The Central Goods and Services Tax Act of 2017, specifically Section 61, along with Rule 99 of the CGST Rules, 2017, outlines the provisions for scrutinizing GST returns. In May 2023, an online Scrutiny Module became available for inspecting returns filed from FY 2019-20 onwards. To ensure a consistent approach for selecting returns for scrutiny, the Central Board of Indirect Taxes and Customs (CBIC) has released two Standard Operating Procedures (SOPs): one in 2022 for FY 2017-18 and FY 2018-19, and another in 2023 for FY 2019-20 and subsequent years.

Section 61: Return Scrutiny Provisions

1. The authorized officer reviews a registered taxpayer's submitted return for accuracy and informs the taxpayer of any identified discrepancies.
2. If the officer finds the taxpayer's explanation of discrepancies satisfactory, no further action is taken.
3. Should the taxpayer fail to provide an adequate explanation within 30 days of receiving notification, or neglect to implement corrective measures in their return for the month in which the discrepancy is acknowledged, the officer may initiate actions under Sections 65, 66, or 67. Alternatively, they may calculate the tax and other outstanding amounts as per Sections 73 or 74 of the CGST Act.

Note: A Superintendent of Central Tax is designated as the proper officer responsible for performing the duties specified under Section 61 of the CGST Act, 2017.

Rule 99: Scrutiny Process for Returns

1. When a return is chosen for scrutiny, the authorized officer examines it according to Section 61, using all available information. Discrepancies are communicated to the taxpayer via Form GST ASMT-10, requesting an explanation within 30 days of the notice.
2. The registered taxpayer may accept the discrepancy, remit the tax payment using Form GST DRC-03, and provide an explanation through Form GST ASMT-11.
3. Upon receiving a satisfactory response, the authorized officer can inform the taxpayer using Form GST ASMT-12.

How Returns are Selected for Scrutiny

Initially, the Directorate General of Analytics and Risk Management (DGARM) identified GSTINs for scrutiny and forwarded these lists to field formations via the DDM portal for FY 2017-18 and 2018-19, continuing until April 2023. As of May 2023, an automated return scrutiny module has been introduced for returns filed from FY 2019-20 onwards. This system aims to minimize human intervention in the adjudication process, enhancing transparency, efficiency, and reducing tax evasion opportunities. Consequently, DGARM now provides the list of GSTINs through DG systems directly on the officers' scrutiny dashboard within the ACES-GST application.

Scrutiny Schedule Overview

A monthly schedule for scrutiny is prepared by the authorized officer for all selected GSTINs, prioritizing cases based on potential revenue implications. Under the SOP for FY 2017-18 and 2018-19, officers were expected to scrutinize three GSTINs per month until April 2023. From May 2023 onwards, with the implementation of online scrutiny for FY 2019-20 and subsequent years, the number of GSTINs to be scrutinized is four per month. In all scenarios, cases with higher revenue implications are given precedence.

Detailed Scrutiny Procedure

1. The authorized officer scrutinizes the return for accuracy by reviewing information from various system sources, including forms, statements filed by the registered taxpayer, and other platforms like DGARM, ADVAIT, and the E-way Bill portal.
2. While an indicative list of parameters (referenced as Annexure B in the original instruction) is available, it is not exhaustive. The officer may consider additional parameters as deemed appropriate.
3. Officers are expected to rely primarily on information already held by the Department, maintaining minimal direct interaction with the taxpayer. Generally, documents should not be requested from the taxpayer before issuing Form GST ASMT-10.
4. A notice, Form GST ASMT-10, is issued to the taxpayer, detailing all identified discrepancies and requesting an explanation. The officer must quantify the tax, interest, and other sums payable due to these discrepancies. If the registered taxpayer has already made additional tax payments via Form GST DRC-03, this should be taken into account when communicating discrepancies in Form GST ASMT-10.
5. For each selected GSTIN, the authorized officer must scrutinize all returns for the relevant financial year and issue a single notice using Form GST ASMT-10.
6. The taxpayer can accept the discrepancy and make payment through Form GST DRC-03, then explain the discrepancy via Form GST ASMT-11. If the response is satisfactory, the officer concludes the proceedings by informing the registered person with Form GST ASMT-12 on the portal.
7. If the taxpayer provides no explanation or fails to pay the tax within 30 days of intimation, the officer may proceed to determine the tax and other dues according to Sections 73 and 74. If an audit or investigation is necessary to ascertain the correct liability, the officer may refer the matter to the Jurisdictional Principal Commissioner or Deputy Commissioner, who will then decide whether to forward it to the Audit Commissionerate or the Anti-Evasion Wing.

