Notice to return defaulters under Section 46 in Form GSTR-3A is issued when a registered person fails to file their return within the due date. This serves as a reminder and allows a brief period for compliance. If returns are still not filed, further proceedings may follow.
Notice for cancellation of registration in Form REG-17 is issued when the proper officer believes the registration is liable to be cancelled. The notice outlines reasons and provides the registered person with a chance to reply within seven working days.
Scrutiny of returns under Form ASMT-10 is initiated when discrepancies are noticed in the returns filed. The officer informs the registered person through a formal notice and seeks an explanation within a specified period.
Summons under Section 70 can be issued by a proper officer to any person whose attendance is considered necessary for giving evidence or producing documents. This provision empowers officers with quasi-judicial authority akin to that of a civil court.
Detention of goods and/or vehicles under Section 129 applies when goods are transported in contravention of the Act or Rules. Proper procedures for release are provided, including payment of tax and penalty.
Show cause notices under Sections 73 or 74 are issued in cases of tax short payment, non-payment, erroneous refund, or wrongful availment or utilization of input tax credit. Section 73 deals with cases without fraud, while Section 74 applies to cases involving fraud, wilful misstatement, or suppression of facts.
Scrutiny Assessment Process
Notice in Form ASMT-10 is issued by the proper officer to notify discrepancies found during scrutiny. The registered person may accept the discrepancy and pay the tax and interest, or may furnish an explanation.
Explanation is furnished in Form ASMT-11 within thirty days or such extended period as may be permitted. The proper officer will examine the explanation provided.
If the explanation is found acceptable, the officer informs the registered person in Form ASMT-12. If not, the officer may proceed with appropriate action.
The timeline for further proceedings, if necessary, typically involves issuing a show-cause notice within fifteen to thirty days, depending on the case.
Provisions of Section 61 of the CGST Act 2017
The proper officer has the authority to scrutinize the return and related particulars furnished by the registered person to verify their correctness. If any discrepancies are noticed, the officer may inform the person and seek an explanation.
If the explanation is found acceptable, the registered person is informed accordingly, and no further action is taken. However, if no satisfactory explanation is provided within thirty days or an extended period, or if corrective action is not taken, the officer may initiate appropriate proceedings under other sections like 65, 66, 67, or determine tax dues under Sections 73 or 74.
Provisions of Rule 99 of the CGST Rules 2017
When a return is selected for scrutiny, the proper officer examines it according to Section 61. If discrepancies are identified, a notice in Form GST ASMT-10 is issued, detailing the discrepancies and requesting a response within thirty days or an extended timeframe. The notice may also quantify the tax, interest, and other amounts payable.
The registered person may either accept the discrepancies and pay the dues or provide an explanation in Form ASMT-11. If the explanation is found satisfactory, the officer communicates acceptance through Form ASMT-12.
Common Scenarios for Issuance of ASMT-10
Cases typically triggering scrutiny notices include a mismatch of input tax credit in GSTR-3B compared with GSTR-2A or 2B, discrepancies in outward supplies as declared in GSTR-1 and GSTR-3B, availing of input tax credit on blocked credit items, and differences between liability as per e-way bills and GSTR-3B. Reversal of ITC due to fake invoices and declarations of exempted supplies also attracts scrutiny.
Scrutiny of Return under Section 61 and Rule 99
The officer scrutinizes returns and related records to verify correctness and notifies discrepancies through Form ASMT-10. The registered person must reply within thirty days or an extended period.
If the explanation is unsatisfactory or discrepancies are not rectified, further actions may include audits under Section 65, special audits under Section 66, inspections and searches under Section 67, or adjudication proceedings under Sections 73 and 74.
Quantification of Tax and Interest
Where possible, the proper officer quantifies the amount of tax, interest, and other dues in Form ASMT-10. This provides clarity to the registered person on the potential liabilities involved.
Acceptance by the Registered Person
If the registered person agrees with the discrepancies, they may accept them and pay the applicable tax and interest without further dispute.
Explanation by the Registered Person
If the registered person does not accept the discrepancies, they can provide a written explanation in Form ASMT-11. This must be done within the stipulated timeframe.
