Section 61 of GST – Scrutiny of returns with Analysis

Section 61 of GST – Scrutiny of returns as per GST Act. Check Details for GST Section 61 In this section you may find all details for Scrutiny of returns as per GST Act as per GST Act 2017.

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Section 61 of GST – Scrutiny of returns as per GST Act

(1) The proper officer may scrutinize 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.

(2) In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.

(3) In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the taxable 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.

Related provisions of the Statute

Section or Rule	Description
Section 2(97)	Definition of Return
Section 65	Audit by tax authorities.
Section 66	Special audit.
Section 67	Power of inspection, search and seizure.
Section 73	Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts.
Section 74	Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilfull-misstatement or suppression of facts.

Introduction

Section 61 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. The process of adjudication is provided in Sections 73 to 75 of the Act.

Analysis 

At the outset, it is important to recognize that email or text messages cannot be sent to taxpayer if a query arises in the mind of the Proper Officer with respect to the returns filed. It has been noted that such informal communication has been sent and even responded by taxpayers. Scrutiny of returns requires the following ingredients:

• Returns – identify which is a ‘return’ in respect of which scrutiny is being carried out. Return is defined in section 2(97) which does not refer to any specific section but states ‘any’ return ‘prescribed or otherwise required to be furnished’. This requires careful consideration as there is room to gloss over this important document. Any of the “GSTR” series of documents (and replacements like ANX-1/2 and RET-1/2/3) will be a ‘return’ to which scrutiny provisions will apply. Experts are of the view that once GSTR 9 or 9A has been filed, no further scrutiny of the underlying returns (say, GSTR 1/3B) can be taken up for scrutiny as the information may, as it was filed or altered and now reported in GSTR 9/9A. Scrutinizing documents that are no longer current (GSTR 1/3B) or already rectified in another return filed later in time (GSTR 9/9A) may be an exercise in futility;
• Proper Officer – only the Proper Officer under whose jurisdiction taxpayer is registered and filing returns is authorized to scrutinize returns. Any cross-empowered officer may collect or access the returns but is not vested with authority under section 61 to scrutinize. Such Officer may even scrutinize but take action under other provisions and not under section 61. Reference may be had to the detailed discussion regarding listing of jurisdiction and powers conferred under section 3 to 6 of CGST Act along with relevant notifications and related circulars;
• Discrepancy – is an inconsistency or inaccuracy which is a very important requirement to invoke section 61 that the Proper Officer must ‘discover’ from within the returns itself. Section 61 does not permit investigation into new things not emerging from the returns as there other provisions with checks and balances to undertaken investigation. It is very clear provision ‘conferring jurisdiction’ by this expression ‘discrepancy’. Discrepancy is not a doubt or confusion about what might have been the transactions carried out by taxpayer. Discrepancy is a ‘lack of compatibility’ arising from within the returns and not from any external source of additional information. Any inquiry without this jurisdiction makes the entire proceedings void. Where a notice is issued under section 61, care must be taken to identify whether the issue involved can pass must be of being a ‘discrepancy’. While self-assessment has been stated NOT to be ‘unsupervised self-administration’ system, at the same time, self-assessment does not empower wide-ranging assessment in the name of scrutiny. The scope is large but not unlimited scope that Proper Officer is permitted to carry out in the name of scrutiny under section 61. Responding to notice under section 61 does not amount to admission of wrong-doing.
• Resolution – taxpayer may take three routes (a) admission and rectification or explanation (b) non-admission and (c) Admission but inaction by Taxpayer. Based on this, further steps to be taken by Proper Officer are prescribed. Proper Officer cannot routinely call for books and records of taxpayer. Proper Officer is welcome to then invoke sections 65 or 66 to audit the books of taxpayer but those sections have other prerequisites (which are discussed later). Carrying out inspection is not permissible without prior permission from JC, there’s a special ingredient of ‘reason to believe’ to involve given in section 67 (discussed later). Most important aspect is that Proper Officer CANNOT carry out any assessment under section 61. Care must be taken to object to any attempt at carrying out assessment where tax liability is being determined on an apprehension based on the discrepancy. Discrepancy must conclude and be resolved in one of the three ways listed in the section. There can be no ‘order of demand’ arising out of section 61 itself. Yes, scrutiny can give rise to a show cause notice under section 73 or 74 which will be adjudicated on its own merits but the proceedings under section 61 will conclude.

Now, to reiterate the process permitted under section 61, when a return furnished by a registered person is selected for scrutiny, the proper officer scrutinizes the same with reference to the information available with him, and in case of any discrepancy, he shall issue a notice to the said person in FORM GST ASMT-10, under Rule 99(1), informing him of such discrepancy and seeking his explanation thereto. The proper officer shall quantify the amount of tax, interest and any other amount payable in relation to such discrepancy, wherever possible.

An explanation shall be furnished by the registered person, in reply to the aforesaid notice, within a maximum period of 30 days from the date of service of the notice or such further period as may be permitted by the proper officer.

The registered person may accept the discrepancy mentioned in the notice issued under Rule 99(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.

