Strict scrutiny-notice compliance required in GST assessments; demand based on undisclosed discrepancies cannot stand.

In scrutiny-based GST proceedings under the Tamil Nadu GST Act, the authority must first issue the prescribed scrutiny notice, identify the relevant discrepancies, and allow an opportunity to explain before taking further action. A demand founded on matters not covered by the original Form ASMT-10 notice was held unsustainable because the statutory sequence for scrutiny and subsequent proceedings was not followed. The assessment order was set aside, and the matter was remitted for fresh proceedings after proper notice and a reasonable opportunity to the taxpayer.

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Issues: Whether the impugned assessment proceedings initiated pursuant to scrutiny of returns were vitiated for non-compliance with the mandatory pre-condition of issuing the prescribed scrutiny notice and for failure to follow the statutory procedure before passing the demand order.

Analysis: The dispute arose from scrutiny proceedings under Section 61 of the Tamil Nadu Goods and Services Tax Act, 2017. The Court found that the notice originally issued in Form ASMT-10 did not correspond to the very discrepancies later made the basis of the proceedings culminating in GST DRC-01 and GST DRC-07. On the statutory scheme, scrutiny of returns is to be followed by communication of discrepancies and opportunity to explain, and only thereafter can further action be taken, including proceedings under Section 74. Where the later demand is founded on matters not covered by the earlier scrutiny notice, the prescribed method of proceeding is not satisfied. The Court also accepted that the impugned order could not be sustained when the proper pre-notice procedure had not been followed in respect of the matters actually relied upon.

Conclusion: The impugned order was held unsustainable and was set aside.

Final Conclusion: The matter was remitted to the Assessing Officer to restart the proceedings in accordance with the statutory procedure after issuing the appropriate notice and affording a reasonable opportunity to the petitioner.

Ratio Decidendi: When a statute prescribes a specific sequence for scrutiny-based tax proceedings, the authority must follow that sequence strictly and cannot sustain a demand founded on discrepancies not covered by the required prior notice and opportunity to explain.

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