC in Tables 3, 4, 5 and 6 of GSTR-2A. {RCM Tax Liability- GSTR-3B Vs.GSTR-2A}
4. ITC claimed in Table 4(A)(4) of GSTR-3B should match with amounts marked as eligible ITC in Table 7 of GSTR-2A (Net of amendments in Table 8). { ITC claimed – GSTR-3B Vs.GSTR-2A}
5. Sales subjected to TCS or TDS under GST in GSTR-3B should match the TDS and TCS credit reflected under Column 6 of Table 9 of the GSTR-2A. { TCS or TDS claimed – GSTR-3B Vs.GSTR-2A}
6. In Table 3.1(a) and (b) of the GSTR-3B the tax liability should match with the corresponding e-way bills. {Outward Tax Liability- GSTR-3B Vs. e-way bills }
7. ITC is ineligible for claims for the period after the effective date of cancellation of the supplier’s GST registrations, especially in case of retrospective cancellation of GST registrations.
8. The GSTR-3B filing status of respective vendors must not be ‘No’ while claiming ITC of such invoice or debit note in the GST returns, despite it appearing in the GSTR-2A. {Check FILING status of GSTR-3B}
9. No ITC should be claimed if the relevant period’s GSTR-3B is filed after the last date allowed under Section 16(4) of the CGST Act, 2017, i.e. 30th November of the year following the financial year in which such invoice/debit note is raised or date of filing annual returns, whichever is earlier. (Section 16(4) of CGST Act)
10. ITC on import of goods in Table 4(A)(1) of GSTR-3B should match with amounts in Tables 10 and 11 of GSTR-2A and data on ICEGATE. { ITC Import – GSTR-3B Vs.GSTR-2A Vs. ICEGATE data}
11. Adherence to Rule 42 and 43 of CGST Rules, 2017 for accurate reversals of ITC in Table 4(B) of GSTR-3B. (Rules 42 and 43 of CGST Rules, 2017)
12. Computation and payment of late fee/interest as per Sections 47 and 50 of the CGST Act, 2017, wherever return filing/tax payment is delayed. (Sections 47 and 50 of CGST Act, 2017)
The proper officer is expected to depend on the information available to the Department. He should have a minimal interface with the taxpayer and normally should not ask for documents from the taxpayer before the issuance of Form GST ASMT-10.
As per Rule 99 of the CGST Rules, 2017, when a return is selected for scrutiny, the proper officer shall scrutinise the same as per Section 61 based on information available to him.
Conclusions regarding Parameters for Scrutiny
Key areas of scrutiny include:
1. Outward Tax Liability:
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- Comparing liability reported in GSTR-3B with GSTR-1 and e-way bills.
- Ensuring all taxable supplies are accurately declared.
2. Input Tax Credit (ITC):
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- Verifying ITC claimed in GSTR-3B against supplier details in GSTR-2A and import data.
- Checking compliance with ITC eligibility criteria, such as filing timelines and supplier compliance.
3. Reverse Charge Mechanism (RCM): Ensuring proper declaration and payment of RCM liability and corresponding ITC claims.
4. TCS/TDS Credits: Matching TCS/TDS credits in GSTR-3B with GSTR-2A.
5. Timely Filing and Payments: Ensuring compliance with deadlines for filing returns and payment of interest or late fees as per Sections 47 and 50 of the CGST Act.
Relevant factors for Scrutiny of Returns:
While scrutinising the returns, certain vital factors need proper verification to ascertain whether the tax liability has been discharged properly and whether the other compliances like availment of ITC, payment of interest, Late fee, etc. is in order. Some of such factors that need to be considered by the Officer while scrutinising the returns, are as under-
1. Tax liability on account of “Outward taxable supplies (other than zero rated, nil rated and exempted)” and “Outward taxable supplies (zero rated)” declared in FORM GSTR-3B may be verified with corresponding tax liability in respect of outward taxable supplies declared in FORM GSTR-1
If the tax liability in respect of supplies declared in FORM GSTR-1 exceeds the liability declared in FORM GSTR-3B, it may indicate short payment of tax.
All amendments to invoices need to be checked to confirm whether they are appropriately reflected in GSTR-1 and GSTR-3B. Also, it has to be verified whether the liability reported in GSTR-1 matches the liability reported in the GSTR-9 return. {Outward Tax Liability- GSTR-3B Vs.GSTR-1Vs. GSTR-9 }
2. Tax liability on account of “Inward supplies liable to reverse charge” declared in FORM GSTR-3B may be verified with the ITC availed in respect of inward supplies attracting reverse charge, available in FORM GSTR-2A.
In respect of inward supplies attracting reverse charge received from a registered person, the details of corresponding invoices and debit/credit notes are available in FORM GSTR-2A.
However, the details of such inward supplies from unregistered persons are not available in FORM GSTR-2A, as only registered persons furnish FORM GSTR-1.
Also, details of ITC on account of import of services are not available in FORM GSTR-2A.
As such, the reverse charge supplies declared in FORM GSTR-3B cannot be less than the inward supplies attracting reverse charge as available in FORM GSTR-2A. {RCM Tax Liability- GSTR-3B Vs. GSTR-2A Vs. Self genereated Invoice Vs. Import of Service}
3. ITC availed in respect of “Inward supplies from ISD” in FORM GSTR-3B should be verified with FORM GSTR2A. Also, the ITC availed in respect of “All other ITC” in FORM GSTR-3B should be verified with FORM GSTR-2A. { ITC Availed- GSTR-3B Vs.GSTR-2A }
4. The taxable value declared on account of “Outward taxable supplies (other than zero rated, nil rated and exempted)” should be verified in FORM GSTR-3B to ascertain that it is not less than the net amount liable for TCS and TDS credit as per FORM GSTR-2A.
