From Scrutiny To Closure - The Form ASMT-12 Story Under GST

Why Scrutiny Exists in GST

The Goods and Services Tax law does not begin its engagement with taxpayers through confrontation. Instead, it begins with trust, supported by verification. Section 61 of the CGST Act, 2017 reflects this philosophy by providing for the scrutiny of returns-a mechanism intended to identify inconsistencies at an early stage and to afford the registered person an opportunity to either explain the discrepancy or correct it voluntarily. The object is to facilitate compliance, not to create disputes immediately.

Scrutiny under GST may be likened to a routine medical examination. Minor irregularities, if detected early, can be corrected before they develop into serious complications. This represents a conscious departure from the assessment-driven ethos of the VAT regime, where even small mismatches frequently escalated into prolonged litigation. With the introduction of e-invoicing, automated ITC matching, and data analytics, the tax administration today is equipped to issue early, informed nudges rather than delayed and disruptive shocks. At the same time, scrutiny is not a symbolic exercise. It is neither indefinite nor ineffectual. Section 61 carefully balances opportunity with accountability, offering closure where explanations satisfy the law and escalation where they do not.

FORM ASMT-12 - The Quiet Closure under Section 61(2)

FORM ASMT-12 derives its authority from Section 61(2) of the CGST Act, 2017, read with Rule 99(3) of the CGST Rules, 2017. The statutory sequence is straightforward. Where discrepancies are noticed in the returns furnished, the proper officer issues Form ASMT-10 calling for an explanation. The registered person responds through Form ASMT-11, either explaining the discrepancy or accepting it and taking corrective action. If the explanation and the corrective steps, wherever required, are found satisfactory, the officer records such satisfaction by issuing Form ASMT-12.

It is important to appreciate the true character of FORM ASMT-12. It is not an adjudication order. It does not determine tax liability, impose penalty, or initiate recovery proceedings. It merely records administrative satisfaction and brings the scrutiny proceedings to a dignified close. No tax demand flows from it, it curtails no rights, and no future proceedings are foreclosed by it. Input tax credit already availed remains untouched, and subsequent compliances continue in the normal course. In practice, such closure is commonly achieved by submitting detailed, well-documented reconciliations, including Form GSTR-2B matching, invoice-level explanations, ledger extracts, e-way bills, or by clearly explaining timing differences, such as delayed supplier reporting or transitional mismatches.

Why There Is No Time Limit for Issuing FORM ASMT-12

A careful reading of Section 61(2) and Rule 99(3) shows that while a strict time limit is prescribed for the registered person to respond to ASMT-10, no corresponding statutory time limit is fixed for the issuance of FORM ASMT-12 by the department. This is not a legislative oversight but a deliberate design choice. FORM ASMT-12 is merely an administrative acknowledgement of satisfaction; it does not affect substantive rights, does not create or determine liability, and does not extend or interrupt limitation periods prescribed elsewhere in the Act.

For this reason, FORM ASMT-12 does not require the discipline of rigid statutory timelines applicable to show cause notices under Sections 73, 74 or 74A. Judicial observations, including those of the Allahabad High Court, have recognised that delay in issuing FORM ASMT-12 neither validates nor stalls proceedings under the demand provisions of the Act. While the taxpayer is bound by strict timelines to respond, the department retains procedural flexibility to conclude scrutiny without freezing the statutory clocks governing assessment and recovery.

When Scrutiny Does Not End Politely - The Role of Section 61(3)

If Section 61(2) represents the conciliatory face of GST administration, Section 61(3) reflects its resolve. This provision is triggered where no reply is furnished within the prescribed or extended period, where the explanation furnished is found unsatisfactory, or where the registered person accepts the discrepancy but fails to take corrective action in the return for the relevant period. At this stage, scrutiny ceases to be merely conversational and becomes the statutory gateway to enforcement.

A common misconception among taxpayers is that merely filing Form ASMT-11 automatically ends scrutiny. In reality, closure depends not on submission but on acceptability. A vague explanation unsupported by documents, a promise of future reconciliation without evidence, or partial compliance without actual return correction is treated in law as no explanation at all. Section 61(3) judges conduct rather than formality, and an unacceptable reply carries the same legal consequence as silence.

Practical Approach to ASMT-10 - Turning Scrutiny into Opportunity

When Form ASMT-10 is received, a structured and disciplined response becomes critical. Discrepancies should first be verified through system data, including GSTR-2B and portal-generated mismatch reports. Supporting documents such as tax invoices, contracts, bank statements, accounting ledgers, and classification or exemption justifications should be collated and cross-referenced. Where reconciliation requires additional time, an extension should be sought proactively before expiry of the thirty-day period. If interpretational issues are involved, the reply should clearly articulate the legal position rather than merely assert factual explanations. Requests for clarification or a personal hearing, wherever required, should be properly recorded on the portal or in writing. Such an approach often converts scrutiny from a perceived threat into a manageable compliance exercise.

