GST Scrutiny

20 Apr GST Scrutiny

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In the complex landscape of taxation, scrutiny plays a pivotal role in ensuring compliance and integrity within the system. Under the GST (Goods and Services Tax) regime, scrutiny is governed by Section 61, along with Rule 99. These provisions lay down the framework for scrutiny under GST laws, encompassing the issuance of notices, replies, and subsequent orders.

1.) Overview of Scrutiny under GST Laws

1.1 Understanding Section 61 and Rule 99

Section 61 of the GST Act empowers the authorities to scrutinize returns, documents, and other relevant records to verify the correctness of the declared turnover and taxes paid. Rule 99 provides procedural details regarding the conduct of scrutiny, including the issuance of notices and the subsequent process.

2.) Key Provisions: Notice, Reply, and Order

2.1 Notice: ASMT-10

The initiation of scrutiny begins with the issuance of Notice ASMT-10, wherein the taxpayer is informed about the examination of their records by the authorities.

2.2 Reply: ASMT-11

Upon receiving the notice, the taxpayer is required to furnish a reply, providing necessary clarifications and documents to substantiate their claims.

2.3 Order: ASMT-12

Based on the reply and examination of records, the authorities issue an order, outlining their findings and any consequential actions.

3.) Insights from Case Laws

3.1 Pepsico India Holdings Pvt. Ltd. – Gauhati High Court

Facts of the Case:

  • Alleged non-compliance with procedural steps outlined in the Central Goods and Services Tax (CGST) Act, 2017, and CGST Rules, 2017.
  • Failure of the Proper Officer to issue Form GST ASMT-10, a prerequisite for issuing a Demand-cum-Show Cause Notice under Section 73 of the CGST Act, 2017.
  • Argument regarding the alleged discrepancy in non-submission of information in Table 14 of FORM GSTR-9C, contending that it should not be considered an error due to optional submission for certain financial years.

Issue:

  • The primary consideration was the validity of the GST Show Cause Notice issued to Pepsico India Holdings Pvt. Ltd. in light of the alleged non-compliance with procedural requirements under the CGST Act, 2017, and CGST Rules, 2017.

Held:

  • The Gauhati High Court granted a stay on the operation of the impugned Demand-cum-Show Cause Notice until the returnable date.
  • It held that the issuance of the Notice lacked compliance with mandatory procedural conditions as prescribed under the CGST Act, 2017, and CGST Rules, 2017.
  • Emphasized the significance of procedural adherence and jurisdictional prerequisites in the issuance of GST notices.
  • Directed the respondent GST authorities to file their response within the specified timeframe.
  • Scheduled the matter for further examination on the returnable date.

3.2 Devi Traders – Andhra Pradesh

Facts of the Case:

  • Devi Traders filed a petition seeking a writ of mandamus regarding a show cause notice dated 06.07.2022, issued under Section 74(1) read with Rule 142(1)(a) of the A.P. Goods and Services Tax Act, 2017 (APGST Act), by the 3rd respondent.
  • The subsequent attachment of the petitioner's bank account maintained with the 4th respondent bank was challenged as illegal, arbitrary, and without jurisdiction.
  • The petitioner argued that the notice was issued without prior issuance of a notice under Section 61 of the APGST Act to call for an explanation and before passing a final assessment order under Section 74 of the APGST Act.
  • Additionally, they contended that the attachment of their bank account, resulting in deductions from their salary account towards tax recovery, was premature and lacked a provisional attachment order under Section 83 of the APGST Act issued by the Commissioner of Taxes.

Issue:

  • The primary question was whether the show cause notice issued under Section 74(1) of the APGST Act, without prior issuance of a notice under Section 61 and before the passing of a final assessment order, and the subsequent attachment of the petitioner's bank account, were legal and in accordance with the provisions of the APGST Act.

Held:

  • The Andhra Pradesh High Court noted that the initiation of demand for tax under Section 74 of the APGST Act may be based on Section 61 (scrutiny of returns), Section 65 (audit by tax authorities), or some other fact, and that mere scrutiny of return is not mandatory for such initiation.
  • However, the court found that the attachment of the petitioner's bank account and the deduction of amounts from their salary account towards tax recovery were premature.
  • The attachment lacked a provisional attachment order under Section 83 of the APGST Act issued by the Commissioner of Taxes.
  • Consequently, the court declared the show cause notice and the attachment of the petitioner's bank account as illegal, arbitrary, and without jurisdiction.
  • The respondents were directed to release the petitioner's bank account.

3.3 Shiva Jyoti Construction – Orissa High Court

Facts of the Case:

  • M/s Shiva Jyoti Construction filed a petition to rectify their GST Return for September 2017 and March 2018.
  • Mistakenly mentioned B2C instead of B2B in Form GSTR-1, leading to the recipient's inability to claim Input Tax Credit (ITC).
  • Error discovered on January 21, 2020.

Issue:

  • Whether the Petitioner could rectify their Form GSTR-1 after the deadline for rectification had passed.

Held:

  • Orissa High Court noted that allowing rectifications wouldn't cause any loss to the Respondent.
  • Denying rectification would unfairly prejudice the Petitioner's right to avail ITC benefits.
  • Cited a similar judgment by the Madras High Court.
  • Set aside the rejection letters.
  • Permitted the Petitioner to resubmit corrected returns.
  • Directed the Revenue Department to facilitate the process within four weeks.

3.4 Deepa Traders – Madras High Court

Facts of the Case:

  • The petitioner, a dealer of metal and steel scrap under the CGST Act, 2017, sought directions to rectify clerical errors in the details uploaded through Form GSTR-1 for the period of 2017–18.
  • Errors included inaccuracies in GSTIN, recipient names, invoice numbers and dates, supply details, and tax cancellations.
  • Some invoice-wise details needed exclusion from Form GSTR-1, and unintentional cancellations of SGST and CGST were made on IGST.

