Understanding GST Section 61: Scrutiny of Returns, Process, and Compliance Guide

Section 61 of the CGST Act, 2017, empowers tax authorities to scrutinize GST returns to verify their accuracy, identify discrepancies, and encourage compliance, primarily through a desk-based review. Under Rule 99, the process involves selecting returns using risk-based parameters (often by DGARM), issuing a notice (FORM GST ASMT-10) for discrepancies, and allowing the taxpayer to respond via FORM GST ASMT-11.

If the explanation is satisfactory, proceedings are closed with FORM GST ASMT-12; otherwise, further actions under Sections 65, 66, 67, 73, 74, or the newly inserted Section 74A may be initiated. Timely and accurate compliance, including prompt responses and corrective action, is essential for taxpayers to avoid escalation. The 2024 amendment further empowers officers by adding Section 74A as a route for determining dues, underscoring the importance of proactive reconciliation and proper return filing.

GST Section 61: Understanding the Scrutiny of Returns

Section 61 of the Central Goods and Services Tax (CGST) Act, 2017, read with Rule 99 of the CGST Rules, 2017, empowers the proper officer to scrutinize GST returns filed by registered persons. This crucial provision aims to ensure the correctness of returns and identify discrepancies, thereby safeguarding the integrity of the GST tax system. This article delves into the intricacies of Section 61, its operational aspects, relevant forms, and recent amendments.

I. Commencement and Objective of Section 61

Section 61 of the CGST Act, 2017, came into force on July 1, 2017, vide Notification No. 9/2017-Central Tax, G.S.R. 658(E), dated June 28, 2017.

The primary objective of Section 61 is to:

• Verify correctness: Scrutinize returns and related particulars furnished by registered persons to verify their accuracy.
• Identify discrepancies: Pinpoint errors, omissions, or mismatches in the returns.
• Prevent revenue leakage: Address discrepancies proactively to avoid potential loss of tax revenue.
• Promote compliance: Encourage registered persons to maintain accurate records and file correct returns.

It’s important to note that scrutiny under Section 61 is typically a desk-based examination, focusing on the data available in the returns and other related information, rather than a full-scale audit or investigation.

II. The Scrutiny Process under Section 61 and Rule 99

The process of scrutiny of returns under GST unfolds in a structured manner, involving specific forms and timelines:

1. Selection of Returns for Scrutiny

The Directorate General of Analytics and Risk Management (DGARM) plays a pivotal role in selecting returns for scrutiny based on identified risk parameters. These parameters can include mismatches between GSTR-3B and GSTR-1, discrepancies in claimed Input Tax Credit (ITC) as per GSTR-2A/2B, inconsistencies in tax payments, non-filing or delayed filing of returns, and other red flags. The selected GSTINs (GST Identification Numbers) are then made available to the concerned proper officers on the ACES-GST application.

2. Issuance of Notice (FORM GST ASMT-10)

Upon identifying discrepancies during scrutiny, the proper officer issues a notice in FORM GST ASMT-10 to the registered person. This notice serves to:

• Inform the registered person of the specific discrepancies noticed.
• Quantify, as far as possible, the amount of tax, interest, and any other amount payable in relation to such discrepancies.
• Seek an explanation from the registered person regarding the discrepancies.
• Specify a period, generally 30 days from the date of the notice, within which the explanation must be furnished. The proper officer may, however, permit a further period.

The notice in FORM GST ASMT-10 is communicated through the GST portal, and taxpayers are notified via email or SMS. It is crucial for the proper officer to ensure that the discrepancies communicated are specific and not vague. Payments made by the taxpayer through FORM DRC-03 after filing returns for the relevant tax period may also be considered when communicating discrepancies.

3. Reply by Registered Person (FORM GST ASMT-11)

Upon receiving FORM GST ASMT-10, the registered person has two primary courses of action:

• Acceptance of Discrepancy and Payment: If the registered person accepts the discrepancies, they must pay the differential tax, interest, and any other amount payable through FORM DRC-03. Subsequently, they must inform the proper officer about this acceptance and payment by furnishing a reply in FORM GST ASMT-11. Corrective measures should also be taken in their return for the month in which the discrepancy is accepted.
• Furnishing Explanation: If the registered person does not agree with the discrepancies or has a valid reason for them, they must furnish an explanation in FORM GST ASMT-11 to the proper officer within the stipulated 30-day period (or extended period). This reply should be point-wise, providing detailed working and supporting documents such as reconciliation statements, invoices, lorry receipts, e-way bills, bank statements, and certificates from suppliers or Chartered Accountants, as applicable.

