Section 61 of the Central Goods and Services Tax Act, 2017 deals with the scrutiny of returns furnished by registered taxpayers. It gives the proper officer the authority to examine a GST return and the related particulars to verify whether the information declared by the taxpayer appears to be correct.
The scrutiny process is an important part of GST administration because the GST system largely operates on self-assessment. A registered person determines the tax payable, claims eligible input tax credit and furnishes returns. Section 61 provides a mechanism through which the tax authorities can examine those returns and communicate discrepancies when they are noticed.
Scrutiny under Section 61 is primarily intended to identify discrepancies in returns and provide the registered person an opportunity to explain or correct them. If the explanation is acceptable, the matter is closed. If the taxpayer does not provide a satisfactory explanation or fails to take the required corrective action, the proper officer may proceed with further action under the GST law.
What is Scrutiny of Returns under GST?
Scrutiny of returns means examination of the return and related particulars furnished by a registered person by the proper officer.
Under Section 61(1), the proper officer may scrutinize the return and related particulars to verify the correctness of the return. If discrepancies are noticed, the officer informs the registered person of those discrepancies in the prescribed manner and seeks an explanation.
The scrutiny process can therefore be understood in three broad stages:
- Examination of the return
- Communication of discrepancies and opportunity to explain
- Closure or further action depending upon the taxpayer’s response
It is important to understand that receiving a scrutiny notice does not by itself mean that tax evasion has been established. The purpose of the process is to examine discrepancies and obtain the taxpayer’s explanation.
Purpose of Section 61
Section 61 serves several purposes within the GST compliance system.
The main objectives include:
- verifying the correctness of GST returns;
- identifying inconsistencies between different GST declarations;
- identifying potential short payment of tax;
- identifying possible excess or incorrect input tax credit;
- identifying differences between turnover reported in different statements;
- providing the taxpayer an opportunity to explain discrepancies;
- encouraging voluntary correction and payment where a discrepancy is accepted; and
- enabling the department to take further action where the discrepancy remains unresolved.
CBIC’s instructions on scrutiny explain that officers may use information available through various GST returns and statements and information from departmental and other systems for identifying discrepancies. The 2022 scrutiny instructions specifically refer to sources such as DGARM, ADVAIT, GSTN and the e-way bill portal.
Section 61 – Statutory Provision
Section 61 contains three sub-sections.
Section 61(1)
The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return. If discrepancies are noticed, the officer informs the taxpayer and seeks an explanation.
Section 61(2)
If the explanation provided by the registered person is found acceptable, the taxpayer is informed accordingly and no further action is taken in this regard.
Section 61(3)
If the taxpayer:
- does not provide a satisfactory explanation within the prescribed period;
- fails to provide an explanation within the additional period allowed by the officer; or
- accepts the discrepancy but fails to take the corrective measure in the return for the month in which the discrepancy is accepted,
the proper officer may initiate appropriate action.
Such action may include proceedings under:
- Section 65 – Audit by tax authorities;
- Section 66 – Special audit;
- Section 67 – Inspection, search and seizure; or
- determination of tax and other dues under the applicable demand provisions referred to in Section 61.
How Does GST Scrutiny Work?
The practical scrutiny process can be understood through the following stages.
Step 1 – Return is Selected for Scrutiny
A return furnished by a registered person may be selected for scrutiny.
CBIC’s scrutiny instructions state that selection may preferably be based on appropriate risk parameters. The officer then examines the returns and related information available with the department.
For a particular financial year, CBIC’s scrutiny instructions provide that, for each GSTIN selected for scrutiny, the proper officer should scrutinize the returns pertaining to the corresponding financial year and a single compiled notice in FORM GST ASMT-10 may be issued for that financial year.
Step 2 – Officer Examines the Return
The proper officer examines the return against information available to the department.