The details of such TDS and TCS are furnished by the deductors and operators in their FORM GSTR-7 and FORM GSTR-8, respectively, and made available to the registered person in FORM GSTR-2A.
Besides such supplies, the registered person may have other supplies also. Liability on account of outward supplies in FORM GSTR-3B should also be verified with the Tax liability as declared in e-way bills. {TDS/TCS- GSTR-3B Vs. GSTR-2A & e-way bills }
5. In case of retrospective cancellation of registration of a supplier, the recipient is not entitled to claim ITC in respect of invoices or debit notes issued after the effective date of cancellation of the registration.
The effective date of cancellation of registrations of the suppliers is available in FORM GSTR-2A.
It may be verified whether the registered person has availed ITC in respect of such invoices or debit notes issued by the suppliers after the effective date of cancellation of their registrations. { effective date of Cancellation-GSTR-3B Vs. GSTR-2A}
6. FORM GSTR-2A of the registered person contains the details of “GSTR-3B filing status” of the supplier in respect of each invoice / debit note received by the registered person.
Where the said status is “No”, it indicates the supplier has furnished invoice details in his FORM GSTR-1, but has not furnished the return in FORM GSTR-3B for the corresponding tax period. The availment of ITC in respect of such invoices / debit notes should be checked and appropriate action as per the law should be taken. {GSTR-3B filing status- GSTR-2A}
7. If GSTR-3B of a tax period is filed after the last date of availment of ITC in respect of any invoice / debit note then in such cases, no ITC shall be availed in the return, as Section 16(4) of CGST Act, 2017 provides for availment of ITC only till the 30th day of November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
If any return in FORM GSTR-3B is furnished after such time by the registered person, any ITC availed therein is inadmissible. {GSTR-3B filing status- Date of filing}
ITC availed in respect of “Import of goods” in FORM GSTR-3B may be verified with corresponding details in FORM GSTR-2A. Also, the details of such imports be cross-verified from ICEGATE portal. { Import of goods” status- GSTR-2A, ICEGATE portal }
9. Rule 42 of the CGST Rules, 2017 provides for manner of determination of input tax credit in respect of inputs or input services and reversal thereof.
Rule 43 provides for manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. It is necessary to verify whether requisite reversals have actually been made by the registered person.
10. In case of delay in payment of tax, it has to be verified whether interest payable as per the provisions of Section 50 of the CGST Act, 2017 has actually been paid by the registered person.
11. In case of delay in filing of returns / statements, it has to be verified whether late fee payable as per the provisions of Section 47 of the CGST Act, 2017 has actually been paid by the registered person.
The proper officer shall issue a notice to the taxpayer indicating all the discrepancies noticed and seek his explanation thereon in FORM GST ASMT-10 within 30 days of notice. He shall quantify the tax, interest, and other such sums payable regarding the discrepancies noticed. If the registered taxpayer has already made the additional tax payment through FORM GST DRC-03, then the same should be considered while communicating discrepancies to the taxpayer in FORM GST ASMT-10.
If the registered taxpayer accepts the discrepancy, he has to make the payment of tax through FORM GST DRC-03, if he does not accept the discrepancy, he has to submit his explanation in respect of the discrepancy vide FORM GST ASMT-11.
If the response is found to be satisfactory, then the proper officer may inform the taxpayer vide FORM GST ASMT-12.
If no explanation is provided by the taxpayer or he fails to pay the tax within 30 days of intimation, the proper officer may proceed to determine the tax and other dues as per Sections 73/Section 74 of CGST Act, 2017, as the case may be.
The officer may refer the matter to the Jurisdictional Principal Commissioner or Commissioner, if he believes that an audit or investigation is required to determine the correct amount of liability. The Principal Commissioner or Commissioner can decide the appropriate action, like audit by the tax officers under Section 65, special audit by a Chartered Accountant or a Cost Accountant nominated by Commissioner under Section 66 or inspection, search and seizure in terms of Section 67 and to be accordingly referred to the Audit Commissionerate or Anti Evasion Wing. (Section 65, 66, 67, 73 & 74 of CGST Act, 2017)
For each selected GSTIN, the proper officer must scrutinise all the returns of the corresponding financial year and issue a single notice vide FORM GST ASMT-10.
The scrutiny of returns shall be completed in a specified period to safeguard revenue.
Impact of Non-Compliance
1. Penalties: Non-compliance can lead to penalties, interest, and additional tax liabilities under Sections 73/74.
2. Audits and Investigations: Cases can be escalated to audits, special audits, or enforcement actions, including inspection and seizure.
Conclusion
The scrutiny of returns is a proactive measure to ensure the accuracy of tax filings and compliance with GST provisions. It not only safeguards government revenue but also reinforces discipline among taxpayers. Timely responses and accurate record-keeping by taxpayers can prevent escalations and ensure smooth resolution of discrepancies. By adhering to GST laws and maintaining transparency, businesses can avoid penalties and contribute to the efficient functioning of the GST framework.
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