SCRUTINY OF GST RETURNS

[Dr. Sanjiv Agarwal]

Goods and Service Tax is a relatively new tax regime based on the scheme of self assessment whereby the taxpayer himself assesses the tax, pays the tax and files the return. The Department does not interfere so far the self assessment appears to be true and fair and there is no room for any suspicion. However, as in any tax law in GST also, there is a scheme for scrutiny of returns filed by the assessees.

Section 61 of the CGST Act, 2017, deals with the powers vested in the proper officer to scrutinize the returns filed by registered persons with a view to verifying the correctness of the return. In legal parlance, it is considered to be a pre-adjudication process.

All the dealers and FADA members also follow the law in relation to self-assessment, and as such, they are subject to scrutiny of returns which is an important event in the adjudication and tax administration.

Gist of scrutiny related provision

• The proper officer can scrutinize the return to verify its correctness.
• It is a non-compulsory pre-adjudication process.
• In simple words, it is not mandatory for the officer to scrutinize return.
• Scrutiny of returns is not a legal or judicial proceeding, i.e., no order can be passed.
• The officer will ask for explanations on discrepancies noticed.
• The proper officer may issue SCN, if required.
• Department can select returns for verification – Can seek explanation for discrepancy detected
• GST officers can scrutinize a GST return and related particulars furnished by the registered person to verify the correctness of the return.
• In case of any discrepancies noticed by the officer, he/she would inform the same to the registered person and seek his explanation on the same.
• On the basis of the explanations received from the registered person, the officer can take following actions:
• If the explanation is satisfactory, officer will inform about the same to the registered person and no further action taken.
• If the explanation provided is not satisfactory or the registered person has failed to take corrective measures after accepting the discrepancies, proper officer to initiate appropriate action:
  • Conducting audit of registered person,
  • conducting special audit,
  • inspect and search the place of business of registered person, or
  • initiate demand and recovery provisions.

Scrutiny of returns

When any return is selected for scrutiny, the proper officer verifies the information with reference to the information available with him. In case of observance of any discrepancy, to issue notice to the taxable person and seek his explanation to the discrepancy observed by him.

There could be following different scenarios in response to such notice received from proper officer, viz,

(a)   The taxable person accepts the discrepancy, deposits the shortfall in the payment of tax along with interest thereon and informs to proper officer.

(b)  The taxable person submits the explanation to the points raised by proper officer in his reply, the explanation is found to be acceptable to proper officer, the proper officer closes the matter and informs the taxable person.

(c)   The explanation is not found to be acceptable or after accepting the discrepancy, the taxable person fails to deposit the tax with interest, the proper officer takes the following actions.

1. Orders for audit by tax authorities – section 65 of the CGST Act, 2017

2. Orders for special audit – section 66 of the CGST Act, 2017

3. Initiates inspection, search or seizure – section 67 of the CGST Act, 2017

4. Determination of tax not paid or short paid – section 73 of the CGST Act, 2017

5. Determination of tax not paid or short paid by reason of fraud or willful misstatement – section 74 of the CGST Act, 2017

Time limit for reply to Notice

The notice of discrepancy issued by proper office in respect of scrutiny of returns has to be replied within such time not exceeding 30 days from date of service of notice or such further period as may be permitted by proper officer.

Guidelines for scrutiny of GST returns

Recently, CBIC had issued guidelines for Scrutiny of GST Returns vide Instruction No. 02/2022-GST dated 22.03.2022. The gist of the instruction is as follows:

• CBIC has issued detailed instructions [Standard Operating Procedure (SOP)] for scrutiny of GST returns under section 61 of CGST Act, 2017 read with rule 99 of CGST Rules, 2017 for the period, financial year 2017-18 and financial year 2018-19. This will serve as guidelines for GST officials.
• This SOP contains the methodology for scrutiny and inter alia covers :
  • Statutory provisions (Section 61 / Rule 99)
  • Selection of returns for scrutiny
  • Proper officer for scrutiny of returns
  • Scrutiny Schedule
  • Process of scrutiny by the Proper Officer
  • Timelines for scrutiny of returns
  • Reporting and Monitoring
  • Annexures covering –

1. Scrutiny schedule

2. Indicative list of parameters for scrutiny

3. Scrutiny register to be maintained by proper officer

4. Monthly scrutiny progress report

• This SOP is aimed to ensure uniformity in selection / identification of returns for scrutiny, methodology of scrutiny of returns and related procedures.

It may be noted that off late GST Department all over the country has commenced scrutiny of GST returns on PAN India basis and taxpayer are receiving notices for the same. It would be desirable for the dealers to know the provisions of scrutiny of return, know their rights as a taxpayer and deal with the scrutiny efficiently and effectively under professional guidance as it is seen that generally scrutiny of returns lead to issuance of show cause notice for adjudication.