The scrutiny may involve checking matters such as:
- declared turnover;
- tax liability;
- input tax credit;
- tax paid;
- exempt supplies;
- zero-rated supplies;
- reverse charge liability;
- outward supply information;
- information appearing in other GST returns;
- e-way bill information;
- refund-related information; and
- other information available with the department.
The exact parameters can vary depending on the nature of the taxpayer and the risk indicators identified.
CBIC’s 2022 instructions state that the indicative scrutiny parameters are not exhaustive and that officers may consider other relevant parameters as well.
Step 3 – Discrepancy is Communicated
If the officer notices a discrepancy, the registered person is informed through FORM GST ASMT-10.
The notice communicates the discrepancy and seeks the taxpayer’s explanation. The prescribed procedure also contemplates quantification, wherever possible, of the tax, interest and other amounts payable in relation to the discrepancy.
Step 4 – Taxpayer Responds
The taxpayer can examine the discrepancy and decide whether:
- the discrepancy is incorrect and requires an explanation; or
- the discrepancy is correct and corrective action/payment is required.
The taxpayer furnishes the explanation through FORM GST ASMT-11.
Where the discrepancy is accepted, the taxpayer may pay the applicable tax, interest and other amount and inform the proper officer. CBIC’s scrutiny instructions state that such payment may be made through FORM GST DRC-03.
Step 5 – Officer Considers the Response
If the taxpayer’s explanation is acceptable, the proper officer informs the registered person through FORM GST ASMT-12.
The scrutiny proceedings are then concluded in relation to the discrepancy.
Step 6 – Further Action if the Issue Remains Unresolved
If no satisfactory explanation is furnished or the taxpayer accepts the discrepancy but fails to take the required corrective action, Section 61(3) permits the proper officer to initiate appropriate proceedings under the GST law.
FORM GST ASMT-10 – Notice for Discrepancies
FORM GST ASMT-10 is the principal notice used in the scrutiny process.
It is titled “Notice for intimating discrepancies in the return after scrutiny.”
The form identifies the taxpayer and the relevant tax period/financial year and specifies the discrepancies noticed during scrutiny. It also calls upon the registered person to explain the reasons for those discrepancies.
The notice can therefore be an important compliance communication for a taxpayer.
A taxpayer should not ignore an ASMT-10 notice merely because it is described as a scrutiny notice. The taxpayer should carefully examine each discrepancy and prepare an appropriate response supported by relevant records.
Time Limit for Reply to ASMT-10
The current CBIC presentation of Rule 99 provides that the taxpayer is required to respond within the period specified in the ASMT-10 notice, which is not to exceed 15 days from the date of service of the notice. The proper officer may permit the taxpayer to respond within a further period where applicable.
This should be distinguished from the wording of Section 61(3), which refers to 30 days or such further period as may be permitted for the consequences of not furnishing a satisfactory explanation. The statutory provision and the procedural rule should therefore be read together when dealing with an actual scrutiny notice.
Taxpayers should always follow the specific deadline mentioned in the notice received on the GST portal.
FORM GST ASMT-11 – Reply to Scrutiny Notice
FORM GST ASMT-11 is used by the registered person to respond to the discrepancy communicated through ASMT-10.
The taxpayer may use the response to:
- explain why the discrepancy does not actually exist;
- provide clarification regarding the return;
- explain a difference between two sets of data;
- provide supporting information;
- acknowledge the discrepancy; or
- communicate corrective payment/action where appropriate.
The response should be supported by relevant documents and calculations wherever necessary.
A vague response may not adequately address the issue raised by the proper officer. The taxpayer should therefore respond to each discrepancy separately and clearly.
FORM GST ASMT-12 – Acceptance of Explanation
Where the explanation furnished by the taxpayer or the information submitted in response to the scrutiny notice is found acceptable, the proper officer informs the registered person through FORM GST ASMT-12.
This is the normal closure mechanism under the scrutiny procedure when the taxpayer’s explanation resolves the discrepancy.
