The Office of the Commissioner of Commercial Taxes, Chennai, has issued Circular No. 07/2026-TNGST (R1/14532334/2026), dated 25 June 2026, prescribing detailed instructions for return scrutiny under Section 61 of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017 and consequential adjudication proceedings. The Circular introduces a system of prior approval for suo motu scrutiny notices and ex parte orders, with a view to making the adjudication process more transparent, reducing unnecessary litigation and ensuring proper prioritisation of system-generated scrutiny cases.
The Circular follows the earlier Commissioner of Commercial Taxes Circular No. 8/2024 dated 29 August 2024, under which detailed guidelines had been issued to Proper Officers in Assessment Circles for adjudication. The Department has reiterated that the objective of the scrutiny framework is to ensure uniformity, improve monitoring, maintain quality standards in adjudication and facilitate timely realisation of legitimate revenue.
As part of the risk-based scrutiny mechanism, the Department’s IT wing has generated 55,170 scrutiny notices for Assessment Years 2022-23 and 2023-24 in two phases. In Phase-I, 10,438 notices for 2022-23 and 11,478 notices for 2023-24 were generated on 19 February 2026. In Phase-II, 17,048 notices for 2022-23 were generated on 4 May 2026 and 16,206 notices for 2023-24 were generated on 11 May 2026. These system-generated cases are required to be processed by Proper Officers in accordance with the provisions of the GST Acts and Rules.
The Circular notes that, during review of the adjudication process, instances were noticed where Proper Officers were initiating scrutiny proceedings on their own even in cases where no substantial discrepancy existed, while system-generated scrutiny notices were not being accorded due priority. It was also observed that ex parte orders were being passed without exhausting reasonable modes of communication with taxpayers, resulting in avoidable litigation and hardship to taxpayers. The new instructions have therefore been issued for strict compliance by Proper Officers in Assessment Circles.
Prior approval required for suo motu scrutiny notices
Under Circular No. 07/2026-TNGST, Proper Officers have been instructed that suo motu scrutiny notices should not ordinarily be issued. Such notices may, however, be initiated in specified circumstances, including cases involving substantial revenue implications not covered by system-generated scrutiny; cases arising from intelligence inputs, investigation, audit observations or specific third-party information; cases involving fraudulent availment of Input Tax Credit, fake invoices, bogus registrations, suppression of taxable turnover or similar fraudulent activities; significant discrepancies between returns and financial statements, e-way bill data, TDS/TCS data or other authenticated third-party information; and defects identified through MIS reports, BIFA, GST Prime and similar analytical tools.
Before issuing any such suo motu scrutiny notice, the Proper Officer is required to record the reasons in writing and obtain prior approval from the competent Deputy Commissioner or Joint Commissioner, based on the monetary limits prescribed in the Circular. For KTCC and Coimbatore Divisions, the prescribed limits are Rs. 50 lakh and above for approval at the Deputy Commissioner level and Rs. 1 crore and above at the Joint Commissioner level. For other Divisions, the corresponding limits are Rs. 25 lakh and above for the Deputy Commissioner and Rs. 50 lakh and above for the Joint Commissioner. The monetary limit is to be reckoned with reference to the total revenue involved under all Acts for a financial year.
Additional safeguards before passing ex parte GST orders
The Circular has also laid down specific safeguards before an ex parte adjudication order is passed. Where a Show Cause Notice in Form DRC-01 has been issued and no reply is received within the stipulated period of 30 days, the Proper Officer is required to ensure that the taxpayer has been contacted through telephone or e-mail and informed about the proceedings.
Where the taxpayer also fails to respond to the personal hearing, the Proper Officer must ensure that Form DRC-01 has been sent through Speed Post to the principal place of business as well as to the residential address of the authorised signatory, and that such service has been duly documented in the case records. These measures are intended to ensure that reasonable opportunities for communication are exhausted before proceeding ex parte.
Before passing an ex parte order in Form DRC-07, the Proper Officer is further required to record reasons in writing and obtain prior approval from the Deputy Commissioner or Joint Commissioner in accordance with the same monetary thresholds prescribed for suo motu scrutiny proceedings. Thus, for KTCC and Coimbatore Divisions, approval thresholds are Rs. 50 lakh and Rs. 1 crore for the Deputy Commissioner and Joint Commissioner levels respectively, while for other Divisions they are Rs. 25 lakh and Rs. 50 lakh respectively.
The Circular further directs that noteworthy cases identified during return scrutiny which have wider ramifications across the State should be presented during monthly review meetings. This is aimed at facilitating dissemination of best practices, knowledge sharing and uniform application of GST law among departmental officers.
All Territorial Joint Commissioners and Territorial Deputy Commissioners have been directed to monitor Proper Officers under their jurisdiction and ensure compliance with the instructions contained in the Circular. The Circular has been issued by S. Nagarajan, Commissioner of State Tax, and has been circulated to senior departmental officers and Proper Officers in Assessment Circles across the State.
The measures introduced through Circular No. 07/2026-TNGST reinforce the Department’s emphasis on a risk-based, technology-driven and accountable scrutiny mechanism, while ensuring that independent scrutiny proceedings and ex parte adjudication are initiated only after prescribed safeguards and supervisory approvals are followed.
The Circular can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/08/CIRCULAR-07-2026-Return-Scrutiny.pdf
