Understanding Automated GST Return Scrutiny: A Guide for Taxpayers

The Central Board of Indirect Taxes and Customs (CBIC) has launched an automated module for scrutinizing Goods and Services Tax (GST) returns. This system, part of the ACES-GST backend application, empowers central tax officers to review GST returns from registered taxpayers, selected through data analysis and predefined risk factors.

What is the Automated Return Scrutiny Module?

Recently, India’s Finance Minister, Smt. Nirmala Sitharaman, mandated the implementation of automated GST return scrutiny. This module is integrated within the ACES-GST application, using data analytics to pinpoint inconsistencies and potential risks in GST filings. It automatically alerts officers to instances of non-compliance.

The primary goal of this automated scrutiny is to enhance tax adherence and minimize manual intervention. It serves as a non-intrusive verification method, allowing central tax officers to examine GST returns effectively. The module also streamlines communication and actions between tax officers and taxpayers, fostering a more efficient and clear system.

How the Automated Return Scrutiny Module Operates

The module identifies discrepancies linked to GST return risks, automatically issuing a scrutiny notice in Form ASMT-10 to the taxpayer. These discrepancies are also visible to tax officers, who then use a structured workflow on the GST common portal to engage with the taxpayer. Previously, Form ASMT-10 was issued manually by officers after selecting returns for scrutiny. Now, the GST portal automatically dispatches Form ASMT-10 to taxpayers identified by the system for non-compliance, subsequently notifying GST officers.

Upon receiving Form ASMT-10, taxpayers can submit their response using Form ASMT-11 via the GST portal. If the tax officer finds the taxpayer’s actions and response satisfactory, an acknowledgment is issued in Form ASMT-12. Otherwise, the officer may proceed with a show cause notice, an audit, or an investigation.

Implementation Timeline for the Automated Return Scrutiny Module

The automated return scrutiny module is already operational, having commenced with the scrutiny of GST returns for the financial year 2019-20. Necessary data for this process is accessible on the dashboards of tax officers.

Risk Indicators for GST Returns Subject to Scrutiny

The CBIC has provided an illustrative list of criteria that may trigger GST return scrutiny, outlined in its SOP/GST instructions.

Taxpayers might face scrutiny in the following scenarios:

1. When data reported in various GST returns does not align with the summary GST return or the input tax credit statement:

2. If ITC is claimed after the supplier’s registration cancellation date.
3. When ITC is availed on invoices or debit notes from suppliers who have not filed their GSTR-3B for the relevant period.
4. If GSTR-3B for a tax period is filed past the deadline for claiming ITC as per Section 16(4) of the CGST Act. This section specifies that ITC can only be claimed until November 30th of the subsequent financial year or the date of filing the relevant annual return, whichever is earlier. Filing GSTR-3B after this deadline renders such ITC inadmissible.
5. When a taxpayer has not reversed ITC as per CGST Rules 42 and 43. Rule 42 details the method for determining and reversing ITC on inputs/input services, while Rule 43 outlines the process for capital goods in specific situations.
6. If interest due under Section 50 of the CGST Act has not been paid.
7. If late fees due under Section 47 of the CGST Act has not been paid.

Implications of Automated Return Scrutiny for GST Taxpayers

This automated system will likely increase the issuance of scrutiny and demand notices from the GSTN, as even minor discrepancies will now be detected automatically. Previously, the decision to issue a notice rested with the tax officer. Now, with automated scrutiny and notices, any taxpayer with mismatches in their GST returns exceeding predefined tolerance limits could receive a scrutiny notice.

This also places an additional responsibility on taxpayers to demonstrate that there was no intent to evade tax. It is essential for taxpayers to perform regular data reconciliations to prevent discrepancies before filing periodic returns. They must also keep documentation and evidence for the current and past four years, along with a clear audit trail, to respond effectively to these notices. Failure to do so could complicate proving a lack of tax evasion intent, potentially leading to unnecessary interest and penalties. Therefore, proactive measures before filing returns are crucial to avoid the automated scrutiny system’s radar.

