Scrutiny of Returns under GST Laws

[NEHA BANSAL]

It has been nearly five years since roll out of GST Laws. After, establishing strong procedures & policies for implementation of GST Laws and facing few hiccups in the process, Government has now become very active in GST Scrutiny and Audits. GST Policy wing of CBIC issued Instruction No. 02/2022- GST on 22/03/2022, relating to Standard Operating Procedures for Scrutiny of GST returns or F.Y 2017-18 and 2018-19.

According to a recent news report by a financial news company, “The Central Board of Indirect Taxes and Customs has identified 35,000 GST returns pertaining to fiscal 2017-18 to scrutinise for discrepancies and mismatches on liability & input tax credit.”

Process of scrutiny of returns shall make it evident how in reality, GST provisions are apprehended at ground level by the GST officers. As assesees have faced lot of challenges in transition to new Law, officers should be open for accepting the genuine explanations in case of any irregularities observed by them. Otherwise, it would open flood of litigations, especially in cases of like mis-match of ITC available in GSTR 2A/2B and reported in GSTR-3B due to reasons which are beyond control of assesses.

Provisions relating to scrutiny under CGST Act and synopsis of recently published SOP in regard to scrutiny is summarized here under:

Meaning of Scrutiny:

The word ‘Scrutiny’ has not been defined in GST Laws. According to Cambridge dictionary word ‘Scrutiny’ means, “The careful and detailed examination of something in order to get information about it”.

Scrutiny provisions under GST Laws:  

Section 61 of CGST Act read with Rule 99 of CGST Rules contains the provisions in relation to scrutiny of return. As per Section 61(1), “The proper officer may scrutinise 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.”

Selection of Returns for Scrutiny:

‘Directorate General of Analytics and Risk Management’ (DGRAM) has been assigned the task to select the GSTINs registered with Central Tax Authorities, whose returns are to be scrutinized and to communicate the same to the nodal officer of the Commissionerate concerned for further action.

Proper Officer for Scrutiny:

As per Circular No. 3/3/2017- GST, dated 05.07.2017, ‘Superintendent of Central Tax’ has been assigned the function of proper officer for the purpose of scrutiny of returns.

The proper officer shall scrutinize the returns and related particulars furnished by the registered person to verify the correctness of returns. Information available with the proper officer on the system and the details made available through various sources like DGRAM, ADVAIT, GSTN, E-WAY Bill portal shall be relied upon for the purpose of scrutiny.

Step- wise process for conducting scrutiny under GST Laws:

1. Communication of discrepancy to Registered person:

Proper officer may inform the registered person, the discrepancies if any noticed during the scrutiny in Form GST ASMT-10 as per Rule 99 of CGST Rules seeking his explanation thereto. The proper officer is required to scrutinize all the returns pertaining to the corresponding financial year under consideration and a single compiled notice in Form GST ASMT-10 may be issued to the tax payer for that financial year.

In M/S. JAIN CEMENT UDYOG (THROUGH PROPRIETOR SH. SANJAY JAIN) VERSUS UNION OF INDIA & ANR. [2022 (2) TMI 349 - DELHI HIGH COURT], Petitioner filed the petition challenging Form GST ASMT-10 issued on scrutiny, Form DRC -07 issued on assessment and the show cause notice issued in Form GST DRC-01 as it was never served upon him. Further, Form GST ASMT-10 was issued without mentioning any discrepancies in the returns which is a mandatory requirement under Section 61 of CGST Act. The Hon’ble Delhi High Court taking into account the issues in the petition, gave the Petitioner an opportunity to file appeal under the statue with the appropriate authority.

All the communication with the taxpayer for the purpose of scrutiny shall be made with the use of DIN as per the guidelines mentioned in the Circular No. 122/41/2019-GST dt. 05/11/2019.

2. Explanation by the Registered Person:

Registered person may accept the discrepancies mentioned in the Notice issued in Form GST ASMT-10 and pay the tax through FORM GST DRC-03 else an explanation by the registered person may be filed in Form GST ASMT-11 within 30 days of being informed or within such period as may be permitted by the proper officer.

3. Subsequent action by Proper Officer:

In case the proper officer found the explanation acceptable, he will conclude the proceedings and no further action shall be taken. The registered person shall be informed accordingly in FORM GST ASMT-12.

In case no satisfactorily explanation is furnished by the registered person or in case after accepting the discrepancy he fails to take the corrective measures; appropriate action can be initiated against him by the proper officer including those envisaged under following Sections of CGST Act:

S.No.	Section	Course of Action by proper officer
1.	Section 65	Initiation of Audit by tax authorities
2.	Section 66	Initiation of Special Audit by Chartered Accountant or a Cost Accountant nominated by the Commissioner
3.	Section 67	Undertake procedures of Inspection, search and seizure
4.	Section 73 & 74	Proceed to determine tax (Monetary limits as specified in Circular No. 31/05/2018- GST dt. 09/02/2018 shall be adhered)

4. Does department have access to business premises for the purpose of scrutiny:

As per Section 71, any officer not below the rank of Joint Commissioner shall have the access to business premises of a registered person to inspect books of accounts, documents, computers, computer programs, computer software or any other things as he may require and which may be available at such place, for the purpose of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

Indicative List of situations (on the basis of Instruction No. 02/2022-GST dt. 22/03/2022) for which explanations can be asked by Proper Officer while scrutiny of returns are as under:

1. Difference in tax liability on account of taxable Outward Supplies as reported in GSTR-1 and GSTR-3B respectively.
2. Mis-match between ITC available in GSTR 2A and claimed in GSTR 3B. This will include ITC claimed on account of reverse charge and ISD.

3.  Reasons for difference in tax liability on account of outward supplies declared in Form 3B matched with tax liability as declared in E-way bills.

4. Claim of ITC in respect of suppliers whose registration have been cancelled can be scrutinised closely, as ITC in such case in not available after the effective date of such cancellation. Such effective date of cancellation is available GSTR 2A

5. ITC on account of such invoices/debit note won’t be available in respect of which supplier has not filed GSTR-3B. Filing status of GSTR 3B is reflected in GSTR 2A.

6. ITC declared in GSTR 3B of a particular period cannot be claimed where such GSTR 3B is filed by the registered person beyond the due date of filing GSTR 3B, i.e. September following the end of F.Y to which such ITC pertain or furnishing of the Annual Return whichever is earlier.

7. ITC on accounts of imports may be cross verified from GSTR-2A. The details of such imports may also be cross-verified form ICEGATE portal.

8. Where ITC has not been reversed as per provision of Rule 42 and Rule 43.

9. Where interest has not been paid as per provisions of Section 50 for delayed payment of tax.

10. Late fee has been paid or not as per Section 47 for late filing of GST returns.

Above list is only an indicative list and explanations can be asked even in regard to other returns also like GSTR 9 and GSTR 9C.  Assesses should be ready with all the explanations and documents in regard to any mis- match and extend full cooperation during process of scrutiny for avoiding any harsh steps from GST authorities. Likewise, authorities should also give full opportunity to assesees of being heard before proceeding to take any further actions.

Sources:
1.  https://www.bloombergquint.com/business/35000-gst-returns-from-fy18-up-for-scrutiny