Scrutiny Timeline Details

To ensure revenue protection, return scrutiny must be completed within specific periods. The key timelines are as follows:

Reporting and Monitoring of Scrutiny Progress

The authorized officer maintains a Scrutiny Register for all assigned GSTINs (format detailed in Annexure C of the original instructions).

For scrutinies from FY 2019-20 onwards, a Management Information System (MIS) report of the scrutiny register, alongside a 'Monthly Scrutiny Progress Report,' is accessible on the officer's dashboard via the ACES portal.

The jurisdictional Principal Commissioner oversees the scrutiny progress monthly.

The authorized officer prepares a scrutiny progress report at the close of each month (as specified in Annexure D of the original instructions). This report is then forwarded to the Director-General of Goods and Service Tax by the Principal Chief Commissioner of the relevant zone by the 10th of the following month. Subsequently, the DGGST submits this report to the Board by the 20th of the corresponding month.

This SOP aims to facilitate the effective use of technology and risk-based tools for return scrutiny.

Instruction No. 02/2022, issued on March 22, 2022, guides the scrutiny of returns for financial years 2017-18 and 2018-19.

For FY 2019-20 and later years, Instruction No. 02/2023, issued on May 26, 2023, is to be followed in conjunction with the previous instruction.

Key Risk Parameters for GST Return Selection

Below is a list of risk parameters used for selecting GST returns for scrutiny:

• The tax liability reported in Tables 3.1(a) and (b) of GSTR-3B should correspond with the tax liability in Tables 4, 5, 6, 7A(1), 7B(1), 11A, and 11B of GSTR-1, after accounting for amendments in Tables 9, 10, and 11(II).
• Adjusted advances should be accurately reflected by reporting them in Table 11B and Tables 4, 5, 6, and 7 of GSTR-1.
• The accurate tax liability under the reverse charge mechanism must be reported and paid in cash using Table 3.1(d) for liability and Tables 4(A)(2) and 4(A)(3) for ITC claimed on it in GSTR-3B. Ensure the value in GSTR-3B exceeds the eligible ITC in Tables 3, 4, 5, and 6 of GSTR-2A.
• ITC claimed in Table 4(A)(4) of GSTR-3B must align with amounts marked as eligible ITC in Table 7 of GSTR-2A, after considering amendments in Table 8.
• Sales subject to TCS or TDS under GST in GSTR-3B should match the TDS and TCS credit shown under Column 6 of Table 9 of GSTR-2A.
• The tax liability in Tables 3.1(a) and (b) of GSTR-3B should correspond to the respective e-way bills.
• Claims for Input Tax Credit (ITC) are invalid for periods after the effective cancellation date of suppliers’ GST registrations, particularly in cases of retrospective cancellations.
• Input Tax Credit should not be claimed for invoices or debit notes where the GSTR-3B filing status of the respective vendor is 'No', even if it appears in GSTR-2A.
• Do not claim ITC if the GSTR-3B for the relevant period is filed after the final date permitted under Section 16(4) of the CGST Act, which is November 30th of the year following the financial year in which the invoice/debit note was issued, or the date of filing annual returns, whichever is earlier.
• ITC on imported goods in Table 4(A)(1) of GSTR-3B must match the amounts in Tables 10 and 11 of GSTR-2A and data from ICEGATE.
• Adherence to CGST Rules 42 and 43 is crucial for correct ITC reversals in Table 4(B) of GSTR-3B.
• Late fee and interest payments, as per Sections 47 and 50 of the CGST Act, must be calculated and paid when return filing or tax payment is delayed.