In practical terms, the sequence is:
ASMT-10 → Taxpayer’s explanation/payment → ASMT-11 → Acceptance → ASMT-12
What Types of Discrepancies Can Be Identified?
Section 61 does not provide an exhaustive list of every possible discrepancy.
However, scrutiny may identify inconsistencies relating to various aspects of GST compliance.
Difference in Turnover
The turnover reported in one GST statement may differ from information available from other returns or systems.
For example, the turnover declared in GST returns may not appear consistent with other information available to the department.
The taxpayer may need to explain whether the difference relates to:
- timing differences;
- amendments;
- credit notes;
- exempt supplies;
- zero-rated supplies;
- reporting errors; or
- another legitimate reason.
Difference in Tax Liability
The officer may identify a difference between the taxable turnover and the tax actually paid.
The taxpayer should examine:
- taxable value;
- applicable tax rate;
- tax classification;
- exemptions;
- reverse charge;
- amendments; and
- tax payments.
Input Tax Credit Discrepancies
Scrutiny can also involve examination of ITC-related information.
Possible issues may include:
- difference between ITC reported and information available in GST records;
- unusual ITC patterns;
- ITC claimed in circumstances requiring further verification;
- reversal-related discrepancies; or
- other inconsistencies identified from available data.
A difference in system-generated information does not automatically establish that ITC is wrong. The taxpayer should examine the underlying invoices, eligibility conditions and relevant GST records before responding.
E-Way Bill and Return Differences
The department may compare information available through the e-way bill system with GST returns.
For example, significant differences between movement of goods and declared turnover may trigger a query.
However, such differences can have legitimate explanations, including:
- stock transfers;
- job work;
- exempt supplies;
- return of goods;
- movement for reasons other than supply; or
- timing differences.
The taxpayer should explain the actual nature of the transactions.
Reverse Charge Liability
The scrutiny process may also identify possible differences relating to reverse charge supplies.
The taxpayer should verify whether the transaction was actually subject to reverse charge and whether the applicable tax was properly discharged.
CBIC Guidelines for Scrutiny of Returns
CBIC issued Instruction No. 02/2022-GST dated 22 March 2022 containing a Standard Operating Procedure for scrutiny of returns for FY 2017-18 and 2018-19.
Although the instruction was issued for the specified financial years, it provides useful insight into the scrutiny methodology.
The instruction states that officers should generally rely on information available with the department at the scrutiny stage and that, as far as possible, scrutiny should involve minimal interaction with the taxpayer before issuance of ASMT-10.
It also states that officers should, as far as possible:
- identify specific discrepancies;
- quantify tax, interest and other amounts where possible;
- avoid vague or general discrepancy notices;
- consider payments already made through DRC-03; and
- provide the taxpayer an opportunity to explain the discrepancies.
This makes it important for taxpayers to examine the exact issue mentioned in ASMT-10 rather than responding with a generic statement.
Can a Taxpayer Pay the Amount During Scrutiny?
Yes.
Where the taxpayer accepts a discrepancy, the taxpayer may pay the tax, interest and other applicable amount arising from the discrepancy and inform the proper officer.
CBIC’s scrutiny instructions specifically state that payment can be made through FORM GST DRC-03.
For example, suppose scrutiny identifies an additional GST liability of ₹75,000 and the taxpayer agrees that the discrepancy is correct.
The taxpayer may:
- verify the calculation;
- determine applicable interest and other amounts;
- make the required payment;
- furnish the appropriate information through the prescribed procedure; and
- retain evidence of the payment and response.
This can help resolve the discrepancy without unnecessarily allowing the matter to proceed to more extensive proceedings, subject to the facts and applicable law.
What Happens if the Taxpayer Disagrees with ASMT-10?
A scrutiny notice is an opportunity to provide an explanation.
If the taxpayer believes that the discrepancy identified by the officer is not correct, the taxpayer can provide an explanation through ASMT-11.
