Issuance of Form ASMT-10 notice is mandatory during the scrutiny of returns

The Hon'ble Madras High Court in M/s Mandarina Apartment Owners Welfare Association v. Commercial Tax Officer/State Tax Officer [Writ Petition No.15307 & 15330 of 2024 dated July 16, 2024] held that the show cause notice lacked reference to scrutiny under Section 61 of the Central Goods and Services Tax Act, 2017. Instead, it cited data from GSTR-01 and GSTR-3B returns, highlighting discrepancies. Both the notice and the impugned order referred to a scrutiny under Section 61, fulfilling the conditions for issuing an ASMT-10 notice. The failure to issue the ASMT-10 rendered the scrutiny's conclusions invalid for adjudication. However, since the petitioner was given an opportunity to show cause, adjudication was not solely based on scrutiny under Section 61, and no prejudice was caused. The matter was remanded for reconsideration.

Facts:

M/s Mandarina Apartments Owners Welfare Association ("the Petitioner") had filed the two Writ Petitions before the Hon'ble Madras High Court. The Petitioner received the Show Cause Notice ("SCN") dated December 28, 2023, which was uploaded on the GST portal but not actually communicated to the Petitioner and unaware of the proceedings and couldn't participate in the same during which the Orderdated April 11, 2024, was issued ("the Impugned Order 1"). The Petitioner also received the SCN dated September 5, 2023, for the discrepancies in sales and purchase turnover, the Petitioner informed the Revenue Department ("the Respondent") that the sales turnover was reported in the subsequent month despite which the Order dated December 23, 2023, was issued ("the Impugned Order 2").

The Petitioner contended that the proceedings were initiated based on return scrutiny under Section 61 of the Central Goods and Services Act, 2017 ("the CGST Act") which requires notice in Form GST ASMT-10. As the non- issuance of the notice the entire proceeding is vitiated, and such absence prejudices the taxpayer.

The Respondent contended that the scrutiny, audit, or inspection are not perquisites for adjudication under Section 73 or Section 74 of the CGST Act and that the procedures under Section 61 and Section 73 operate independently. It was further contended that any procedural defects in the assessment proceedings do not cause prejudice of the taxpayer under Section 160 of the applicable CGST Acts.

Issue:

Whether the issuance of notice in Form ASMT-10 is mandatory during the Scrutiny of returns?

Held:

The Hon'ble Madras High Court in Writ Petition No. 15307 & 15330 of 2024 held as under:

· Observed that, the issuance of the notice in FORM GST ASMT-10 is mandatory when discrepancies are found during the scrutiny of returns. However, non- issuance of the notice vitiates the scrutiny of the return not the adjudication of the taxpayer.

· Held that, the Impugned Order 1, in Writ Petition No.13507 of 2024 was set aside on the payment of 10% of the disputed tax demand within fifteen days from the date of receipt of the Order as it was passed ex parte.

· Further held that, the Impugned Order 2, in Writ Petition No. 15330 of 2024 was set aside by remanding the matter for reconsideration as it was passed without considering the Petitioner's reply. For the matters, the Petitioner is permitted to submit an additional reply with supporting documents, if any, within fifteen days from the date of receipt of a copy of this order.The Respondent is directed to provide a reasonable opportunity to the Petitioner, including a personal hearing, and thereafter issue a fresh order within three months from the date of receipt of a copy of this order.

Our Comments:

Rule 99 of the Central Goods and Services Tax Rules, 2017, which prescribes the method and the manner for verification of the correctness of the returns and to correct any discrepancy that may be noticed or to initiate appropriate proceedings under Sections 65, 66, 67, 73 or 74 of the CGST Act pursuant to a Scrutiny under Section 61 of the CGST Act.

Section 61 of the CGST Act and Rule 99 of the CGST Rules is reproduced below:

"61. (1) The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.

(2) In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.

(3) In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74 or section 74A.

99. Scrutiny of returns.-

(1) Where any return furnished by a registered person is selected for scrutiny, the proper officer shall scrutinize the same in accordance with the provisions of section 61 with reference to the information available with him, and in case of any discrepancy, he shall issue a notice to the said person in FORM GST ASMT-10, informing him of such discrepancy and seeking his explanation thereto within such time, not exceeding thirty days from the date of service of the notice or such further period as may be permitted by him and also, where possible, quantifying the amount of tax, interest and any other amount payable in relation to such discrepancy.

(2) The registered person may accept the discrepancy mentioned in the notice issued under sub-rule (1), and pay the tax, interest and any other amount arising from such discrepancy and inform the same or furnish an explanation for the discrepancy in FORM GST ASMT- 11 to the proper officer.

(3) Where the explanation furnished by the registered person or the information submitted under sub-rule (2) is found to be acceptable, the proper officer shall inform him accordingly in FORM GST ASMT-12."

In pari materia case of the Hon'ble Calcutta High Court in the case of M/s Amex Services v. Deputy Commissioner, State Tax, Assansol Charge & Others [ Writ Petition No. 9391 of 2024 dated. May 22, 2024] held that the proper officer must issue Form GST ASMT-10, outlining discrepancies noticed during return scrutiny, before passing any order under Rule 99 and Section 61.

Also, the Hon'ble Gauhati High Court in Pepsico India Holdings (P.) Ltd. v. Union of India [2024 (81) G. S. T. L. 470 (Gau.)]held that the issuance of notice in Form GST ASMT-10 is mandatory in all cases wherein scrutiny of returns is undertaken.

However, there are divergent judgements as well that do not requirescrutiny, audit, special audit or inspection, on the one hand, and adjudication, on the other, operate in silos and the former does not constitute a pre-requisite for the latter. In support of this proposition, reliance is placed upon the judgment of the Division Bench of the Allahabad High Court in M/s.Nagarjuna Agro Chemicals Pvt. Ltd. v. State of U.P. and another (Nagarjuna Agro Chemicals), [2023 (76) G. S. T. L. 333 (All.)], wherein the Division Bench held that scrutiny of return proceedings and proceedings under Section 74 are two separate and distinct exigencies and issuance of notice under Section 61(3) cannot be construed as a condition precedent for initiation of action under Section 74 of the Act.

For the same proposition, reliance can be placed upon the judgment of the Division Bench of the Andhra Pradesh High Court in Devi Traders v. State of Andhra Pradesh (Devi Traders),[2023 (75) G. S. T. L. 134 (A. P.)], the Andhra Pradesh High Court noticed the provisions relating to scrutiny and audit and concluded that Section 73 opens with the phrase "where it appears to the proper officer that any tax has not been paid", thereby indicating that adjudication can be initiated not only on the basis of scrutiny under Section 61 or audit under Section 65 but also on the basis of credible information from a different source.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED