Why best judgement assessment on
failure to file return under GST is more dangerous?
It has been two years since the inception of GST and there has been
a steady decline in compliance of GSTR-3B return filing from 92.6% in August
2017 to just 71.25% in November 2018.
This article analyses the legal
consequences of non filing of returns.
Notice for non filing of returns
Section
46 of the CGST Act, 2017 provides
that notice shall
be issued to return
defaulters requiring him to file the return within 15 days of service of the notice.
Section 46 is reproduced as below:
Where a
registered person fails to furnish a return under section 39 or section 44 or
section 45, a notice shall be issued requiring him to furnish such return within
fifteen days in such form and manner
as may be prescribed.
Rule 68 provides that a notice in FORM GSTR-3A shall be issued,
electronically, to such defaulters.
Assessment of non-filers of
returns
Sub-section (1) of section 62 provides for assessment of non-filers
of return which is reproduced as follows:
Notwithstanding
anything to the contrary contained in section 73 or section 74, where a
registered person fails to furnish the return under section 39 or section
45, even after the service
of a notice under section 46, the proper officer may proceed
to assess the 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 and issue an assessment
order 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.
Thus a proper office can make a best judgement assessment where the
registered person fails to furnish returns after the expiry of 15 days from the
date of service of GSTR-3A notice to him.
The best judgement assessment may be completed on the basis of
available materials or information gathered by the proper officer. Thus, where
the registered person has filed GSTR-1 for the tax period to be assessed, it
may be relied upon as available records for determining the output tax
liability. Similarly, the input tax credit reported in GSTR-2A for the said tax period can be used to
determine the input tax credit.
Following points are important for best judgment assessment –
1.
Registered person should fail to
furnish the return u/s 39 even after 15 days of service of GSTR-3A.
2. Power
of best judgment assessment should be exercised by Proper Officer only and not
by any other person below his rank.
3.
Before such assessment, proper
officer should take into account all relevant material available on record
and/or evidences gathered by him as aforesaid.
4.
Best judgment assessment order
has
to be in writing.
5.
Order must be made
within 2 years from due date of furnishing the annual returns.
Best judgement assessment in erstwhile service tax regime
Section 72 of the Finance Act provides for best judgement assessment
in service tax. The provisions of section 70 are reproduced as below:
If any person, liable
to pay service tax,—
(a) fails to furnish the return under section 70;
(b)
having
made a return, fails to assess the tax in accordance with the provisions of this Chapter
or rules made there under,
the Central Excise Officer, may require the person to
produce such accounts, documents or other evidence as he may deem necessary and
after taking into account all the relevant material which is available or which
he has gathered, shall by an order in writing, after giving the person an
opportunity of being heard, make the assessment of the value of taxable service
to the best of his judgment and determine the sum payable by the assessee or
refundable to the assessee on the basis of
such assessment.
While Section 62 of CGST Act, 2017 seems to be in pari materia with Section 72 of Chapter V of Finance Act, a noticeable difference
is that the GST law does not explicitly require the proper officer to call for
accounts, documents or other evidences unlike in erstwhile service tax regime,
where the central excise officer was given a discretionary power to call for
such information and records. Thus under GST era, the proper officer is empowered to make a
best judgement assessment with only those documents and
information which are available with him and need not gather information and
records from the registered person.
In Raghubar Mandal v State of Bihar 1957 (5) TMI 28, Supreme court has
held that best judgment assessment is an estimate and involves guess work, the
estimate must relate to some evidence or material and it must be something more than mere
suspicion. Similarly, in Kathyaini Hotels v. ACCT 2002 (1) TMI 1134, Supreme Court has held that even a best judgment assessment must
be made reasonably and not on surmises.
Is assessment under section 62 of CGST Act, 2017 primarily an ex-
parte assessment?
In M/S. Shubham Electricals v
CST & ST, Rohtak 2015 (6) TMI 786 the New Delhi CESTAT held that the
disinclination to employ the ample investigatorial powers conferred by the Act
is illustrative of gross Departmental failure and cannot afford justification
for passing an incoherent and vague adjudication order.
