All Goods and Services Tax (GST) registered taxpayers are obligated to submit their designated GST returns promptly. If inconsistencies or inaccuracies are found in the information provided, tax officials will initiate a scrutiny of these GST returns. The introduction of an automated return scrutiny module necessitates that taxpayers pay even closer attention to maintaining consistency across their filed returns. This article delves into the scrutiny process and outlines the various options available for taxpayers to respond to a scrutiny notice.

What is a Scrutiny Assessment under GST?

A GST officer undertakes a thorough examination of a taxpayer's GST returns, guided by specific risk parameters, to confirm their accuracy. Should any errors be identified, the officer issues a scrutiny notice to the registered taxpayer, requesting an explanation. It is important to note that a personal hearing is not typically part of this assessment type. If the differential tax, including any interest, is acknowledged, the taxpayer should pay this amount before submitting their reply, along with appropriate justification. If the officer deems the response satisfactory, the taxpayer is informed, and the proceedings are closed without further action via Form ASMT-12 (an order confirming acceptance of the reply).

Conversely, the GST officer may take additional steps under the following conditions:

• The taxpayer fails to pay the tax or provide an explanation.
• The taxpayer does not respond or correct the discrepancy within 30 days of the notice's issuance.
• The submitted reply does not satisfy the tax officer.

In such instances, the tax officer may pursue actions such as:

• Initiating a tax audit under Section 65.
• Mandating a special audit under Section 66.
• Conducting a survey or inspection under Section 67.
• Activating demand and recovery provisions.
• Issuing a notice for outstanding demand or shortfall under Section 73 (for non-fraudulent intent) or Section 74 (for fraudulent intent).

The Central Board of Indirect Taxes and Customs (CBIC) has released two Standard Operating Procedures (SOPs), CGST Instruction no. 2/2022 and 2/2023, for manual scrutiny for FY 2017-18 and FY 2018-19, and online scrutiny for FY 2019-20 onwards, respectively. These SOPs detail the scrutiny process, from selecting returns to issuing notices in ASMT-10 and defining actions for non-response.

Objectives of the Scrutiny Assessment

The primary goal of a scrutiny assessment is to verify the accuracy of information submitted in GST returns, such as eligible Input Tax Credit (ITC) versus actual claims, tax payable versus tax paid, or claims of ineligible exemptions. Tax officers use predefined risk parameters to determine if a scrutiny notice is warranted. If these parameters indicate a high risk of default or fraud, the officer can proceed with the assessment. An officer may also decide to initiate scrutiny independently. However, it is crucial to understand that no final order (except ASMT-12) can be issued as a direct outcome of the scrutiny assessment itself, as it is not a legal or judicial proceeding.

Automated Return Scrutiny Module

In May 2023, the GST Network introduced the automated return scrutiny module, applicable from FY 2019-20 onwards. This module is integrated with the ACES-GST backend application, providing tax officers with an efficient, transparent, and expedited method for conducting GST scrutiny. Taxpayers might observe an increase in tax notices and associated non-compliance costs. Consequently, businesses must reinforce measures to ensure GST-compliant invoicing, robust reconciliations, precise return preparation, timely filing, and prompt responses to GST notices issued in Form ASMT-10 under the automated GST scrutiny system.

GST Scrutiny Notice in ASMT-10: Forms, Timelines, Mode, and Contents

Form: A scrutiny notice, detailing discrepancies in GST returns along with any applicable tax, interest, and penalty, is issued in Form ASMT-10. The taxpayer's response should be submitted in Form ASMT-11.

Mode: Tax officers can dispatch notices via SMS or email to the taxpayer.

Timelines: While there is no specific time limit for receiving a scrutiny notice, taxpayers are generally required to respond within 30 days of its issuance. An extension of up to 15 additional days may be requested.

Contents: Form ASMT-10 typically includes:

1. Basic details: The Goods and Services Tax Identification Number (GSTIN), taxpayer's name, address, and the relevant tax period.
2. Discrepancy Observed: A clear description of any discrepancies found, accompanied by a request for an explanation.
3. Particulars of the tax officer: The Document Identification Number (DIN), name, signature, and designation of the issuing tax official.

The following workflow illustrates the scrutiny process: Viewing a scrutiny notice on the GST portal involves these steps:

Step 1: Log in to the GST portal and select ‘View Additional Notices/Orders’ under the ‘Services’ tab. Step 2: After clicking ‘View Additional Notices’, a screen will display a list of notices. Step 3: Taxpayers can review all notices issued by the tax official by clicking on ‘View’.

The GST portal provides various status updates regarding the scrutiny of a GST return:

1. Pending for action by the tax officer.
2. Closed.
3. Pending for reply by the taxpayer.
4. Reply furnished; pending for order by the tax officer.
5. Reply not furnished, pending for order.
6. An order issued for dropping proceedings.
7. Recommended for action under Section 73.
8. Recommended for action under Section 74.
9. Recommended for audit under Section 65.
10. Recommended for special audit under Section 66.
11. Recommended for survey/inspection under Section 67.
12. Pending for order by the tax officer.

How to respond to a Scrutiny Notice using ASMT-11?

Before submitting a response to the tax officer, the taxpayer must verify the accuracy of the details presented in the notice. If a differential tax liability is identified and the taxpayer agrees to it, the payment must be made prior to replying in ASMT-11.

Two scenarios may arise:

• The taxpayer acknowledges the tax due as per the notice and has already paid it. Payment particulars will be declared when replying in ASMT-11.
• The taxpayer acknowledges the tax due as per the notice but has not yet paid it. Payment must be made through one of the following methods before replying in ASMT-11:
• Paying tax using Form DRC-03.
• Furnishing a supply invoice, debit note, amended invoice, or amended debit note in GSTR-1.
• Paying tax or reversing ITC while filing GSTR-3B.

Here are the steps to respond to a scrutiny notice:

Step 1: On the case details page, select the ‘Replies’ tab to view all replies filed with the tax department. To add a new reply, click ‘Notice’. Step 2: The reply page will then be displayed. Step 3: Enter your response and any relevant payment details. Step 4: Click ‘ADD’ to include more details. Step 5: If necessary, choose a file to upload with your reply. Step 6: Select the verification checkbox and the authorized signatory. Step 7: Enter the place and click on ‘Preview’. Step 8: Review all provided information for correctness and then click on ‘File’. Step 9: The application submission page will appear. Step 10: Submit using either a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). A confirmation message will confirm successful submission.

The replies tab will update to show the status as ‘Reply furnished, pending with tax officer’.

Procedure after replying to a Scrutiny Notice

Upon submission of a reply, if the tax officer is satisfied, the proceedings will be closed by issuing an order that informs the taxpayer. However, if the tax officer is not satisfied, an order will be issued demanding the tax, penalty, and interest as applicable.

Taxpayers can view all orders issued by the tax officer by following these steps:

Step 1: Click on the ‘Orders’ tab on the case details page. Step 2: Click on the attachments link to view the specific order.

Consequences of not responding to a Scrutiny Notice

Failure to respond to a scrutiny notice will prompt the tax officer to take action under Section 73 (for non-fraudulent cases) or Section 74 (for fraudulent cases). This could involve issuing a show-cause notice in Form DRC-1, demanding tax dues along with interest and penalties. The penalty amount will vary based on the nature of the discrepancy identified. Alternatively, the officer might recommend audits under Section 65, 66, or 67.