Illustrative Situations Where Section 61(3) Gets Triggered

Practical experience shows that Section 61(3) is most often triggered not by complex fraud, but by incomplete responses. For instance, where ASMT-10 is issued for excess ITC reflected in Form GSTR-2B, and the reply merely states that reconciliation is "under process" without supporting statements, the explanation is liable to rejection. Similarly, where short payment of tax is admitted but the corresponding return is not amended, scrutiny naturally escalates. Other common situations include non-payment of reverse charge tax on imported services, or wrongful claim of e-invoice exemption without substantiating the applicable SAC or turnover threshold. In judicial practice, failure to submit ledgers and supporting records during scrutiny proceedings has been held sufficient to justify the initiation of a special audit under Section 66 of the CGST Act.

What Section 61(3) Empowers the Department to Do

Section 61(3) does not, by itself, create a tax demand. Its role is to unlock the statutory machinery for deeper examination. Depending upon the nature and gravity of discrepancies, the proper officer may initiate a general audit under Section 65, order a special audit under Section 66 where ITC complexities are involved, conduct inspection or search under Section 67 in cases suggestive of evasion, or issue show cause notices under Sections 73, 74, or the time-compressed fraud mechanism introduced under Section 74A with effect from 01.11.2024. Each of these proceedings operates within its own statutory safeguards, including issuance of notice, opportunity of hearing, reasoned adjudication, and appellate remedies. Scrutiny opens the door; adjudication walks the path.

Limitation Remains Intact - Scrutiny Cannot Stop the Clock

An important legal safeguard is that scrutiny proceedings do not suspend or extend statutory limitation periods. Whether scrutiny ends in FORM ASMT-12 or escalates under Section 61(3), the limitation timelines prescribed under Sections 73 and 74 continue to run independently. Pending scrutiny, delayed administrative actions, or rejection of replies cannot revive time-barred demands. The Supreme Court in Union of India v. Bharti Airtel Ltd. (2021) firmly reiterated that procedural mechanisms cannot override limitations expressly prescribed by statute.

Frequently Asked Questions (FAQs)

FAQ 1: Does filing Form ASMT-11 automatically prevent further proceedings?

Ans. No. Filing ASMT-11 does not by itself grant closure. Only a satisfactory and acceptable reply, supported by evidence and corrective action where required, results in the issuance of FORM ASMT-12. An unsatisfactory reply permits escalation under Section 61(3).

FAQ 2: If FORM ASMT-12 is not issued, does scrutiny continue indefinitely?

Ans.  No. Scrutiny does not operate without end. More importantly, it does not suspend the limitation for issuance of show cause notices under Sections 73 or 74.

FAQ 3: Can rejection of a scrutiny reply lead directly to a Section 73 or 74 notice?

Ans.  Yes. Section 61(3) expressly enables the initiation of appropriate proceedings, including the issuance of show cause notices, where the explanation is not found satisfactory.

FAQ 4: Can FORM ASMT-12, once issued, be withdrawn by the department?

Ans.  Ordinarily, FORM ASMT-12 signifies closure of the specific scrutiny proceedings and is not withdrawn. However, subsequent discrepancies may give rise to further scrutiny or other proceedings.

FAQ 5: Does scrutiny under Section 61 result in the blocking of input tax credit?

Ans. No. Scrutiny proceedings do not, by themselves, block or reverse ITC. Credit remains available subject to the general provisions of the Act and matching requirements.

A Pause for Reflection

"स्क्रूटनी एक अवसर है,पर उत्तर अधूरा हो या सुधार न हो -तो क़ानून को आगे बढ़ना ही होता है।"

Scrutiny is an opportunity, but where replies remain incomplete or corrections are ignored, the law must inevitably move forward.

Conclusion - Scrutiny Is a Gateway, Not a Shield

Section 61 is one of the most balanced provisions under GST. Sub-section (2) encourages voluntary compliance through dialogue and graceful closure, while sub-section (3) ensures that indifference, evasiveness, or half-hearted compliance does not escape consequence. Scrutiny is neither an accusation nor a promise of immunity. It is a gateway-leading either to closure through clarity or to enforcement through law. Those who reconcile early, explain fully, and correct honestly will find FORM ASMT-12 a quiet ally; those who do not must be prepared for the next statutory chapter to unfold.