Indian GST litigation series, part one: proceedings for assessment

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GST Doctor on Thu Mar 14 2024



GST is a developmental law and there are various things that business entities and taxpayers should regularly take care of. There are few important compliances that must be followed. For example;

  1. Filing Returns
  2. Input Tax Credit analyses
  3. Vendor Data Tracking
  4. Newly introduced e-invoicing and e-way billing system

Audits and Tax litigation/ Assessments are necessary part of business within GST regime.

GST Litigation-

The term 'litigation' means taking matter in a court of law and taking legal action. There are two types of tax litigation;

-Direct Tax litigation

  • Indirect Tax litigation

The litigation relating to GST categorised under "Indirect Tax litigation".

In the realm of GST, litigation can be understood by certain examples of the issues that involves it. Following matters fall into the scope of GST litigation:

  1. Carrying forward transitional credit form the indirect tax system followed as before,
  2. Eligibility for an input tax credit on various goods and/ or services,
  3. Denial of refund claims,
  4. Non-payment or short payment of output tax liability.

This article is Part one of two-part series on GST litigation in India. this article will highlight the key legal provisions with respect to pre-assessment proceedings, rights conferred to taxpayers and legal remedies.

Part one: Proceedings for assessment-

In GST, an assessment order must be passed within the period fixed under the relevant statute. This is a challenge to officers as they want to complete the adjudication of demand notices promptly. The adjudication process cannot bypass principles that are ingrained in India's legal system. Therefore, conflicts between the Revenue Service and taxpayers regarding adjudication will remain an issue.

Scrutiny and Audit-

Scrutiny proceedings entail the verification of returns filed under GST regulation. Proceedings such as inspection, search, and seizure, there is no strict burden on proof cast on the department to initiate such audit/ scrutiny. Such proceedings are resorted to regularly, to check evasion of tax or irregular availability of input tax credit or an exemption. Audit initiated by proper officers regarding GST usually involves the examination of records maintained under law.

The method of audit and scrutiny under CGST Act, 2017 is briefly given below:

Scrutiny under Section 61-

  1. No pre-notice is given to taxpayer. In case of discrepancy in returns, a notice can be issued (Section 61 Rule 99).
  2. The taxpayer can file a reply in Form ASMT-10 explaining the discrepancy (Rule 99(2).
  3. In case, if explanation is found acceptable, the registered person will be informed and no further action is taken (Section 61(2)).
  4. But if explanation is not satisfactory, a show cause notice can be sent (Section 61(3)).

Audit under Section 65-

  1. The taxpayer must be informed about a proposal to conduct an audit in not less than 15 business days (Section 65(3).
  2. Audit must be completed within 3 months from date of commencement of the audit. In exceptions, commissioner can extend the audit to a period of not more than six months (Section 65(4).
  3. An officer may inform taxpayer of the differences noticed (Rule 101(4)).
  4. The taxpayer can file a reply regarding the discrepancies noticed (Rule101(4)).
  5. The finding of the audit must be finalised after due consideration of the reply furnished (Rule 101(4)).
  6. When an audit results in detection of non-payment of tax, an erroneous refund, or an income tax credit wrongly availed, a show cause notice can be issued (Section 65(7)).

If the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all. (Saral Wire Craft Private Limited v Commissioner Customs, Central Excise & Service Tax, Supreme Court of India, 2017)

The law ensures that the officer can raise all the issues before issuing a demand notice and the taxpayers are given an opportunity to respond to the issues in writing. The officer is obliged to consider the response given before issuing a show cause notice/ demand notice under Section 73 or 74 based on the scrutiny or audit proceedings.

In case of deviation by authorities from the procedure discussed above, whole proceedings must be depolarised in law.


To examine an simulation of tax due to suppression or contravention of GST provisions, an officer can inspect the place of business of the taxpayer. The officer can exercise this power only if there are reasons to believe that the taxpayer has indulged in contravention of GST law.

To sum up, the officer cannot start inspection proceedings merely based upon a pretence that the taxpayer has evaded tax. There must be material examined and an opinion must be formulated, based upon the material, that the taxpayer has evaded the payment of tax.

Inspection cannot be a 'fishing expedition'. The authorities cannot merely state that there is a contravention of GST provisions and conduct audit/ scrutiny with powers of inspection at taxpayer's premises. In contrast, before inspection, while examining records that indicate evasion of tax, examination must lead to formulation of a belief that inspection proceedings should be initiated.

Key takeaways on pre-assessment proceedings-

  1. There must be a legal justification for conducting such proceeding.
  2. It must be conveyed in a way that provides a fair opportunity to taxpayers to meet the doubts or allegations.

It is important for taxpayers to be alert during such proceedings, as pre-emptive action can be taken to mitigate demand notices proposing inflated tax demands. In GST litigation, a simple practice of keeping track of records and ensuring that detailed response with evidence, submitted in advance can build a strong foundation. Further, in case of arbitrary action during such proceedings, parties can contemplate approaching the High Courts for relief.

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