The reply in FORM GST ASMT-11 is filed online through the GST portal.

4. Outcome of Scrutiny

a. Acceptable Explanation (FORM GST ASMT-12): As per Section 61(2), if the explanation furnished by the registered person in FORM GST ASMT-11 is found to be acceptable by the proper officer, the registered person is informed accordingly in FORM GST ASMT-12. In such cases, no further action is taken in this regard, and the scrutiny proceedings are concluded.

b. Unsatisfactory Explanation or Failure to Take Corrective Action: As per Section 61(3), if:

• No satisfactory explanation is furnished by the registered person within the prescribed 30-day period (or further permitted period), OR
• The registered person, after accepting the discrepancies, fails to take the corrective measures in their return for the month in which the discrepancy is accepted,

The proper officer may initiate appropriate action, which includes:

• Action under Section 65 (Audit): Directing an audit of the registered person’s records and accounts.
• Action under Section 66 (Special Audit): Directing a special audit by a Chartered Accountant or Cost Accountant.
• Action under Section 67 (Inspection, Search, and Seizure): Initiating inspection, search, and seizure proceedings if there is reason to believe tax evasion or other offenses have occurred.
• Proceeding to Determine Tax and Other Dues: This is the most common subsequent action. The proper officer may initiate proceedings to determine the tax and other dues under:
  • Section 73: Cases where tax has not been paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, for reasons other than fraud, willful misstatement, or suppression of facts.
  • Section 74: Cases where tax has not been paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, by reason of fraud, willful misstatement, or suppression of facts.
  • Section 74A (Inserted w.e.f. November 1, 2024): This newly inserted section by the Finance (No. 2) Act, 2024, deals with a specific scenario of determination of tax and other dues.

It is crucial to understand that no direct demand for tax or penalties can be raised under Section 61 itself. Section 61 is a preliminary step; the actual determination and recovery of tax liabilities occur through the invocation of other specific sections of the Act.

III. Timelines for Scrutiny and Subsequent Actions

The standard operating procedure (SOP) for scrutiny of GST returns outlines specific timelines for various activities:

IV. Impact of Finance (No. 2) Act, 2024, on Section 61(3)

A significant amendment has been introduced to Section 61(3) by the Finance (No. 2) Act, 2024, which came into effect on November 1, 2024, vide Notification No. 17/2024-Central Tax, S.O. 4253(E), dated September 27, 2024. This amendment inserted a proviso to Section 61(3), specifically referencing “or section 74A”. This implies that in cases where an explanation is not satisfactory or corrective measures are not taken, the proper officer can now also proceed to determine tax and other dues under the newly introduced Section 74A, in addition to Sections 73 or 74. The exact scope and application of Section 74A will become clearer with further clarifications and rules.

V. Importance of Compliance for Taxpayers

For registered persons, timely and accurate compliance with Section 61 is paramount.

• Prompt Response: Responding to FORM GST ASMT-10 within the stipulated timeframe is crucial to avoid escalation of the matter.
• Comprehensive Explanation: Providing a detailed and well-supported explanation in FORM GST ASMT-11 can lead to the closure of proceedings without further action.
• Corrective Measures: If discrepancies are accepted, immediately undertaking corrective measures in subsequent returns demonstrates good faith and compliance.
• Proactive Reconciliation: Regular reconciliation of GST returns with books of accounts and other available data (like GSTR-2B) can help identify and rectify discrepancies proactively, reducing the likelihood of receiving a scrutiny notice.

FAQs on Section 61 of CGST Act 2017

What is Section 61 of the CGST Act, 2017?
Section 61 allows proper officers to scrutinize GST returns filed by registered persons to verify their correctness and identify discrepancies.

What is the objective of Section 61?
The main goal is to ensure accurate return filing, detect mismatches or errors, prevent revenue leakage, and promote taxpayer compliance.

