Departmental audit, scrutiny and appeals

What this covers

Handling GST department action — a discrepancy notice on scrutiny of returns, a departmental audit, an inspection, a demand notice, and appeals against an adverse order. The work is answering on the record with the reconciliation behind it, and taking a position through the appellate stages where the demand is not sustainable.

Statutory basis

Section 61 of the CGST Act, 2017 for scrutiny of returns, with the discrepancy communicated in Form ASMT-10. Section 65 for audit by the tax authorities and section 66 for special audit. Section 67 for inspection, search and seizure. Sections 73 and 74 for demands — section 73 where there is no fraud or wilful misstatement and section 74 where there is, with materially different time limits and penalties. Section 107 for appeal to the Appellate Authority and section 112 for appeal to the Appellate Tribunal. Intimation in DRC-01A, notice in DRC-01, voluntary payment in DRC-03, order in DRC-07 and appeal in APL-01.

Who it applies to

Any registered person. The commonest triggers are mechanical rather than sinister: outward supply in GSTR-1 not matching GSTR-3B, credit claimed exceeding the auto-populated statement, e-way bill data not matching reported supply, and turnover in the returns not matching the income-tax return. Whether a demand falls under section 73 or section 74 is often the most valuable thing to contest, because the difference in the limitation period and the penalty is substantial.

What we do

1. 1Read the notice for the provision it is issued under and the period it covers, and check limitation before answering.
2. 2Build the reconciliation the notice actually calls for, from the primary records rather than from the returns.
3. 3Reply within the period allowed, with the reconciliation annexed and each difference explained and evidenced.
4. 4Where a liability genuinely exists, quantify it and pay it under DRC-03 with interest, which limits penalty exposure and closes the issue.
5. 5Where the demand is not sustainable, contest it — including, where the facts support it, the characterisation of the case as one of fraud or wilful misstatement.
6. 6Attend the hearing and put oral submissions on the record in writing.
7. 7On an adverse order, advise on appeal, and file within the period with the pre-deposit the Act requires.

What you receive

Notice analysis

The provision, the period, the limitation position and what is actually in issue.

Reconciliation

The working answering the discrepancy, in a form the officer can follow.

Reply filed

The submission with annexures, filed and acknowledged.

Payment or appeal

Either the voluntary payment with the position closed, or the appeal filed within time with the pre-deposit made.

Recurrence note

What caused it, and the change that prevents the next notice.

Documents and information required

The notice and all prior correspondence · returns for the period · purchase and sales registers · auto-populated credit statements · e-way bills · audited accounts and the income-tax return for the same period · contracts and invoices for the specific transactions queried · earlier orders or notices for other periods on the same issue.

Key dates

A reply to a discrepancy notice is due within the period the notice states. Demands under sections 73 and 74 each run to their own limitation period from the annual return date for the year. An appeal to the Appellate Authority under section 107 is ordinarily to be filed within three months of communication of the order, with a further month condonable on cause shown, and requires the prescribed pre-deposit of the disputed tax before it will be entertained. The pre-deposit is a cash requirement worth planning for as soon as an adverse order is likely.