Merely selling at lower than market prices does not justify scrutiny under Section 61 of CGST Act, unless sale is proven sham: High Court

In this case, the High Court adjudicated on a set of writ petitions involving the issuance of notices under GST.

The core issue was whether the GST ASMT-10 notices issued under Section 61 of the GST Act, asserting discrepancies based on the sale of goods at prices lower than market value rather than discrepancies within the returns, were beyond jurisdiction.

CASE LAW:

Sri Ram Stone Works Vs State of Jharkhand (Jharkhand High Court); (T) No. 5535 of 2024; 09/05/2025

In case of Sri Ram Stone Works Versus State of Jharkhand, high court held that, provision of Sec 61, are with a clear objective to enable an Assessing Officer to point out discrepancies and errors which are occurring in the return filed by a registered person with that of the related particulars. However it done not empower to the officer embark to make assessment on the basis of valuation related provisions.

Petitioners are mining lessees/dealers engaged in the business of sale of stone boulders, stone-chips, etc. to various customers and are registered under the provisions of Jharkhand Goods and Services Tax Act, 2017. notices under Section 61 of JGST Act, 2017, were issued to Petitioners stating, that Petitioners have sold stone-boulders/stone chips at a price lesser than the prevalent market price and, accordingly, Petitioners were directed to show cause as to why proceeding under Section 73/74 be not initiated against them.

Some of Petitioners contended that notices under Section 61 of the JGST Act read with Rule 99 of Jharkhand Goods and Services Tax Rules, 2017 (‘JGST Rules’) is limited to the extent of discrepancy occurring in the returns, and, cannot be issued for difference in taxable value of supply disclosed in their returns with that of market price of goods, is beyond the scope of Section 61 of the Act.

Court observation and conclusion:-

Provisions of Section 61 of JGST Act, are with a clear objective to enable an Assessing Officer to point out discrepancies and errors which are occurring in the return filed by a registered person with that of the related particulars. In fact, aforesaid Section also provides, inter alia, that in spite of discrepancies pointed out, if corrective measures are not undertaken by registered person, the proper officer may initiate appropriate action including action under Sections 65 to 67 and Section 73 or 74 of the Act.

In present cases, notices under Section 61 have been issued to writ petitioners and instead of pointing out discrepancies in the returns filed by writ petitioners, the competent officer has embarked upon an exercise of comparing the price at which Petitioners have sold their stone-boulders/stone-chips with that of prevalent market price.

Comparing the particulars at which Petitioners have sold their goods with that of prevalent market price, is wholly without jurisdiction and beyond the scope of Section 61 of the Act. In fact, 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/rate less than market price would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value.

Conclusion by the court

Unless transactions of sale are shown to be sham transactions or the mere fact that the goods were sold at a concessional rate/rate less than market price would not entitle the Revenue to assess the difference between the market price and the price paid by the purchaser as transaction value. notices issued under Section 61 to the respective writ petitioners are wholly without jurisdiction and are, accordingly liable to be quashed/set aside by Court.

Key Points of the Judgement: (Writer's Note)

1. Section 61 of CGST Act: This section allows a proper officer to scrutinize GST returns to verify their correctness and inform assessees of any discrepancies. It does not authorize the officer to issue notices based on a comparison between transaction prices and market prices unless there is a discrepancy within the return itself.

2. Petitioners' Argument: The petitioners, who are in the mining business, argued that the notices were issued based on a comparison of the transaction values disclosed in GST returns with market values. They contended these actions exceeded the authority granted under Section 61, which is intended only to scrutinize discrepancies within the returns and not through external market value comparisons. 

3. Respondents' Argument: The State defended the notices by suggesting that subsequent issues within the returns were also highlighted and that scrutiny notices are procedural, aimed at identifying discrepancies. They posited that if corrections were made after notice, no further action would be necessary.

Author Bio:

Name: Somil Saraf

Qualification: LL.B., TAX PROFESSIONAL

Location: Indore