When did Section 61 come into effect?
It came into force on July 1, 2017, via Notification No. 9/2017-Central Tax.

Is scrutiny under Section 61 a full audit?
No, it is a desk-based review using data from filed returns and related information, not a detailed audit or investigation.

Who selects the returns for scrutiny?
The Directorate General of Analytics and Risk Management (DGARM) selects returns based on risk parameters.

What are the risk parameters used for scrutiny?
These include mismatches in GSTR-3B and GSTR-1, incorrect ITC claims, late filing, and inconsistencies in tax payments.

Which form is issued to notify the taxpayer of discrepancies?
FORM GST ASMT-10 is issued to communicate identified discrepancies.

What is the timeline to respond to FORM GST ASMT-10?
The taxpayer must respond within 30 days or within an extended period permitted by the officer.

How should a taxpayer respond to a scrutiny notice?
A reply must be filed in FORM GST ASMT-11, either accepting the discrepancies or providing explanations with supporting documents.

What happens if the explanation is satisfactory?
The officer will issue FORM GST ASMT-12 to conclude the proceedings without further action.

What if the taxpayer accepts the discrepancies?
They must pay the differential amount through FORM DRC-03 and inform the officer via FORM GST ASMT-11.

What if the explanation is not accepted or no reply is given?
The officer may initiate further action under Sections 65, 66, 67, 73, 74, or the newly added Section 74A.

Can a tax demand be directly raised under Section 61?
No, Section 61 only allows scrutiny. Tax demands must be raised under other provisions like Section 73, 74, or 74A.

What is FORM GST ASMT-11 used for?
It is used by the taxpayer to respond to the scrutiny notice, either accepting the discrepancies or furnishing a detailed explanation.

What is FORM GST ASMT-12?
It is the form used by the officer to inform the taxpayer that their explanation is acceptable and scrutiny is concluded.

What are Sections 65, 66, and 67?
These relate to audit (Section 65), special audit (Section 66), and inspection, search, and seizure (Section 67).

What is Section 73 of the CGST Act?
It deals with cases of non-payment or short payment of tax or wrong ITC claim not involving fraud or willful misstatement.

What is Section 74 of the CGST Act?
It addresses similar tax discrepancies but where fraud, willful misstatement, or suppression of facts is involved.

What is Section 74A and when was it introduced?
Section 74A, introduced via the Finance (No. 2) Act, 2024, provides an additional pathway for determining tax dues in specific cases after scrutiny.

What timelines apply to scrutiny proceedings?
Various timelines are defined, such as issuing notices within a month, responding within 30 days, and initiating further action within 15–45 days depending on the situation.

How are taxpayers informed of scrutiny notices?
Notices are issued through the GST portal and notifications are sent via email or SMS.

Can discrepancies be resolved without escalation?
Yes, by accepting and paying dues promptly or providing a satisfactory explanation with documentation.

What is FORM DRC-03 used for?
It is used by taxpayers to make voluntary payments of tax, interest, and penalties.

What documents may be required in a reply to scrutiny?
Invoices, reconciliation statements, e-way bills, bank statements, Chartered Accountant certificates, and other relevant records.

What is the importance of proactive reconciliation?
Regular reconciliation helps identify and fix issues early, reducing the risk of scrutiny and further proceedings.

What should taxpayers do if they receive FORM GST ASMT-10?
They should analyze the discrepancies, gather supporting evidence, and respond clearly in FORM GST ASMT-11 within the given timeframe.

Can scrutiny proceedings be reopened after closure?
Once concluded via FORM GST ASMT-12, scrutiny proceedings for that period typically do not reopen unless new evidence emerges.

Is legal representation allowed during scrutiny?
While scrutiny is desk-based, taxpayers can consult legal or tax professionals to help prepare and file responses.

How can taxpayers track scrutiny notices?
All notices and responses can be tracked through the GST portal under the “View Notices and Orders” section.

In conclusion, Section 61 of the CGST Act serves as an important tool for tax administration, enabling authorities to ensure the accuracy of GST returns. By understanding the scrutiny process, relevant forms, timelines, and recent amendments, registered persons can effectively navigate this aspect of GST compliance and minimize potential disputes.