Acceptance by the Proper Officer
If the explanation is deemed satisfactory, the proper officer communicates acceptance via Form ASMT-12. This concludes the scrutiny process without the need for further action.
Failure to Furnish Explanation in Time
If the registered person does not respond within the allowed period, the officer may proceed with suitable legal actions including audit, inspection, or demand notices.
Failure to Take Corrective Measures
Even after accepting discrepancies, if the registered person fails to make corrections in their returns, appropriate proceedings under the Act will be initiated.
Important Judicial Pronouncements
In Marvel Associates v. The State Tax Officer, the Kerala High Court observed that failure to respond to ASMT-10 notices in time and not availing rectification opportunities can amount to negligence. The petitioner had not pursued available legal remedies, leading to the rejection of the writ petition.
In Devi Traders v. State of Andhra Pradesh, the court clarified that Section 74 proceedings can be based on various sources of information, not limited to those under Section 61 or 65. The use of the phrase “where it appears” allows the officer broader discretion.
In another case involving Devi Traders, it was ruled that a valid ASMT-10 is mandatory before issuing Form DRC-01. Failure to link the discrepancies cited in ASMT-10 with those in DRC-01 and DRC-07 invalidates the entire proceeding. The court emphasized the need for procedural compliance under the prescribed method.
Instructions Issued for Scrutiny of Returns
Instruction No. 02/2022-GST dated 22 March 2022 laid down a standard operating procedure for the scrutiny of returns for financial years 2017–18 and 2018–19. It aimed to bring uniformity, transparency, and accountability in the scrutiny process conducted by tax officers.
Instruction No. 02/2023-GST dated 26 May 2023 introduced a revised standard operating procedure applicable from the financial year 2019–20 onwards. These instructions were in line to improve tax compliance and close gaps in the input tax credit claims and outward liability declarations.
Highlights of the Scrutiny Procedure
Selection of returns for scrutiny is done by the Directorate General of Analytics and Risk Management. The selection is based on risk parameters developed by them and data available from field returns and other sources.
Only GSTINs registered with the central tax authorities are selected through this process. Once selected, the scrutiny covers all returns of the selected GSTIN for the relevant financial year.
Proper officers are expected to rely only on the data available to them at the time of scrutiny. As far as possible, they should not seek additional documents from taxpayers before issuing Form ASMT-10.
Payments made voluntarily through Form DRC-03 before the issue of ASMT-10 may be considered during scrutiny. These can be adjusted or acknowledged in the notice.
ASMT-10 is issued electronically through the scrutiny functionality on the ACES-GST application. It is automatically communicated to the registered person on the GST common portal. No physical copy is required.
The notice should, wherever feasible, quantify the tax, interest, or any amount payable. Officers are instructed to specify discrepancies. Vague or general observations should be avoided.
Parameter-wise details of discrepancies should be mentioned in the ASMT-10 notice. Supporting documents and worksheets should also be uploaded with the notice if available.
Scrutiny must be completed in a time-bound manner to avoid delays and ensure timely action. Officers must proceed promptly based on the taxpayer’s response.
Input Tax Credit Mismatch
One of the most common reasons for issuing ASMT-10 notices is a mismatch in input tax credit between GSTR-3B and GSTR-2A or 2 BB. The absence of a matching mechanism under the earlier Section 42 contributed to discrepancies and disputes.
Genuine mistakes such as entering values in the wrong columns, classifying B2B supplies as B2C in GSTR-1, or using incorrect place of supply codes have led to credit mismatches.
There have been cases where the registration certificate of a supplier or recipient was cancelled or restored at different points in time, creating inconsistencies between records.
Claiming credit based on fake invoices or for transactions not backed by actual supply is another reason for notices. Such claims may be reversed after scrutiny.
Earlier, Rule 36(4) allowed provisional ITC claims based on a percentage of eligible invoices uploaded by suppliers. This rule was applicable until 31 December 2021 and caused temporary mismatches in credit claims.
