INVOKING THE PROVISIONS OF SECTION 61 OF JHARKHAND GOODS AND SERVICES TAX ACT, 2017

Scrutiny of returns

Section 61 of the Jharkhand Goods and Services Tax, 2017 (‘Act’ for short) provides for the scrutiny of returns filed by the registered persons. Section 61(1) of the Act gives powers to the proper officer to scrutinise 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. Section 61(2) provides that if the explanation provided by the registered person is found acceptable by the proper officer, then the registered person shall be informed and no action shall be taken by the Department.

Section 61(3) of the Act provides that in case no satisfactory explanation is furnished within a period of 30 days or such periods as may be permitted by the proper officer 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 – Audit by tax authorities;
• Section 66 – Conducting of Special Audit;
• Section 67 – inspection, search and seizure;

or to proceed actions under-

• Section 73 – Determination of tax, pertaining to the period up to 2023 – 24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful mis-statement or suppression of facts;
• Section 74 – Determination of tax, pertaining to the period up to 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for the reason of fraud or any wilful mis-statement or suppression of facts;
• Section 74A – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to financial year 2024-25 onwards.

Invoking Section 61 of the Act

In M/s. Sri Ram Stone Works, M/s. G.D. Stone Company, M/s. Karambi Stone Works, M/s. Maa Raksi Stone Works, M/s. Durga Stone Works, M/s. Shakti Stone Works, M/s. Jai Mata Di Stone Works, M/s. Vaishanv Stone Works, M/s. Awadh Kishor & Sons, M/s. A Creation, M/s. Saraswati Stone Works, Versus State of Jharkhand, Joint Commissioner of State Tax, Sahibganj Circle, Assistant Commissioner of State Tax, Sahibganj Circle, State Tax Officer, Sahibganj Circle, Joint Commissioner of State Tax, Sahibganj. - 2025 (5) TMI 772 - JHARKHAND HIGH COURT, 12 registered persons filed writ petitions before the Jharkhand High Court during the year 2024 and 2 registered persons filed writ petitions before the same court, challenging the jurisdiction of the Department invoking the provisions of Section 61 of the Act, while scrutinising their returns.

The writ petitioners in this case are mining dealers and engaging in the business of sale of stone builders, stone-chips etc., to various customers. The Department issued notices to the said writ petitioners under Section 61 of the Act alleging that they have sole stone-boulders, stone chips at a lower price lesser than the prevalent market price. Therefore, the petitioners were directed to show cause as to why proceeding under section 74/74 be not initiated against them.

Some of the petitioners filed reply to the show cause notices. In the said reply they contended that the notices issued to them under Section 61 of the Act read with Rule 99 of Jharkhand Goods and Services Tax Rules, 2017 is limited to the extent of discrepancies found in the returns. The Department is not having jurisdiction to company the taxable value of supply disclosed by the petitioners in their returns with that of market price of good. Such action by the Department is beyond the scope of Section 61 of the Act. Even after giving such replies the Department further issued notices in GST ASMT – 10 which were under challenge in this case.

The petitioners submitted the following before the High Court-

• Under section 61 of the Act, the proper officer may scrutinise the returns and related particulars furnished in the return and verify correctness of such returns and inform discrepancies occurring in the returns.
• Section 61 cannot be invoked merely because a dealer has sold its goods at a price lesser than the prevalent market price.
• The value of supply is the transaction value, the consideration received towards the supply.  Merely because a dealer received consideration less than the prevalent market price of such goods cannot be a cause for invoking the provisions of Section 61 of the Act.
• The dealer is entitled to arrange the affairs of its business in the best way and merely because certain goods are sold at a rate less than the market value, cannot constitute a cause of action for initiating proceedings under Section 61 of the Act.

The Department submitted the following before the Department-

• Initially notices were issued comparing taxable value of goods reflected in their returns by comparing the same with the prevailing market value.
• In subsequent notices other issues relating to discrepancy in returns were also highlighted.
• The notice pertaining to scrutiny of return is merely a procedural notice having no adverse civil consequences.
• The petitioners, instead of replying to the notice, approached the High Court.
• The writ petitions filed by the petitioners are pre mature and therefore liable to be dismissed.

The High Court considered the submissions of the petitioners and the Department. The High Court analysed the provisions of Section 61 of the Act. The High Court observed that the provisions of Section 61 give powers to the proper officer to point out discrepancies and errors which are occurring in the return filed by a registered person with that of the related particulars. The said section further provides that if corrective measures are not taken by the registered person, the proper officer may initiate appropriate action under Sections 65, 66, 67 and section 73 and 74 of the Act.

The High Court observed that in the present writ petitions notices were issued under Section 61 of the Act. Instead of pointing out the discrepancies in the returns the proper officer has compared the prices with the prevailing market prices and directed the petitioner to show cause as to why appropriate proceedings for recovery of tax and dues be not initiated against them.

The High Court was of the opinion that the procedure adopted by the Department under Section 61 of the Act is wholly without jurisdiction and beyond the scope of Section 61 of the Act. It is settled law that unless transactions of sale are shown to be sham transactions or the mere fact that the goods were sold at a concessional rate less than market price would not entitle the Department to access the difference between the market price and price paid by the purchaser as transaction value.

The High Court allowed the writ petitions and set aside the impugned orders. The High Court held that the Assessing Officers would be at liberty to issue fresh notices relating to discrepancies in the returns, if any, with respect to individual writ petitions.