Actions Available for Taxpayers Facing Scrutiny

Taxpayers who receive a notice in Form ASMT-10 must submit a response, regardless of whether they agree with the demand. They should reply using Form ASMT-11 within thirty days of receiving ASMT-10, or within any extended period granted by the officer.

The automated module promotes faceless communication between officers and taxpayers, discouraging manual intervention. All documents and statements must be submitted digitally through the designated portal. Taxpayers can acknowledge the discrepancy and pay the tax, interest, or other dues while replying in ASMT-11 within the stipulated timeframe, using DRC-03. If the officer finds the reply satisfactory, an order to drop proceedings in Form ASMT-12 will be issued, requiring no further action from the taxpayer.

Should a taxpayer fail to respond, or if the officer deems the response unsatisfactory, proceedings may be initiated by issuing a show cause notice under Sections 73/74, or by considering an audit/investigation after obtaining necessary approvals. In such cases, taxpayers must cooperate fully with the officer during the proceedings and disclose all relevant information for the financial year.

For more information, refer to our page on GST scrutiny.

Checklist for Tax Filers to Prevent Automated Return Scrutiny

With the automated return scrutiny system in effect, tax filers must exercise greater diligence in their procedures and verification checks when preparing and filing regular GST returns.

Adhere to the following checklist when filing GST returns:

• Ensure that the tax liability in Tables 3.1(a) and (b) of GSTR-3B aligns with the tax liability reported in Tables 4, 5, 6, 7A(1), 7B(1), 11A, and 11B of GSTR-1 (adjusted for amendments in Tables 9, 10, and 11(II)).
• Accurately reflect adjusted advances by reporting them in Table 11B and Tables 4, 5, 6, and 7 of GSTR-1.
• Correctly report and pay in cash the exact tax liability under the reverse charge mechanism using Table 3.1(d) for liability and Tables 4(A)(2) and 4(A)(3) for claimed ITC in GSTR-3B. Verify that the GSTR-3B value 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 correspond to amounts marked as eligible ITC in Table 7 of GSTR-2A (adjusted for amendments in Table 8).
• Sales subject to TCS or TDS under GST in GSTR-3B should match the TDS and TCS credit shown in Column 6 of Table 9 of GSTR-2A.
• The tax liability in Tables 3.1(a) and (b) of GSTR-3B must align with the corresponding e-way bills.
• Avoid claiming ITC for periods after the effective date of cancellation of suppliers’ GST registrations, especially if the cancellation is retrospective.
• Do not claim ITC on an invoice or debit note if the respective vendor’s GSTR-3B filing status is ‘No,’ even if it appears in GSTR-2A.
• Refrain from claiming ITC if the GSTR-3B for the relevant period is filed after the last permissible date under Section 16(4) of the CGST Act (i.e., November 30th of the following financial year or the annual return filing date, whichever is earlier).
• Ensure ITC on imported goods in Table 4(A)(1) of GSTR-3B matches the amounts in Tables 10 and 11 of GSTR-2A and data from ICEGATE.
• Comply with CGST Rules 42 and 43 for precise ITC reversals in Table 4(B) of GSTR-3B.
• Do not overlook calculating and paying late fees/interest as per Sections 47 and 50 of the CGST Act when return filing or tax payment is delayed.
• Reconcile the Sales Register with the General Ledger (GL); specifically, the Revenue GL with the sales register, and the output tax GL with the sales register. Exclude transactions under the same PAN or those involving a pure agent. Note that positive tax figures in the sales register will correspond to negative figures in the tax GL, and vice versa.
• Reconcile e-invoices from the Invoice Registration Portal (IRP) against the draft GSTR-1 and sales register to ensure all e-invoicing and invoice reporting requirements in returns are met.

This checklist is not exhaustive; additional checks may be necessary depending on the business’s industry.