Amendment in Section 16(2) by Insertion of Clause (aa)
Section 16(2)(aa) was inserted by the Finance Act 2021 and became effective from 1 January 2022. It provides that for availing input tax credit, the details of invoices or debit notes must be furnished by the supplier in their statement of outward supplies, and such details must be communicated to the recipient under Section 37.
This clause ensures that only those invoices uploaded by suppliers and reflected in GSTR-2B can be used for ITC claims. It aligns the recipient’s eligibility with supplier compliance, thereby reducing discrepancies.
Before this amendment, taxpayers could claim credit based on physical invoices even if the same had not been uploaded by suppliers. This change strengthens the matching principle under GST.
Rule 36(4) and Transitional Provisions
Up to 31 December 2021, Rule 36(4) allowed taxpayers to claim ITC based on invoices uploaded by suppliers and an additional margin. Initially, this margin was 20 percent, later reduced to 10 percent, and eventually to 5 percent.
The rule served as a transitional mechanism to address system limitations in matching credits. However, it was often misused or misunderstood, resulting in mismatches and scrutiny notices.
After 1 January 2022, with the implementation of Section 16(2)(aa), the provisional claim mechanism was removed, and ITC is now strictly restricted to invoices reflected in GSTR-2B.
Amendment in Section 16(2) by Insertion of Clause (ba)
The Finance Act 2022 inserted clause (ba) in Section 16(2). This clause states that ITC will not be available if it is restricted in the auto-generated statement provided to the recipient under Section 38.
Though not yet notified, this clause will operationalize the new return filing system and further tighten control over credit claims by disallowing restricted invoices.
Combined with clause (aa), this amendment will give the government a firm grip over input tax credit availment and make the process more data-driven and compliance-oriented.
Limitation under Sections 73 and 74 for FY 2017-18
Under Section 73, the show cause notice must be issued within three years from the due date for furnishing the annual return for a financial year. The limitation period for FY 2017-18, initially ending in 2021, was extended due to administrative and pandemic-related delays until 30 September 2023.
Under Section 74, the time limit for issuing a notice is five years from the due date for furnishing the annual return. For FY 2017-18, notices under this section can be issued until 4 August or 6 August 2024, depending on the taxpayer’s due date.
This extension was important to give the tax department adequate time to scrutinize past years and address issues arising from initial GST implementation challenges.
Applicability of Extended Period under Section 74
Section 74 applies where tax evasion is due to fraud, wilful misstatement, or suppression of facts. These conditions must be satisfied for invoking the extended period.
Suppression includes non-disclosure of facts required to be declared in returns or failure to respond to information requests from officers. The burden of proof lies with the department to establish intent to evade tax.
If these ingredients are not present, then Section 73, which deals with non-fraudulent cases, is the applicable provision. Using Section 74 without justification may be challenged legally.
Case Study of Mahendra Feeds and Foods
In this case, the petitioner challenged the validity of a show cause notice,, treating it as a communication under the now-deleted Section 42(3). The court held that even in the absence of proper communication under that provision, the petitioner should have filed supporting evidence proving payment of output tax by the supplier.
Since the petitioner failed to furnish such proof and did not respond adequately to the notice, the petition was dismissed. This case emphasizes the importance of timely and well-documented responses to scrutiny notices.
Procedural Aspects Following the Issuance of ASMT-10
Upon receiving ASMT-10, the registered person is expected to submit a response through Form ASMT-11 within the stipulated time. This reply must address the discrepancies highlighted in ASMT-10. The taxpayer may accept the discrepancies and make the necessary rectifications or furnish an explanation clarifying the reasons for the differences. The rectifications, if any, can be made in the return for the tax period in which the discrepancy is noticed or any subsequent period as allowed under Section 39(9) of the CGST Act.
Form ASMT-11: The Taxpayer’s Response
Form ASMT-11 is the prescribed form through which the taxpayer must reply to ASMT-10. The form allows the registered person to submit information, records, or explanations to justify the discrepancies. The submission must be completed within the time mentioned in ASMT-10, which is typically 30 days from the date of service of notice, although the time may be extended at the discretion of the proper officer. In case the taxpayer agrees with the discrepancy, he may voluntarily pay the tax, interest, and penalty (if applicable) through Form DRC-03. Such payment should also be declared in the ASMT-11 response.