In
N.B.C.
Corporation Ltd. v.
CST 2014 (1) TMI 151, Delhi
High Court held that the scope of
best judgment assessment is ordinarily understood under Income Tax Act,
1961 and section 72 of Finance Act, 1994 which mandates assessee to appear and furnish books of account, documents and material accordingly
assessing officer is required to pass order. Thus, assessment order passed
under best judgment assessment was
not ex parte
order.
It will be akin
to ex parte
order when assessee fails to produce records and
assessing officer pass the order
on the basis of other information or data available.
However, section 62 does not explicitly require the proper officer
to call for accounts, documents or other evidences or provide for an opportunity of being heard. This gives power to proper
officer to pass an ex-parte order based
on documents and records available with him and without employing any investigatorial powers.
Thus, it seems the
provisions of GST law have deviated from the ratio of New Delhi
CESTAT and Hon’ble Delhi High court in cases cited supra.
This omission in
section 62 is in violation of the basic principle of natural justice – Audi Alteram Partem (hear the other side). The rules of natural justice operate as implied mandatory requirements,
non-observance of which invalidates the exercise of power. The court presumes
that the requirements are implied in the absence of indication to the contrary
in the Act, confirming the power or in the circumstances in which the Act is to be applied.
However, the intentional omission of these clauses in section 62 of
CGST Act, 2017 maybe to suppress the mischief in erstwhile service tax law
(Heydon’s rule) which may be indicative of the contrary to requirements of
principles of natural justice in the Act itself.
Automatic withdrawal of order
The sub-section 2 of section 62 deals with automatic withdrawal of
best judgement assessment order if a valid return is filed within 30 days
of the service of the said assessment
order save for the continuance of the liability to pay interest for late
payment of the tax. Section 62(2) is reproduced as below:
(2) Where the
registered person furnishes a valid return within thirty days of the service of
the assessment order under sub-section (1), the said assessment order shall
be deemed to have been
withdrawn but the liability for payment of interest under sub-section (1) of section
50 or for payment of late fee under section 47 shall continue.
Section 2(117) defines a valid return as “a return furnished
under section 39 (1) on which
self-assessed tax has been paid in full. Thus, for suo moto withdrawal of best
judgement assessment order, the
registered person has to furnish GSTR-3B and pay the tax in full”.
The very reason that taxpayers are unable to file return is because
of the cash crunch to pay taxes. On a
combined reading of section 46 and section 62 the assessee is given a time of
45 days to pay the tax in full.
In M/s Bridge
hygiene services private limited v state
tax officer, second circle, kottayam 2019 (9) TMI - the Kerala High Court has held that the statutory prescription of 30
days from the date of receipt of the
assessment order passed under Section 62(1) has to be strictly
construed, since this is a provision in a taxing statute that
enables an assessee to get an order passed against him on best judgment
basis set aside. The provision must be
interpreted in the same manner as an exemption provision in a taxing statute.
Moreover, the hon’ble Kerala
High Court seems
to have overlooked the arbitrary assessment made by the proper officer without
adhering to guideline on the ground that the statutory provision enables the
tax payer to get the order automatically withdrawn.
Conclusion
Compared to pre-GST regime, the power to
conduct best judgement assessment u/s 62 given to proper officer is arbitrary
and against the principles of natural justice. The automatic withdrawal of best
judgement assessment order seems to be the last option available to tax payer
to save himself from the arbitrary assessment of the proper officer. Moreover, the recent judgement of the Kerala
High Court is also
in favour of the department.
In genuine cases, where the tax payer are unable to file the returns
owing to cash crush and economic distress faced by the industries across the
country, the department must take a reasonable stand and do the best judgement assessment in a fair
and judicial manner by calling for all the relevant information from the
taxpayers and using such information and records available with him while
carrying out the assessment.
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