Issue:

  • The main issue revolves around whether the petitioner should be allowed to rectify clerical errors made in the GST filings for the period of 2017–18, considering the inadvertent nature of these mistakes and the petitioner's request for directions to make revisions.

Held:

  • The Madras High Court, in a ruling by Justice Anita Sumanth, recognized that the errors in the GST filings were not deliberate or with any deceptive intention.
  • It acknowledged that the petitioner lacked full comprehension of the system's requirements during the initial phase of GST implementation, leading to inadvertent mistakes.
  • The court allowed the petitioner to rectify the errors without any deceptive feature, permitting accurate reporting of Input Tax Credit (ITC) and turnover.
  • The ruling emphasized extending the benefits of error correction to the petitioner, considering the accidental nature of the errors stemming from a lack of knowledge during the early stages of GST implementation.

3.5 Raju Joseph – Kerala High Court

Facts of the Case:

  • Raju Joseph, proprietor of Future Graphic Systems in Alappuzha, filed a Writ Petition challenging the validity of orders issued by the State Goods and Services Tax (SGST) Department.
  • The petitioner contested the denial of Input Tax Credit (ITC) by the Assessing Authority, based on variations between the figures in GSTR 2A and GSTR 3B for the 2017-18 tax period.
  • The petitioner's representatives argued that the disparities in ITC were due to genuine errors and challenges faced during the initial implementation of GST.
  • They referred to Circular No.183/15/2022-GST issued by the Government of India, Department of Revenue, which clarified situations where discrepancies might arise between GSTR 2A and GSTR 3B.
  • The Circular outlined procedures for verifying ITC claims and emphasized compliance with Section 16 of the CGST Act, 2017.
  • The petitioner cited a prior ruling by the Kerala High Court in Diya Agencies v. State of Kerala, which emphasized that disparities in GSTR 2A should not be the sole basis for denying ITC.

Issue:

  • Whether the denial of Input Tax Credit (ITC) solely based on variations between GSTR 2A and GSTR 3B figures is valid, considering the provisions of the CGST Act, 2017 and Circular No.183/15/2022-GST?

Held:

The Kerala High Court, presided over by Justice Dinesh Kumar Singh, ruled in favor of the petitioner.

  • The court nullified the orders issued by the Assessing Authority and instructed a reevaluation of the petitioner's case, irrespective of the disparities in GSTR 2A.
  • It was mandated that the petitioner deposit 10% of the assessed sum within fifteen days and present all relevant documents to validate their ITC claim.
  • The court concluded that valid ITC claims should not be dismissed solely due to differences between GSTR 2A and GSTR 3B, as long as the claimants have fulfilled the prerequisites for claiming ITC as specified under Section 16 of the CGST Act, 2017.

3.6 Daksh Enterprise – Gujarat High Court

Facts of the Case:

  • The case involves Daksh Enterprise, a partnership firm based in Gujarat, receiving a notice under Section 61 of the Central Goods and Services Tax (CGST) and Gujarat Goods and Services Tax (GGST) Acts.
  • The notice, issued on July 5, 2021, was followed by a show cause notice in Form GST DRC-01 on February 7, 2022, regarding a demand for the financial year 2019-2020.
  • The show cause notice stipulated a deadline of February 20, 2022, for the petitioner to respond.
  • Daksh Enterprise timely replied on February 19, 2022, disputing the claims made against them.

Issue:

  • The primary issue revolves around whether the authorities violated natural justice principles by disregarding the petitioner's timely response and issuing an order without considering it.

Held:

  • The Gujarat High Court ruled that the order issued by the authorities in Form GST DRC-7 on June 6, 2022, was in violation of natural justice principles.
  • The court emphasized that the petitioner's response, submitted within the stipulated deadline, was not duly considered by the authorities.
  • Consequently, the court quashed and set aside the order dated June 6, 2022, and directed for a fresh consideration of the matter.
  • The court specified that the fresh order must take into account the petitioner's response filed on February 19, 2022, and afford the petitioner an opportunity for a personal hearing, starting from the DRC-01 stage.

3.7 Vriddhi Infratech India Pvt. Ltd. – Allahabad High Court

Facts of the Case:

  • Vriddhi Infratech India Pvt. Ltd. (referred to as “the Petitioner”) received a Notice dated June 23, 2020, under Section 61 of the Central Goods and Services Tax Act, 2017 (CGST Act), alleging a discrepancy between the turnover reported in its annual return (filed on January 30, 2020, in FORM GSTR-09) and its bank statement.
  • The Notice stated a turnover of INR 129.52 lakhs, whereas the Petitioner argued that its FORM GSTR-09 showed a turnover of INR 20,37,13,502.00 lakhs, including supplies made to unregistered persons under the B2C category.
  • The Petitioner contested the Order-in-Original (OIO) dated June 4, 2021, and the Order-in-Appeal (OIA) dated October 26, 2021, issued under Sections 61 and 74 of the CGST Act.
  • They argued that GST amount deposited in June 2018, which could not be adjusted in the Financial Year (F.Y) 2017-18, should have been adjusted in the F.Y 2018-19.

Issue:

  • The main issue at hand was whether the Respondent, the Revenue Department, had misinterpreted the FORM GSTR-09 filed by the Petitioner.

Held:

The Hon’ble Allahabad High Court, in Writ Tax No. – 4, held that:

  • The Respondent and the Appellate Authority had indeed misread the FORM GSTR-09.
  • The Respondent was directed to adjust the GST amount deposited by the Petitioner in the F.Y 2018-19.
  • The Respondent was further directed to release the security amount deposited under the interim order.
  • The OIO and the OIA were set aside.

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