Role of the Proper Officer Post-Reply
Once ASMT-11 is submitted, the proper officer examines the response. If the explanation or rectification provided by the taxpayer is found to be satisfactory, no further action is initiated, and the scrutiny process is closed. However, if the reply is not satisfactory, or if the taxpayer fails to respond within the stipulated time, the officer may initiate further action under Section 65 (Audit), Section 66 (Special Audit), Section 67 (Inspection, Search, and Seizure), or even proceed to issue show cause notices under Section 73 or 74 of the CGST Act. The officer also has the authority to initiate recovery proceedings if any tax dues are not voluntarily paid after discrepancies are pointed out.
Consequences of Non-Compliance or Inadequate Response
If a taxpayer ignores ASMT-10 and fails to submit ASMT-11, or provides a non-satisfactory explanation, the proper officer may treat it as a willful default. This may result in a higher penalty under Section 74, which covers cases involving fraud or willful misstatement. Additionally, interest may also be levied as per Section 50 of the CGST Act for any tax liability found to be due. Further actions could include audits or even search and seizure in extreme cases where evasion is suspected.
Importance of Timely and Accurate Response
Timely submission of ASMT-11 is crucial to avoid escalation. A well-prepared and documented reply helps establish the taxpayer’s bona fide intentions and may lead to a favorable outcome. Failure to respond or ignoring the notice not only leads to legal complications but may also impact the taxpayer’s compliance rating, which could have ramifications for future refunds or credits.
Follow-up Actions: Closure or Escalation
If the proper officer is satisfied with the reply filed in ASMT-11, the matter is treated as closed without the need for any further proceedings. However, in case of a non-satisfactory reply, the officer records the reasons and initiates the next stage of proceedings under relevant sections of the CGST Act. A taxpayer may then be subject to audit under Section 65, special audit under Section 66, or face inspection and investigation under Section 67. In certain cases, if tax evasion is suspected, the matter may lead to the issuance of a show-cause notice and adjudication under Section 73 (non-fraud cases) or Section 74 (fraud or willful misstatement cases).
Revision of Returns Following Discrepancies
If the taxpayer chooses to accept the discrepancies highlighted in ASMT-10, he is allowed to revise the returns accordingly. Such corrections are permitted under Section 39(9), which enables the rectification of omissions or incorrect details in the return of any tax period in the return for a subsequent period. However, the rectification must be done within the time limits prescribed under Section 39 and Rule 61 of the CGST Rules. The payment of any tax liability arising out of such rectification must be made using Form DRC-03.
Record Keeping and Documentation
Taxpayers need to maintain detailed documentation and records supporting their replies to ASMT-10. This includes copies of invoices, reconciliation statements, correspondence with suppliers or customers, and payment proofs. Proper documentation helps strengthen the taxpayer’s position in case the matter proceeds to audit or adjudication. Maintaining comprehensive records also ensures that the taxpayer can respond quickly to any future scrutiny or inquiry by tax authorities.
System-Based Identification of Cases for Scrutiny
Cases selected for scrutiny under ASMT-10 are often identified through data analytics by the GSTN system, which flags discrepancies such as a mismatch between GSTR-1 and GSTR-3B, GSTR-3B and GSTR-2A/2B, a mismatch in turnover with income tax returns, abrupt fluctuations in input tax credit claims, or any non-filing of returns. These automated triggers ensure objectivity in case selection, minimizing human bias and helping authorities to focus on high-risk cases. Taxpayers should proactively reconcile their returns to identify and resolve such discrepancies before scrutiny is initiated.
Use of Form DRC-03 in Response to ASMT-10
Form DRC-03 is the voluntary payment form under GST, used by taxpayers to deposit tax, interest, and penalty without the need for any adjudication. When discrepancies are accepted in response to ASMT-10, the taxpayer may use DRC-03 to make the payment. Filing DRC-03 along with ASMT-11 is considered a strong step towards voluntary compliance and may prevent the initiation of further proceedings. The challan details must be accurately mentioned in the ASMT-11 reply.