For example, suppose the department identifies a difference of ₹10 lakh between two figures.
The taxpayer may establish that the difference arose because:
- one figure includes exempt supplies;
- a credit note was subsequently issued;
- an amendment was made in a later period;
- the transaction was reported under another applicable category; or
- the data being compared represents different periods.
The taxpayer should provide a clear reconciliation and supporting documents.
If the proper officer finds the explanation acceptable, ASMT-12 can be issued and no further action is taken in this regard.
👉 Read More → Section 62 – Assessment of non-filers of returns
What Happens if the Explanation Is Not Satisfactory?
Section 61(3) provides consequences where the taxpayer does not furnish a satisfactory explanation within the applicable period or fails to take corrective action after accepting the discrepancy.
The proper officer may initiate appropriate action, including:
- audit under Section 65;
- special audit under Section 66;
- inspection, search and seizure under Section 67; or
- determination of tax and other dues under the applicable demand provisions referred to in Section 61.
Therefore, Section 61 can serve as an important gateway to further GST proceedings where discrepancies remain unresolved.
Scrutiny of Returns vs GST Audit
Scrutiny under Section 61 and audit under Section 65 are not the same.
| Basis | Scrutiny of Returns | Audit by Tax Authorities |
|---|---|---|
| Section | Section 61 | Section 65 |
| Main purpose | Verify correctness of return and related particulars | Examine records, books, returns and broader compliance |
| Nature | Return-focused examination | More detailed audit |
| Initial focus | Information available to the officer | Books, records, returns and other relevant matters |
| Notice/form | ASMT-10 where discrepancy is noticed | ADT-01 for audit |
| Taxpayer response | Explanation/payment/correction | Response to audit observations |
| Further action | May lead to audit, special audit, inspection or demand proceedings | May lead to tax determination proceedings |
Scrutiny is therefore not automatically equivalent to an audit.
Scrutiny of Returns vs Special Audit
Special audit under Section 66 is also different from scrutiny under Section 61.
A special audit may be directed where the statutory conditions relating to the nature and complexity of the case and the interest of revenue are satisfied, with the required approval.
Under Section 61, the initial process is the examination of the return and related particulars.
If scrutiny raises issues that require more extensive action, the law allows the proper officer to initiate appropriate proceedings, including those under Section 66.
Scrutiny of Returns vs Assessment under Section 62
Section 61 should also be distinguished from assessment of non-filers under Section 62.
Section 61 applies to scrutiny of returns furnished by registered persons.
Section 62 applies where a registered person fails to furnish the required return even after service of a notice under Section 46. In such circumstances, the proper officer may proceed with assessment according to the provisions of Section 62.
Therefore:
Section 61 = scrutiny of a furnished return
Section 62 = assessment of specified non-filers
Example of GST Scrutiny
Suppose ABC Traders files its GST returns for a financial year.
During scrutiny, the proper officer notices that:
- outward taxable turnover reported in one return appears inconsistent with other information;
- the taxpayer has claimed a particular amount of ITC; and
- the available information indicates a possible difference in tax liability.
The officer examines the available information and issues FORM GST ASMT-10 explaining the discrepancies.
ABC Traders reviews the notice and discovers that one difference arose because a credit note was reported in the subsequent period in accordance with the applicable GST provisions.
The company prepares a reconciliation and submits its explanation through FORM GST ASMT-11, along with supporting information.
If the proper officer accepts the explanation, FORM GST ASMT-12 may be issued and no further action is taken regarding that scrutiny discrepancy.
Alternatively, if part of the discrepancy is found to be correct, the taxpayer may accept that portion, make the required payment and provide the relevant information. CBIC’s scrutiny procedure specifically contemplates payment of tax, interest and other amounts where the discrepancy is accepted.
Another Example – Input Tax Credit Discrepancy
Suppose a registered taxpayer reports ITC of ₹18 lakh.
