Know the Provisions relating to Assessment under GST-Assessment of Unregistered Persons- Section 63 of CGST Act, 2017
Relevant Section-: Section 63 of CGST Act, 2017
Applicable Rule- Rule 100 of CGST Rules 2017
ASMT-14: Show Cause Notice for assessment under section 63
DRC-01- Summary of Show Cause Notice-to be served electronically
ASMT-15: Assessment order under section 63
DRC-07: Summary of the order-To be uploaded electronically
- Applicability of Section
Section uses the word “Taxable Persons”. Taxable Persons has been defined under provisions of CGST Act as a person who is registered or liable to be registered under the provisions of Section 22 or Section 24 of CGST Act, 2017. Provisions of this section are applicable in following two scenarios:
a) Taxable person fails to obtain registration even though liable to do so: A person who was liable to be registered under the provisions of section 22 or section 24 of the CGST Act, 2017 but fails to obtain registration would be covered under the provisions of this section.
b) Taxable person whose registration has been cancelled under sub-section (2) of section 29 but who was liable to pay tax-Registration can be cancelled by Proper Officer in the circumstances as mentioned in Section 29(1) or Section 29(2) of CGST Act, 2017. Section 29(1) provides cancellation of registration either on the application of the registered person or on own motion by the proper officer. Section 29(1) provides for cancellation of registration under following scenarios:
- the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
- there is any change in the constitution of the business; or
- taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24.
Section 63 does not cover situations wherein registration is cancelled under Section 29(1) of CGST Act, 2017 since under all the situations given therein, person is no longer liable to pay tax in future period and for the period prior the date of cancellation, liability is covered by the provisions of Section 29(3) which provides that cancellation of registration under this section shall not affect liability of person to pay tax and other dues under this Act or to discharge any obligation under this Act or rules made thereunder for any period prior to date of cancellation whether or not such tax and other dues are determined before or after date of cancellation.
Section 29(2) provides power to the proper office to cancel the registration of a person from such date including any retrospective date, as he may deem fit. The situations which are provided under Section 29(2) for cancellation of registration are as follows:
- Registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed: – Rule 21 provides that registration granted to a person is liable to be cancelled If he does not conduct any business from the declared place of business; or issues invoice or bill without supply of goods or services in violation of the provisions of this Act, or the rules made thereunder; or violates the provisions of section 171 of the Act or the rules made thereunder
- Person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
- Any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
- Any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
- Registration has been obtained by means of fraud, wilful misstatement or suppression of facts.
- Section 62 creates an overriding impact over provisions of Section 73 and 74 of CGST Act, 2017
Section 62 creates an overriding impact over anything contrary contained in provisions of Section 73 and 74 of CGST Act, 2017.
- Assessment of tax Liability to best of judgement of Proper officer
Proper officer may proceed to assess tax liability of the said person to the best of his judgement for the relevant tax periods. There is one clear distinction between the provisions of Section 62 and 63. Section 62 which provides for assessment of non-filers of return provides that proper officer may proceed to assess tax liability of the said person to the best of his judgement taking into account all the relevant material which is available or which he has gathered. Therefore, proper officer has to take into account all the relevant material which is available on record or he has gathered. However, provision of section 63 does not provide for taking into consideration of material on record or material which he has gathered.
The question arises is whether provisions of Section 63 give an unfettered power to proper officer to assess the person to an estimate which is a pure guess work. The first reason for not referring to the documents on record or material gathered would be that since the person is an unregistered person and would not be filing any returns or statements therefore, there would be little material on record and would have been gathered. But even then, provisions of section 63 cannot give an unfettered right to the proper officer to assess the person to an estimate which is a pure guess work. The same has been discussed in Para 7 of the Article.
- Issue of Notice for assessment under Section 63
Proviso to Section 63 provides that no assessment order under this section shall be passed without giving the person an opportunity of being heard. Therefore, Rule 100 provides that proper officer shall issue a notice to a taxable person in accordance with the provisions of section 63 in FORM GST ASMT-14 containing the grounds on which the assessment is proposed to be made on best judgment basis and shall also serve a summary thereof electronically in FORM GST DRC-01.
