Concept of Scrutiny of Returns in GST

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Scrutiny of Returns in GST

Every taxpayer has to file their Income Tax Returns (ITR). Further, every businessman has to pay their GST returns. Moreover, they have to do so in time. On filing, if there is any inconsistency or error present in the information declared, the tax officers will conduct a scrutiny of your GST returns. In this article, we will discuss, “Scrutiny of Returns in GST”.

Table of Content

2021 Union Budget

The following are the outcomes of the 2021 Union Budget,

  • Exemption from ITR filing for senior citizens aged 75 years and above who earn only through pension and interest
  • The Income Tax Department started pre-filled ITRs with additional details to simplify the return filing process
  • The due date for filing late and revised returns is reduced by 3 months. This also means that the Income Tax Department will have to process the returns and send a notice under Section 143(1) of the CGST Act, 2017 by December 31st. 

Scrutiny Assessment under GST

A GST officer will check your GST return in depth based on certain risk parameters, to verify its correctness. Further, if he finds any errors, he will issue a scrutiny notice to you demanding an explanation. However, a personal hearing is not possible for this type of assessment.

Section 61 of the CGST Act, 2017( herein referred to as “Act”), empowers the proper officer to scrutinize a return and related particulars furnished by a registered person to verify the correctness of the return and inform them of the discrepancies noticed, if any, and seek the explanation for the said discrepancy. 

You should admit the differential tax demanded with interest, if any, and pay it before replying to the notice together with justification. If the officer is satisfied with the reply, you are intimated and the proceedings are dropped without any further action in form ASMT-12 (an order of acceptance of reply). Otherwise, further action can be taken by the GST officer in the following circumstances, 

  • If you do not pay tax or provide an explanation 
  • You do not reply or rectify the discrepancy within 30 days of the issue of notice 
  • The reply submitted is not satisfactory to the tax officer 
  • Conduct a tax audit under Section 65 of the Act
  • Conduct a special audit under Section 66 of the Act
  • Send notice of outstanding demand/shortfall in case there is a deliberate intention of committing fraud under Section 73/74 accordingly
  • Conduct a Survey/Inspection under Section 67 of the Act
  • Initiate demand and recovery provisions 

The Objective of Scrutiny Assessment

The objectives behind a scrutiny assessment are,

  • To verify the correctness of details submitted in GST returns like eligible Input Tax Credit (ITC) against actual claimed
  • Tax payable against tax paid
  • Claimed ineligible exemptions or ineligible ITC, etc.

There is risk parameters pre-defined for a tax officer to decide whether a scrutiny notice needs to be issued. Further, if there is an indication of a high risk of default or fraud, then the tax officer can proceed with this assessment. The tax officer can also take this decision on his own. However, an order (except ASMT-12) cannot be passed as the next step under scrutiny assessment since it is not a legal or judicial proceeding. 

Streamlining the Process of Scrutiny of Returns

The Government, in an effort to streamline the entire process of Scrutiny of Returns, recently issued a Standard Operating Procedure (SOP) via Instruction No. 02/2022-GST on the 22nd of March, 2022. The SOP will ensure,

  • The uniformity in the selection/identification of returns for scrutiny
  • Methodology of scrutiny of such returns and other related procedures

Selection of returns for scrutiny will be done based on robust risk parameters as decided by the Government.

These include the following 13 parameters, 

  • A Mis-match in tax liability on account of “Outward taxable supplies (other than zero-rated, nil rated and exempted)” and “Outward taxable supplies (zero-rated)” as declared in table 3.1(a) and table 3.1(b) respectively of FORM GSTR-3B with corresponding tax liability in respect of outward taxable supplies declared in FORM GSTR-1 
  • A Mis-match in tax liability on account of “Inward supplies (liable to reverse charge)” as declared in Table 3.1(d) of FORM GSTR-3B with,

(i) The ITC availed in Table 4(A) (2) and Table 4(A) (3) of FORM GSTR-3B
(ii) ITC in respect of inward supplies attracting reverse charge as available in FORM GSTR-2A and Tax/Cess paid in cash as according to column 8 of Table 6.1 of FORM GSTR-3B 

  • Mismatch in ITC availed in respect of “Inward supplies from ISD” in Table 4(A)(4) of FORM GSTR-3B with FORM GSTR-2A 
  • Mismatch in ITC availed in respect of “All other ITC” in Table 4(A)(5) of FORM GSTR-3B with FORM GSTR-2A 
  • A Mismatch in taxable value declared on account of “Outward taxable supplies (other than zero-rated, nil rated and exempted)” in Table 3.1(a) of FORM GSTR-3B with net amount liable for TCS and TDS credit as per GSTR-2A 
  • Mismatch in liability on account of outward supplies in Table 3.1(a) and 3.1(b) of FORM GSTR-3B with the tax liability as declared in e-way bills 
  • The cases of a claim of ITC in respect of supplies from taxpayers whose registrations have been cancelled retrospectively 
  • Ineligible ITC availed in respect of invoices/debit notes issued by the suppliers who have not filed their GSTR-3B returns for the relevant tax period 
  • Cases, where ITC has been availed in case of returns in GSTR 3B, filed for a tax period after the last date of availing of ITC (September of the next year), in respect of any invoice/ debit note as per Section 16(4) 
  • Mismatch in ITC availed in respect of “Import of goods” in Table 4(A)(1) of FORM GSTR-3B with corresponding details in FORM GSTR-2A 
  • Cases in which you are required to do reversals of ITC in accordance with provisions of rule 42 and rule 43 of the CGST Rules and whether the same has been done or not 
  • Cases, where a registered person is required to pay interest liability in terms of Section 50 and the same, has not been paid 
  • The cases where a registered person is required to pay a late fee in terms of Section 47 and the same has not been paid 