During scrutiny, information available to the department indicates a potential discrepancy of ₹2 lakh.
The taxpayer should not automatically assume that the entire ₹2 lakh is inadmissible.
The taxpayer should reconcile:
- purchase invoices;
- supplier details;
- relevant GST records;
- credit/debit notes;
- reversals;
- amendments;
- import-related documents, where applicable; and
- other records relevant to the ITC claim.
If the taxpayer can establish that the apparent difference is due to a legitimate reason, the explanation can be submitted through ASMT-11.
If the taxpayer determines that a portion of the ITC was incorrectly claimed, the applicable correction and payment should be made in accordance with the GST law.
Is ASMT-10 a Show Cause Notice?
ASMT-10 is a scrutiny notice informing the taxpayer about discrepancies noticed after scrutiny of the return and seeking an explanation.
It should not automatically be treated as equivalent to a final demand order.
The purpose at this stage is to obtain the taxpayer’s explanation and determine whether the discrepancy can be resolved.
If the explanation is acceptable, Section 61(2) provides for closure of the matter. If the issue remains unresolved, further statutory proceedings may follow depending upon the facts.
Important Documents to Keep Ready After Receiving ASMT-10
A taxpayer receiving an ASMT-10 notice should generally examine the issue using relevant records, which may include:
- sales invoices;
- purchase invoices;
- credit notes;
- debit notes;
- GSTR-1 data;
- GSTR-3B data;
- electronic credit ledger;
- electronic cash ledger;
- e-way bills;
- payment records;
- books of account;
- reconciliation statements;
- agreements and contracts;
- import documents;
- refund records;
- reverse charge records; and
- previous correspondence with the department.
The exact documents required depend on the discrepancy identified in the notice.
Practical Steps After Receiving an ASMT-10 Notice
A taxpayer should approach the notice systematically.
1. Read the notice carefully
Identify the financial year, tax period and exact discrepancy.
2. Check the underlying data
Compare the figures in the notice with GST returns and accounting records.
3. Prepare a reconciliation
Where there is a difference, prepare a clear reconciliation explaining why the figures differ.
4. Verify the legal position
Check the applicable provisions, notifications, exemptions, rate notifications and other relevant GST rules.
5. Determine whether the discrepancy is genuine
If the officer’s observation is correct, calculate the applicable liability.
6. Make payment where required
Where the taxpayer accepts a liability, the applicable tax, interest and other amount should be paid through the prescribed mechanism.
7. Submit ASMT-11
Provide a clear response to each discrepancy.
8. Preserve evidence
Keep a copy of the notice, response, reconciliation, supporting documents and payment details.
9. Monitor the portal
The taxpayer should continue checking the GST portal for subsequent communications or orders.
Importance of Reconciliation in GST Scrutiny
Reconciliation is one of the most useful tools for responding to scrutiny.
GST data can originate from several sources, and differences do not necessarily mean that there has been an error.
For example, differences may arise because of:
- timing of reporting;
- amendments;
- credit notes;
- debit notes;
- exempt supplies;
- zero-rated supplies;
- reverse charge transactions;
- imports;
- advances and adjustments where applicable;
- reporting differences between accounting records and GST returns; or
- other legitimate commercial and reporting circumstances.
A proper reconciliation helps demonstrate the reason for the difference and allows the taxpayer to present the facts clearly.
Role of GST Returns in Scrutiny
Section 61 operates within the broader GST return system.
A taxpayer’s GST compliance information may be examined across multiple filings and records.
For example, an officer may consider information relating to:
- outward supplies;
- tax liability;
- input tax credit;
- tax payments;
- amendments;
- credit notes and debit notes;
- other prescribed statements; and
- information available through GST systems.
The purpose is to verify the correctness of the return rather than simply compare one isolated figure.
Can Scrutiny Lead to Demand Proceedings?
Yes.