- Time period for replying to the Notice Served in ASMT-14
The person on whom notice has been served in ASMT-14 should be allowed a time of fifteen days to furnish reply to such notice.
It would be apt to highlight that proviso to Section 63 provides for issuance of notice. In pursuance of the Section, Rule 100 not only provides for issuance of notice but goes one step ahead and provides for time limit within which the notice has to be replied by the person on whom to the notice is served. Providing such time limit under the Rules wherein Act does not provide any power to the delegated legislation to do so might be subject to legal challenge in the future.
- Time Limit for passing the order
Proper officer has to issue an assessment order under GSTR ASMT-15 within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. Summary of the order issued under ASMT-15 has to be uploaded electronically in FORM DRC-07.
- Whether provisions of Section 63, whether gives an unfettered power to assess the person to an estimate which is a pure guess work
Courts have regularly held that assessing officer He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee’s circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. Some of the relevant judgement are as follows:
- Kerala High Court in the matter of K.M. Alikoya And Co. vs The State Of Kerala on 10 February, 1961 Equivalent citations: 1961 12 STC 567 Ker
Now the proposition of law is well settled that taxing authorities when making best judgment assessment should discharge their duty judiciously, and that rule is not confined to assessments of income-tax alone. It is of wider application because it arises from officers discharging a quasi-judicial function when making such an assessment. Therefore, it governs all best judgment assessments.
- Raghubar Mandal Harihar Mandal v. State of Bihar  8 S.T.C. 770 where the Supreme Court dealing with Section 10(2)(b) of the Bihar Sales Tax Act, 1944, has observed as follows-:
In making an assessment under Section 10(2)(b) the Sales Tax Officer is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence in a Court of law ; but he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment. When the returns and the books of account are rejected, the assessing officer must make an estimate and to that extent he must make a guess ; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. He must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee’s circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate.
- Joharmal Murlidhar And Co. vs Agricultural Income-Tax … on 4 August, 1970 Equivalent citations: AIR 1970 SC 1980, 1971 79 ITR 6 SC, (1970) 3 SCC 331
Prima facie the order appears to be an arbitrary one. The assessing officer had not given any reasons for his conclusion. Even a best judgment assessment has to be made on some rational basis. The High Court refused to accept the contention of the assessee that the impugned assessments were made arbitrarily on the ground that the assessee had failed to take proper steps under the Act by appealing against the impugned order. That is undoubtedly a good ground for refusing to give the relief to the assessee but all the same, taking into consideration, the amounts involved and the simple nature of the proof required to be adduced by the assessee, we direct as follows:
The assessing officer shall issue a fresh notice to the assessee calling assessment orders for the relevant assessment years. The assessee shall produce those orders within a month of the receipt of the notice. If he produces those orders, the impugned assessment orders shall stand cancelled and the assessing officer shall assess the assessee afresh. If the assessee fails to produce those orders, the impugned assessment orders shall stand and further steps may be taken on the basis of those orders.
- Anderson v. Commissioners of Inland Revenue ((1933) 18 Tax Cas. 320) referred by Karnataka High Court in the matter of Rangappa Pandurang Kamath vs State Of Mysore on 15 February, 1962 Equivalent citations: 1962 13 STC 714 Kar
“It may be they did find in fact that the books were badly kept, or that the profit and loss account had not been accurately made out; but, if that is what they meant as a reason for refusing to look at what was undoubted evidence, ……….. they should have said so. There might then have been no difficulty whatever in sustaining their conclusion, which would have been to some such effect as this :’The books and accounts you produce are not satisfactory for one reason or another. That being so, we cannot regard them as proving your profits.'”
- Lord Sands added :
“If the Commissioners had said that they thought the accounts were ‘fictitious’ or ‘cooked’, then that would have justified their disregarding these accounts, and, in those circumstances, we might not have been justified in scrutinising the grounds upon which they were proceeding and in considering whether they were supported by evidence which would satisfy a court of law.”
- Lord Morison observed :
“In this case, the Commissioners have not made a statement to the effect that they were not satisfied with the statement of the profits which the appellant delivered to them.”