They Never Sent an ASMT-10 —Does That Alone Sink a Section 74A Notice?

A demand notice arrives under Section 74A of the CGST Act, and in the first meeting about it almost the same sentence is always spoken: they never scrutinised my returns, they never sent an ASMT-10 — so the notice is without jurisdiction. It is an attractive argument, because if it works it disposes of the whole demand without anyone arguing about the tax. The Allahabad High Court has now addressed it squarely, and the answer has two halves: one unwelcome, one worth keeping.

What Section 61 and Rule 99 actually say

Section 61 is headed "Scrutiny of returns". Sub-section (1) provides that the proper officer may scrutinise the return and related particulars, inform the registered person of discrepancies noticed, and seek his explanation; if the explanation is acceptable, Section 61(2) requires that he be informed and no further action taken. The machinery sits in Rule 99, and its opening words matter: "Where any return furnished by a registered person is selected for scrutiny, the proper officer shall scrutinize the same in accordance with the provisions of section 61 … and in case of any discrepancy, he shall issue a notice to the said person in FORM GST ASMT-10", seeking his explanation within a period not exceeding thirty days and, where possible, quantifying the amount involved. The reply goes in FORM GST ASMT-11; if it is accepted, the officer says so in FORM GST ASMT-12.

Section 61(3) then provides that if no satisfactory explanation comes within thirty days, or such further period as the officer permits, he "may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74 or section 74A" — the last four words inserted by Section 129 of the Finance (No. 2) Act, 2024.

Read the grammar closely. Section 61 confers a power: the officer "may" scrutinise. Rule 99 is conditional: its mandatory "shall" is triggered only where a return "is selected for scrutiny". The duty to issue an ASMT-10 governs what an officer must do once he has gone down the scrutiny road. It does not say, on its face, that every proceeding must begin there.

What a Section 74A notice is

Section 74A was inserted by Section 138 of the Finance (No. 2) Act, 2024 and, by its own sub-section (12), applies to tax pertaining to Financial Year 2024-25 onwards; Sections 73 and 74 continue to govern the earlier years. Its opening words decide this question: "Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, he shall serve notice…". A proviso bars any notice where the amount for the year is under one thousand rupees.

• A summary of the notice is served in FORM GST DRC-01 under Rule 142(1)(a); the pre-notice intimation in Part A of FORM GST DRC-01A is only permissive (Rule 142(1A)).
• Section 74A(2) allows forty-two months from the due date of the annual return — GSTR-9 is due on or before 31 December following the year (Rule 80(1)), so for FY 2024-25 the outer limit runs to 30 June 2029 — and Section 74A(7) then requires the order within twelve months of the notice, extendable by six.

What the Allahabad High Court held

In Neelkanth Entrepreneurs Private Limited v. State of U.P. (Writ Tax No. 1024 of 2026), reported in September 2026, a Division Bench considered precisely this objection. The petitioner executed sub-contract works and had, for FY 2025-26, sub-contracted part of the work onward. By a notice dated 9 July 2026 under Section 74A(1), the Deputy Commissioner, State Tax proposed to deny the input tax credit availed, with tax, interest and penalty, alleging that the sub-contracted works were bogus and the sub-contractors non-existent. The petitioner said the proposal was traceable to its own returns, so the department had to travel first through Section 61 and Rule 99. The department's answer was that the returns had never been selected for scrutiny at all: the notice rested on an independent verification of the suppliers, not on anything the petitioner had filed.

The Court dismissed the writ petition, holding that Section 61 is not a mandatory jurisdictional precondition to every Section 74A notice where the officer in fact holds independent verification material. The relationship is not reciprocal — scrutiny may lead to a Section 74A notice, but not every such notice must have begun there — and "appears" in Section 74A(1) takes in credible information from outside the returns, including material gathered on audit or verification. The company was nevertheless given four weeks to reply, the merits left to the adjudicating authority.

The half worth keeping

The Bench did not leave Section 61 with nothing to do. It recorded, in terms, that Section 61 is not —

"…as a matter of law, an invariable jurisdictional precondition to issuance of every Section 74A notice; but where the proper officer in fact possesses only return-based discrepancy material and no independent source of information, compliance with Section 61 and Rule 99 may be a mandatory procedural safeguard, non-compliance of which may expose the resultant Section 74A proceedings to challenge on ground of jurisdiction or breach of the statutory scheme or principles of natural justice."

That reframes the enquiry. The question is no longer "was there an ASMT-10?" but "what material does the officer actually have?" A notice built on a supplier-verification report, an audit under Section 65, an inspection under Section 67, or third-party data stands on its own feet. A notice whose entire substance is an arithmetical comparison of your GSTR-3B with your GSTR-2B or GSTR-1, with nothing behind it, is a different animal — and there the absence of the ASMT-10 remains a live point.

So the first task is not to draft the jurisdictional objection but to work out, from the notice and the documents relied upon, where the department's material came from — and, if those documents are neither annexed nor identified, to ask for them in writing. Section 75(7) bars the officer from confirming a demand exceeding the notice, or on grounds other than those specified in it: a notice thin on grounds constrains the order that can follow it.

Provisions that often carry more weight

• Section 75(4) — a hearing shall be granted where a request is received in writing, or where an adverse decision is contemplated. Make the request in writing.
• Section 75(2A) — where an Appellate Authority, the Tribunal or a court concludes that the charge of fraud, wilful misstatement or suppression is not established, the Section 74A(5)(ii) penalty of an amount equal to the tax falls away, and what is payable becomes the Section 74A(5)(i) penalty: ten per cent of the tax due or ten thousand rupees, whichever is higher. Contesting the characterisation of the default is frequently worth more, in rupees, than contesting the jurisdiction to issue the notice.
• Section 74A(8) and (9) — the sixty-day routes. Where fraud is not alleged, paying the tax with interest under Section 50 within sixty days of the notice attracts no penalty and concludes the proceedings; where it is alleged, Section 74A(9)(ii) allows conclusion on payment of tax, interest and a twenty-five per cent penalty in the same sixty days. These routes end the dispute rather than preserve it — which is why the choice between contesting and closing belongs inside the window, not after it.

The steps, in order