Notice cannot be issued comparing particulars at which Assessee has sold its goods with that of prevalent market price
The Jharkhand High Court, in the case of Sri Ram Stone Works v. State of Jharkhand, [W.P. (T) Nos. 5535/2024 dated May 09, 2025], has quashed Goods and Services Tax (GST) notices issued under Section 61 of the CGST Act, 2017. The court ruled that the department exceeded its jurisdiction by comparing the petitioner’s declared transaction value for stone boulders/chips with prevalent market prices. The petitioner, a mining lessee/dealer, was issued notices alleging sales below market price and threatened with proceedings under Sections 73/74 of the CGST Act. The High Court clarified that Section 61 is specifically for the scrutiny of returns to identify discrepancies, not for price benchmarking or value substitution unless transactions are proven to be sham. It emphasized that the GST framework, particularly Section 15, establishes transaction value as the sole basis for valuation between unrelated parties at arm’s length. The court observed that the notices, by focusing on market price comparisons rather than actual discrepancies in returns, were “wholly without jurisdiction.” This ruling curbs the unwarranted use of Section 61 for speculative undervaluation claims and reinforces procedural safeguards under the GST regime.
Facts:
M/s Sri Ram Stone Works (“the Petitioner”), are mining lessees/dealers engaged in the business of sale of stone boulders/stone chips to various customer and is registered under the JGST Act.
A Notice was issued to the Petitioner under Section 61 of the CGST Act/JGST Act, stating, that the Petitioners had sold stone-boulders/stone chips at prices lesser than the prevalent market price and accordingly, the Petitioners were directed to show cause as to why proceedings under Section 73/74 of the CGST Act should not be initiated against them.
The Petitioner contended that the notices issued under Section 61 of the CGST Act/JGST Act are limited to the extent to discrepancy occurring in the returns and issuance of notices by comparing taxable value of supply disclosed by the Petitioner in their returns with that of market price of goods, is beyond the scope of Section 61 of the CGST Act.
Despite such reply being filed, in some cases, subsequent notices in Form GST ASMT-10 were again issued and all such Notice was under challenge in the present writ petitions.
Issue:
Whether notice under Section 61 of the CGST Act can be issued comparing particulars at which Assessee has sold its goods with that of the prevalent market price?
Held:
The Hon’ble Jharkhand High Court in W.P. (T) Nos. 5535/2024 held as under:
- Observed that, the Section 61 of the CGST Act/ the JGST Act are with a clear objective to enable an Assessing Officer to point out discrepancies and errors which are occurring in the return filed by a registered person with that of the related particulars. In fact, aforesaid Section also provides, inter alia, that in spite of discrepancies pointed out, if corrective measures are not undertaken by registered person, the proper officer may initiate appropriate action including action under Sections 65 to 67 and Section 73 or 74 of the of the CGST Act/ the JGST Act.
- Noted that, there are three separate enabling provisions:
a. At preliminary stage of return filing:
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- Section 61 – Scrutiny of returns,
b. Investigating, provisions
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- Section 65- Audit by tax authorities;
- Section 66- Special audit.
- Section 67- Power of inspection, search and seizure;
- Section 68-Investigation of goods in movement;
- Section 69- Power to arrest;
- Section 71 – Access to business premises.
c. Adjudicatory, provisions:
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- Section 73- Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts.
- Section 74- Determination of tax nor paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful-misstatement or suppression of facts.
- Opined that, notices under Section 61 have been issued to the Petitioners and instead of pointing out discrepancies in the returns filed by the Petitioners, the competent officer has embarked upon an exercise of comparing the price at which the Petitioners have sold their stone-boulders/stone-chips with that of prevalent market price and, thereafter, accordingly, issued notices the Petitioners asking them to show cause as to why appropriate proceedings for recovery of tax and dues be not initiated against them.
- Noted that, notices issued comparing the particulars at which the Petitioners have sold their goods with that of prevalent market price, is wholly without jurisdiction and beyond the scope of Section 61 of the CGST Act. In fact, it is settled law that unless transactions of sale are shown to be sham transactions or the mere fact that the goods were sold at a concessional rate/rate less than market price would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value. Hence, the notices issued to the Petitioner is without jurisdiction.
- Held that, in the notices, there were certain overlapping facts relating to alleged discrepancy occurring in returns of the Petitioner apart from alleged discrepancy relating to market value of goods. However, no action can be taken merely because of difference in transaction value at which the Petitioner sold the goods with that of prevalent market value of goods. Accordingly, instant writ petition was allowed to the extent indicated above and impugned notices issued under Section 61 of JGST Act, were quashed and set aside.
Our Comments:
Section 61 of the CGST Act prescribes “Scrutiny of returns”. Section 61(1) of the CGST Act prescribes that 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.
The attempt of the Department to invoke scrutiny proceedings solely based on alleged undervaluation in comparison to the market rate constitutes an untenable extension of jurisdiction. The Court has correctly held that such action transgresses the statutory framework, particularly when Section 15 of the CGST Act lays down that the transaction value is to be the sole basis for valuation, provided the transaction is between unrelated parties and is priced at arm’s length.
The ruling will significantly curb unwarranted issuance of FORM GST ASMT-10 based on speculative benchmarks like “prevalent market prices”, thereby strengthening taxpayer confidence and ensuring fidelity to procedural safeguards under the GST regime.
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