Where the explanation furnished by the registered person or the information submitted under Rule 99(2) is found to be acceptable, the proper officer shall inform the registered period in FORM GST ASMT-12.

In case, explanation is not furnished OR explanation furnished is not satisfactory, OR after accepting discrepancies, the registered person fails to take corrective measures, in his return for the month in which the discrepancy is accepted by him, the proper officer, may, take recourse to any of the following provisions:

·   Initiate departmental audit as per section 65 of the Act; or

·   Initiate Special Audit as per section 66 of the Act;

·   Initiate inspection, search and seizure as per section 67 of the Act;

·   Issue show cause notice u/s 73 & 74 of the CGST Act.

The first stage in return scrutiny denotes a prima facie scrutiny, in order to ascertain whether the information furnished by the assessee in returns is prima facie valid and not internally inconsistent or inadequate. The second stage appears to be a detailed assessment calling for records and determination of tax liability under sections 73 to 75.

While doing so, the proper officer is entitled to exercise the powers vested in him under section 67 of the Act, which deals with power of inspection, search and seizure. From the language employed in section 67, it appears that these powers are required to be exercised not in routine manner, but only under circumstances when there is reasonable belief regarding suppression or intention to evade tax. It’s important to note that section 61(3) empathetically provides that in case the explanation given by the tax payer in response to discrepancies informed by the proper officer, if found acceptable, the registered person shall be informed accordingly in FORM GST ASMT-12 and no further action shall be taken in this regard.

Taking pointers from Annual Returns, following is an illustrative list of what may or may not constitute a ‘discrepancy’ to be taken up for scrutiny under section 61:

Likely to be a ‘discrepancy’ for Scrutiny	Unlikely to be a ‘discrepancy’ for scrutiny
Tariff notification prescribing credit restriction or credit ban, but credit found to be taken in returns	or credit ban, but credit found to be taken in returns Whether turnover reported as ‘exports’ has been billed in foreign currency or not
‘Net Tax’ payable being ‘negative’ through out the year indicative of missing value addition or possibly investments in capital goods when inverted rate structure known not to exist	EWB known to be generated for inward supply of motor vehicles, but no credit found to be disallowed or reversed as ineligible
Taxpayer eligible to deemed value under rule 32 found to be paying tax at 18%	Balance sheet containing ‘amounts received from clients’ but tax not found to be paid against ‘receipt voucher’
GSTR 2A showing inward supplies at 3% rate of tax but no outward supplies appearing at 3% rate of tax	Balance sheet showing ‘other service income’ but no turnover reported under chapter 99
Tax paid via DRC 03 for 2017-18 utilizing credit	Tax paid via DRC 03 for 2019-20 relating RCM under 9(4) for the year 2018-19
Taxpayer operating SEZ unit found to have paid IGST and claimed input tax credit without availing tax-free inward supplies	Company operating SEZ unit found to claim all inward supplies 9(3) or 9(4) for 2017-18 to qualify as ‘zero-rated’
Taxpayer involved in non-seasonal trading business filed ‘nil’ returns for 6 months of the year	Taxpayer involved in trading of goods found to have paid ‘nil’ tax under 9(3) at 5% towards GTA services likely to have been availed
Turnover in GSTR 1 and GSTR 3B mismatch or credit in GSTR 2A and GSTR 3B mismatch	Taxpayer reported to have received notices from creditors under IBC, 2016 but no credit reversals reported under rule 37
Sale of scrap reported by taxpayer (authorized service centre or electronics dealer) without any inward supplies under 9(4) for 2017-18	EWB raised for outward movement of goods by taxpayer with outward supplies only under chapter 99
Regular amendments in outward supplies but no payment found towards ‘interest’	‘Nil’ EWB generated throughout the year

Caution is advised that above instances are meant to be a general guide to help readers differentiate when questions arise ‘from the returns’ itself and be eligible to be treated as a discrepancy and scrutinized under section 61 and when questions, though valid, cannot be taken up for scrutiny under section 61. Also, these instances do not represent to be based on any circulars or court decisions but prepared based on understanding of underlying issues for various contributors.

61.3 Comparative Review

The provisions as to scrutiny of returns were also present in Service Tax / Central Excise and State VAT laws. For example, Rule 12(3) of Central Excise Rules provided that, the ‘Proper Officer’ may on the basis of information contained in the return filed by the assessee under rule 12(1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee on the goods removed, in the manner to be prescribed by the Board. CBIC has issued guidelines for detailed scrutiny of Central Excise Returns vide Circular No. 1004/11/2015-CX dated 21-7-2015 and also issued guidelines for detailed scrutiny of service tax returns vide Circular No. 18/4/2015-ST dated 30-06-2015

61.4 Issues and Concerns

During the filing of returns, the registered person should ensure that the value of exempted supplies as well as non-taxable supplies, if any, made by him is properly disclosed or else the same may be considered as suppression of information and a notice under section 73 or 74 would stand issued or the proper officer can take recourse for conducting an audit or special audit, as the case may be.

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