Summary: Under the GST framework, every taxable person is liable to pay tax on all supplies of goods or services, based on the value determined under Section 15, at the notified rate. Self-assessment is required under Section 59, where registered persons must determine their tax liability and file returns for each tax period, primarily through GSTR-1 and GSTR-3B. To ensure accuracy, the CGST Act provides mechanisms like scrutiny under Section 61, audits under Sections 65 and 66, and inspections under Section 67. Section 61 allows tax authorities to scrutinize returns to verify declared turnover, taxes paid, refunds claimed, and input tax credit availed. If discrepancies are found, a notice (FORM GST ASMT-10) is issued, and the taxpayer must respond or correct the error. If unresolved, further action can be initiated under Sections 73 or 74. Recent judgments have clarified that scrutiny under Section 61 is not a prerequisite for actions under Sections 73 or 74, as these sections can be triggered by various factors, including other credible information. The courts have ruled that the processes under Sections 61 and 73/74 are distinct and independent.
Liability to pay tax
Every taxable person shall be liable to pay tax on all supplies of goods or services, on the value determined u/s 15, at the notified rate.
Self-assessment by registered person u/s 59.
As per provisions of section 59, every registered shall self assess his tax liability under the Act and furnish return for each tax period u/s 39 after making payment of due taxes. Accordingly, every registered person require to furnish returns mainly GSTR1 and GSTR 3B for each tax period.
Mechanism for verification of correctness of the returns.
In order to examine, whether turnover declared, taxes paid, refund claimed and input tax credit availed, by the registered persons in the returns correctly as per provisions of law, certain provisions have been made in the Act, which includes scrutiny of returns u/s 61, audit by the tax authorities u/s 65, special audit by the nominated CA or cost accountant u/s 66, inspection u/s 67. The proper officer, by exercising power vested under said sections verify the correctness of the returns and take appropriate action to recover the short payment of taxes if any.
Scrutiny of returns u/s 61.
Section 61 of CGST Act read with rule 99 the CGST Rules provides for scrutiny of returns and related particulars furnished by the registered person. By exercising said powers, proper officer may scrutinize returns to verify the correctness of the returns, on the basis of available information. This section prescribe procedure and actions to be taken where discrepancies noticed.
Notice for intimating discrepancies in the return after scrutiny (ASMT10).
It is provided in the section 61 that ,where, any discrepancy noticed during the course of scrutiny of returns, proper officer shall issue a notice to the said person in FORM GST ASMT-10, informing him of such discrepancy and seeking his explanation thereto within such time, and also, where possible, quantifying the amount of tax, interest and any other amount payable in relation to such discrepancy. The registered person may accept the discrepancy mentioned in the notice issued under subrule (1), and pay the tax, interest and any other amount arising from such discrepancy and inform the same or furnish an explanation for the discrepancy in FORM GST ASMT-11 to the proper officer. And Where the explanation furnished by the registered person or the information submitted under sub-rule (2) is found to be acceptable, the proper officer shall inform him accordingly in FORM GST ASMT-12.
Initiation of Appropriate action in case of non- compliance of discrepancies.
As per section 61(3) of the Act, in case where no satisfactory explanation is furnished or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74.
Whether adjudication or assessment can be done u/s 61.
When read with sub-section (3) of Section 61, which provides the option of determining tax and other liabilities by resorting to Sections 73 or 74, it becomes clear that neither reassessment nor adjudication takes place under Section 61. Indeed, it should be noticed that unlike Section 60(provisional assessment under conditions prescribed therein) or Section 62(best judgment assessment of non-filers subject to conditions prescribed therein) or Section 63(assessment of unregistered persons) or Section 64 (summary assessment), no assessment, including reassessment, is undertaken under Section 61. Thus, neither any adjudication order or assessment order shall be passed under section 61 of the Act.
Determination of tax liability under section 73 or74.
