Section 61 Scrutiny Limits and Improper Notice on the GST Portal

Section 61 Scrutiny Limits explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Two rulings about how a proceeding begins. One holds that scrutiny may look only inside the return; the other, that a notice put in the wrong place on the portal was never served. Both end with the proceedings quashed before any merits were reached.

"Lower transaction price below market value not a ground for issuing Scrutiny Notice." — Sri Ram Stone Works v. State of Jharkhand [(2025:JHHC:13975-DB)]. And: "Mandatory to issue notice properly through the GST portal and afford opportunity of hearing to an Assessee before an order is passed." — Sajjan Kumar v. State of U.P. [(2025:AHC:91456)].

Sri Ram Stone Works: scrutiny is an internal exercise

The assessee sold "stone boulders and stone chips". "Notices under Section 61 (GST-ASMT-10) were issued… comparing the declared sale price in returns to the prevailing market price, alleging under-reporting of taxable value and demanding justification for possible tax recovery."

The challenge was jurisdictional: "Section 61 only allowed identification of 'discrepancies in the return itself' and not comparison with external benchmarks like market prices."

And a second argument, about commercial freedom: "A dealer is entitled to arrange the affairs of its business in the manner best suited to it, and, merely because certain goods were sold allegedly at a rate less than the market value, cannot constitute a cause of action for initiating proceedings under Section 61."

The three provisions

Section 61 "Empowers a Proper Officer to scrutinize GST returns for internal discrepancies only. If inconsistencies are found within the filed data, the officer issues Form GST ASMT-10 to seek clarification. This scrutiny is strictly limited to the taxpayer's furnished records and cannot be based on external intelligence, market price comparisons or price benchmarking."

Rule 99 "Prescribes the procedure… beginning with the issuance of Form GST ASMT-10… If the taxpayer's response is satisfactory, the scrutiny concludes via Form GST ASMT-12; otherwise, the officer may escalate to an audit, special audit, or inspection under Sections 65, 66, or 67."

Section 15 "Defines the taxable value as the transaction value, which is the price actually paid or payable, provided the parties are unrelated and price is the sole consideration. It upholds the principle of business pricing autonomy by prohibiting market value comparisons in genuine transactions, except where related parties or non-monetary considerations are involved."

The three fit together. Section 15 makes the agreed price the value; section 61 confines scrutiny to the return; rule 99 provides the escalation route if something more is genuinely suspected. A market-price comparison at the ASMT-10 stage skips all three.

What the Court held

"The notices issued comparing the particulars at which the Assessee had sold goods with that of prevalent market prices were wholly without jurisdiction and beyond the scope of Section 61."

"Unless transaction of sale are shown to be sham transaction… the mere fact that the goods were sold at a concessional rate/rate less than market price would not entitle the Department to assess the difference between the market price and the price paid by the purchaser as transaction value."

"The notices were therefore quashed, though authorities may issue fresh notices strictly on return-based discrepancies, not price comparison."

The liberty granted is the limit of the relief. The department is not shut out; it is directed back to the correct provision — and if it genuinely suspects suppression, rule 99 points to audit under section 65, special audit under section 66, or inspection under section 67.

Sajjan Kumar: a notice nobody could see

A show cause notice proposing ₹73.61 lakh for July 2017 to March 2018 "was not visible to the Assessee because it was uploaded on the 'Additional Notices and Orders' tab in the GST portal instead of the standard 'Notices and Orders' tab."

"Consequently, the Assessee could not file a reply, and an ex-parte order was passed by the Department without granting any personal hearing."

The provision: "Rule 142(1) of CGST Rules 2017: Mandates that a Show Cause Notice under Section 73 be issued in Form GST DRC-01 and served electronically. In this instance, uploading the DRC-01 under the 'Additional Notice and Orders' tab instead of the standard 'Notices and Orders' section caused the assessee to miss the notification. This misplacement prevented a timely response and effectively vitiated due process."

The Court's findings were short: the misplacement was "undisputed", and the order was "passed ex parte, without granting the Assessee an opportunity of personal hearing."

Two defects, and the second is independent of the first. Even a properly served notice does not dispense with the hearing that section 75(4) requires where an adverse decision is contemplated.

What the two cases share

Neither turns on whether tax was owed. Both quash the proceeding for a defect at its inception — jurisdiction in one case, service and hearing in the other — leaving the substantive question untouched and, in Sri Ram Stone Works, expressly open.

Which makes the first response to any notice a procedural one: what provision authorises this notice, does the stated ground fall within it, was it served in the prescribed form and place, and was a hearing offered. A defect at that stage is worth more than an argument on the merits, because it is decided without reference to the facts of the transaction.

Key takeaways

• Section 61 scrutiny is confined to discrepancies inside the return — not external intelligence, market prices or benchmarking.
• Notices comparing declared prices with market prices were wholly without jurisdiction and quashed.
• Section 15 makes the transaction value the taxable value where parties are unrelated and price is the sole consideration.
• Selling below market price is not a cause of action unless the transaction is shown to be a sham.
• Rule 99: scrutiny starts with ASMT-10, ends with ASMT-12, or escalates to sections 65, 66 or 67.
• The department retains liberty to issue fresh, return-based notices.
• Rule 142(1) requires a section 73 notice in Form GST DRC-01, served electronically.
• Uploading it to the "Additional Notices and Orders" tab instead of "Notices and Orders" vitiated due process.
• The ex parte order without a personal hearing was a separate breach of natural justice.

Read next

• Section 130 Confiscation Cannot Be Invoked for Excess Stock
• Section 161 Rectification and Limitation for Appeal
• IMA v. Union of India: Mutuality Survives GST

Disclaimer: Positions stated as on 5 September 2026, based on Sri Ram Stone Works v. State of Jharkhand [(2025:JHHC:13975-DB)], Sajjan Kumar v. State of U.P. [(2025:AHC:91456)], sections 15, 61, 65, 66, 67, 73 and 75 of the CGST Act, 2017 and rules 99 and 142 of the CGST Rules, 2017, as summarised in the ICAI compilation Significant Judicial and Advance Rulings in GST (Second Edition, February 2026).