Judicial Pronouncements on Scrutiny of Returns
Judicial scrutiny has played a pivotal role in shaping the contours of return scrutiny under GST. Courts have repeatedly emphasized the importance of procedural fairness, timely communication, and the right of the taxpayer to be heard. For instance, in various High Court rulings, it has been established that any deviation from the standard procedure, such as issuing notices without specific discrepancies or failing to grant an opportunity to respond, may render the proceedings invalid. Judicial pronouncements have also clarified the scope and limitation of the officer’s power in scrutinizing returns. It has been held that scrutiny should be restricted to the data available in the return and related records and should not transform into an audit or investigation. Courts have further underlined the need for reasoned orders in case of adverse conclusions. These pronouncements serve as important precedents and guide tax authorities in ensuring compliance with the principles of natural justice during scrutiny proceedings.
Common Pitfalls and How to Avoid Them
Taxpayers often fall into certain common pitfalls during the scrutiny process, which can lead to unnecessary litigation or adverse assessments. One such mistake is the failure to reconcile turnover reported in GSTR-1, GSTR-3B, and the books of accounts. Discrepancies here often trigger ASMT-10 notices. Another frequent issue is incorrect reporting of input tax credit, where excess claims or ineligible credits are availed without proper documentation. Delayed or inadequate responses to scrutiny notiareree another serious lapse that can lead to escalation of the case to audit or investigation. To avoid these pitfalls, businesses should maintain proper documentation, periodically reconcile GST returns with books of accounts, and ensure prompt and complete responses to notices. Taxpayers should also regularly review their filings for compliance with current legal provisions and circulars. Consulting professionals at appropriate stages and ensuring internal checks are in place can significantly mitigate scrutiny risks.
Best Practices for Managing Scrutiny
To effectively manage scrutiny of returns under GST, businesses should adopt certain best practices. First, maintain thorough and accurate documentation of all transactions, tax invoices, and supporting documents. Regular internal audits can help identify and rectify discrepancies before they are flagged by the department. Second, establish a compliance calendar and tracking mechanism for filing returns and responding to notices within stipulated timeframes. Third, use reconciliation tools and software to match data reported in GSTR-1, GSTR-3B, and GSTR-2B with financial records. Fourth, ensure staff involved in GST compliance are adequately trained in GST law and recent updates. Fifth, seek legal or professional advice in complex matters or where discrepancies are identified. Being proactive rather than reactive can prevent minor issues from escalating into major compliance challenges. Finally, always respond to notices with complete information, attach supporting documents, and maintain a professional tone in all communications with the tax authorities.
Role of Technology in Scrutiny Compliance
Technology has become an essential enabler for compliance with scrutiny-related requirements under GST. The GST portal itself provides various tools to assist taxpayers, including dashboards for tracking notices, return filing status, and response submission. Many businesses now rely on GST reconciliation software that automates the matching of data across returns, detects inconsistencies, and flags potential issues. Such tools significantly reduce the risk of manual errors and omissions. Enterprise resource planning systems integrated with GST modules offer end-to-end tax compliance management, including tracking of notices, automated alerts, and document archival. The use of data analytics and AI-powered compliance tools also enables businesses to predict potential areas of scrutiny and take corrective action in advance. By leveraging technology, businesses can enhance their compliance accuracy, reduce turnaround time for responses, and improve overall preparedness for departmental scrutiny.
Conclusion
Scrutiny of returns under GST, particularly through Form ASMT-10, is a crucial component of the self-assessment regime, ensuring transparency and accountability in tax compliance. While the process may seem procedural, its implications can be significant if not handled correctly. Taxpayers must understand the legal framework, maintain accuracy in their returns, and respond to notices within timelines. Avoiding common mistakes, learning from judicial interpretations, and adopting best practices can go a long way in managing scrutiny effectively. The increasing use of technology both by the department and taxpayers indicates a shift towards a more data-driven compliance environment. Businesses must evolve their internal systems accordingly and stay updated with legal developments to ensure sustained compliance under the GST regime.