Section 61(3) specifically allows the proper officer to proceed to determine tax and other dues under the applicable demand provisions where the taxpayer does not furnish a satisfactory explanation or fails to take corrective action after accepting the discrepancy.
The scrutiny stage and subsequent demand proceedings are therefore distinct stages.
A scrutiny discrepancy does not itself establish the final amount payable. Further proceedings, where initiated, must follow the applicable statutory requirements.
Section 61 and Voluntary Compliance
An important feature of Section 61 is that it gives the taxpayer an opportunity to resolve a discrepancy.
Where the taxpayer accepts the discrepancy, payment can be made and the taxpayer can inform the proper officer.
Where the taxpayer disagrees, an explanation can be provided.
Where the explanation is accepted, the matter can be closed through the prescribed process.
This makes scrutiny an important compliance mechanism within the GST framework.
Key Forms under Section 61 Scrutiny
The principal forms associated with the scrutiny process are:
| Form | Purpose |
|---|---|
| FORM GST ASMT-10 | Notice informing discrepancies after scrutiny |
| FORM GST ASMT-11 | Taxpayer’s reply/explanation to the scrutiny notice |
| FORM GST ASMT-12 | Communication where explanation/information is found acceptable |
| FORM GST DRC-03 | Payment mechanism that may be used for accepted liability as contemplated in CBIC scrutiny instructions |
Rule 99 specifically deals with ASMT-10, ASMT-11 and ASMT-12, while CBIC’s scrutiny instructions explain the use of DRC-03 for payment where discrepancies are accepted.
Important Points to Remember about Section 61
The following points summarize the most important aspects of scrutiny of returns under GST:
- Section 61 deals with scrutiny of returns.
- The proper officer may scrutinize a registered person’s return and related particulars.
- The purpose is to verify the correctness of the return.
- Where a discrepancy is noticed, the taxpayer is informed and asked to provide an explanation.
- FORM GST ASMT-10 is used for communicating discrepancies.
- The taxpayer can respond through FORM GST ASMT-11.
- The taxpayer may explain why the discrepancy is not correct.
- Where the discrepancy is accepted, the taxpayer can take corrective action and make applicable payment.
- CBIC’s scrutiny instructions contemplate payment through FORM GST DRC-03 where applicable.
- If the explanation is acceptable, the officer informs the taxpayer through FORM GST ASMT-12.
- Where the explanation is not satisfactory or corrective action is not taken, further action may be initiated.
- Such further action may include audit, special audit, inspection, search and seizure, or tax determination proceedings, as provided by law.
- Scrutiny is different from a GST audit.
- Scrutiny is also different from assessment of non-filers under Section 62.
- A scrutiny notice should be examined carefully and answered within the applicable time.
- Reconciliation and supporting documents are important when responding to discrepancies.
- A discrepancy notice does not by itself establish a final tax demand.
- The final consequence depends on the taxpayer’s explanation, corrective action and any subsequent proceedings under the applicable provisions.
Conclusion
Section 61 of the CGST Act, 2017 provides the statutory framework for scrutiny of GST returns. It enables the proper officer to examine returns and related particulars, identify discrepancies and seek an explanation from the registered person.
The process generally begins with scrutiny of available information and, where a discrepancy is noticed, communication through FORM GST ASMT-10. The taxpayer can respond through FORM GST ASMT-11, either explaining the discrepancy or accepting it and taking the required corrective action. If the explanation is found acceptable, the proper officer communicates the closure through FORM GST ASMT-12.
If the taxpayer does not provide a satisfactory explanation or fails to take the required corrective action after accepting the discrepancy, Section 61(3) permits the proper officer to initiate further proceedings under the GST law.
For businesses, timely reconciliation of GST returns, books of account, ITC records and other relevant information can make the scrutiny process easier to handle. When an ASMT-10 notice is received, the taxpayer should examine each discrepancy carefully, prepare a factual response and take appropriate corrective action wherever required.
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