GST Scrutiny Notice

A scrutiny notice is issued in Form ASMT-10 intimating discrepancies in GST return along with tax, interest and penalty if any. A reply has to be submitted in Form ASMT-11. 

A tax officer can send the notice via SMS or email to the taxpayer. Further, there is no time limit defined for receiving a scrutiny notice. However, a taxpayer should respond to such notice within 30 days from the date of issue, or request for an extension, not more than 15 days. 

Contents of ASMT-10 are,

  • Basic Details 
    GSTIN name, address and tax period 
  • Discrepancy Observed
    Details of discrepancies if any and asking for an explanation
  • Particulars of The Tax Officer
    DIN, name, signature and designation of the tax official issuing notice.

Process of viewing Scrutiny Notice

The following are the steps to view any notice on the GST portal, 

  • Login to the GST portal
  • Select ’View Additional Notice/Orders’ under the ‘Services’ tab  
  • You can view all the notices issued by the tax official by clicking on ‘View’

What are the Status Updates that You Can View

 The following are the status updates on the GST portal regarding the scrutiny of a GST return that you can view,

  • Pending for action by the tax officer 
  • Closed 
  • Pending for reply by the taxpayer 
  • Reply furnished; pending for order by the tax officer 
  • Reply not furnished, pending for order 
  • An order issued for dropping proceedings 
  • Recommendation for action under Section 73 
  • Recommendation for audit under Section 74 
  • The Recommendation for action under Section 65 
  • Recommendation for special audit under Section 66 
  • Recommendation for survey/inspection under Section 67 
  • Pending for order by the tax officer

What are the Consequences if you don’t respond to a Scrutiny Notice?

If you do not respond to the scrutiny notice, the tax officer will take action under Sections 73 (non-fraudulent) and 74 (fraudulent). Further, he can issue a show-cause notice in form DRC-1 demanding the tax dues, together with interest and penalty. Moreover, the amount of penalty will vary depending upon the grounds of the discrepancy found. Alternatively, the officer can recommend audits under Sections 65, 66 or 67. 

Responding to a Scrutiny Notice using ASMT-11

Before submitting a reply to the tax officer, you should check for the correctness of the details in the notice. If any differential tax liability needs to be paid and you agree to the liability raised in the notice, you have to pay it and thereafter reply to the notice in ASMT-11.

There are two possibilities that could arise,

  • Agree/admit the tax due as per the notice and have already paid it
    Will declare the payment particulars while replying in ASMT-11 
  • Agree/admit the tax due as per the notice, but you are yet to pay it 
    You will pay by either of the following options and thereafter reply in ASMT-1, 
    a) Pay tax in Form DRC-03
    b) Furnish supply invoice/debit note/amended invoice/amended debit note in GSTR-1 
    c) Pays tax or reverse ITC while filing GSTR-3B

The following are the steps to reply to a scrutiny notice,

  • Select the ‘Replies’ tab on the case details page to view all the replies filed with the tax department.
  • To add a reply, click on ‘Notice’ 
  • Enter your reply and payment details (if any) 
  • Click on ‘ADD’ to add more details 
  • Choose a file to upload with the reply (if any) 
  • Select the verification check-box and the authorized signatory 
  • Enter the place
  • Click on ‘Preview’ 
  • Check if all the information provided is correct
  • Click on ‘File’ 
  • The submit application page will be displayed 

Submit using DSC or EVC. A message indicating a successful reply will be displayed. Further, the replies tab will get updated and will show the status as ‘Reply furnished, pending with tax officer’.

What happens after replying to a Scrutiny Notice?

After you submit a reply, if the tax officer is satisfied with the reply, he will drop the proceeding by issuing an order intimating the same to the taxpayer. However, if the tax officer is unsatisfied, he will issue an order, demanding tax, penalty and interest, as the case may be. You can view all the orders issued by the tax officer by doing the following steps,

  • Click on the ‘Orders’ tab on the case details page 
  • Click on the attachments link to view the order 

Conclusion

You as the taxpayer have a duty towards the country to pay your taxes on time. If there is any discrepancy in your filed taxes then the Tax Officer has the ability to issue a notice to you. Further, you can reply to the notice in the methods mentioned in this article.

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