Section 73 or 74 provides for determination of tax liability. 73(1) and 74(1) of the Act provides that Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, the proper officer should initiate proceeding under said section shall issue under said sections to demand, determine and recover such tax liability. Plain reading of said section makes clear that there is no precondition of initiation of proceeding under any other proceeding including section 61 for formation of his opinion regarding short payment of tax liability. The scrutiny proceedings of return u/s 61and proceeding under Section 73 or 74 are two separate and distinct exigencies and issuance of notice under Section 61(3), therefore, cannot be construed as a condition precedent for initiation of action under Section 73 or 74 of the Act.
Relevant judgments.
( 2023-TIOL-743-HC-AP-GST ) In the case of Devi Traders Vs State of Andhra Pradesh (Dated: June 19, 2023), issue was involved, Whether proceedings U/s 74 of APGST Act cannot be independently initiated without having recourse to the scrutiny U/s 61 of the said Act? The High court has observed that
Para 9. (a) It should be carefully observed that Section 74 starts with the clause “where it appears to the proper officer that any tax has not been paid”. The word “appears” has a wider amplitude subsuming in it not only Section 61 and 65 but also any other credible information from a different source. If the intendment of legislature is to make Section 74 bound by Section 61 and 65 alone, that fact would have been clearly depicted in Section 74. However, we will not find any specific reference to Section 61 or 65 in Section 74 except the usage “where it appears”.
Para 9((b) The above statutory interpretative jurisprudence depicts that when the statute is clear, plain and unambiguous Court has to make a literal interpretation by obliging the Parliamentary supremacy, for, the legislation is the domain of legislative body but not the Court. In the present case as already stated supra the phrase “where it appears” is a free, unfettered and unbound usage made by legislature and therefore in our view, the source for the proper officer to proceed under this provision can be held to be either under Section 61 or 65 or some other information but cannot be constricted to Section 61 or 65 alone to reach Section 74 cannot be accepted. Thus in essence, the source for the proper officer to proceed U/s 74 may be either Section 61 or 65 or some other fact. Therefore, we are constrained to reject the contra argument of the petitioner.
In the case of (2023-TIOL-561-HC-ALL-GST) Nagarjuna Agro Chemicals Pvt Ltd Vs State of UP (Dated: May 15, 2023), issue was involved as to whether the department is enjoined to issue a notice under sub-section 3 of Section 61 of the Act, 2017, once returns have been submitted by the assesse before initiating action u/s 74 of the Act or not ?.
The High court held that the scrutiny proceedings of return as well as proceeding under Section 74 are two separate and distinct exigencies and issuance of notice under Section 61(3), therefore, cannot be construed as a condition precedent for initiation of action under Section 74 of the Act .
On similar issue , in the case of Mandarina Apartment owners welfare association ( 2024-TIOL-1189-HC-MAD-gst) the High court has observed in para 17.
Para 17. On examining the text of Section 73, the provision opens with the words “Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason”. Except for the replacement of the last three words “for any reason” with “by reason of fraud, or any wilful misstatement or suppression of facts to evade tax”, the opening phrases of Sections 73 and 74 are identical. As interpreted by the Andhra Pradesh High Court in Devi Traders, the use of the words ‘where it appears to the proper officer’ indicates that adjudication may be initiated not only as a consequence of scrutiny under Section 61, audit under Section 65, special audit under Section 66 or inspection under Section 67, but also upon receipt of information from other sources. On closely examining both Sections 61 and Section 73, I find no indication in either provision that scrutiny of returns and the issuance of notice in Form ASMT-10 constitute a mandatory pre-requisite for adjudication even in cases where returns were scrutinized.
Whether issue of notice u/s 61(ASMT10) is condition precent to initiate action u/s 73 or 74?
In view of aforesaid judgments , it is clear that the scrutiny proceedings of return u/s 61 and proceeding under Section 73 or 74 are two separate and distinct exigencies and therefore issuance of notice under section 61(3), cannot be construed as a condition precedent for initiation of action under Section 73 or 74 of the Act.
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