ASSESSMENT - BEST JUDGMENT METHOD

[Mr. M. GOVINDARAJAN]

Self assessment

Section 59 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides that every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period. 

Provisional assessment

Section 60 of the Act provides that where the taxable person is unable to determine the value of goods or services or both or determine the rate of tax applicable thereto, he may request the proper officer in writing giving reasons for payment of tax on a provisional basis and the proper officer shall pass an order, within a period not later than 90 days from the date of receipt of such request, allowing payment of tax on provisional basis at such rate or on such value as may be specified by him on execution of bond with such surety and security as the proper officer may deem fit.   The proper officer shall, within a period not exceeding six months from the date of the communication of the order, pass the final assessment order after taking into account such information as may be required for finalizing the assessment.

Best judgment

Section 62 of the Act provides two circumstances under which the proper officer can proceed to assess the tax liability of the said person to the best of his judgment, which are as follows-

• Assessment of non filers of returns under section 62;
• Assessment of unregistered persons under section 63.

Assessment of non filers of returns

Section 62(1) of the Act provides that where a registered person fails to furnish the return, 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 judgment taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of 5 years from the date specified for furnishing of the annual return for the financial year to which the tax not paid relates.

Section 62(2) provides that where the registered person furnishes a valid return within 30 days of the service of the assessment order, the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest or for payment of late fee shall continue.

The Act provides leniency to the registered person against whom best judgment is applied which is not seen in the erstwhile indirect tax laws.  The only condition to avoid best judgment already passed is that the registered person is to furnish a valid return within 30 days of the service of the assessment order.   If he fails to file the return then the best judgment will prevail.  The valid return means that the tax shall be assessed by self assessment in a correct manner.   There will be no extension after the stipulated 30 days time for filing return against best judgment.

In ‘Mangomeadows Agricultural Pleasure Land (P) Limited v. The State Tax Officer, SGST Department, Ettumannor and Commissioner of State GST, State GST Department, Tax Towers, Trivandrum’ – 2019 (9) TMI 1246 – Kerala High Court, the petitioner failed to file the returns as required under the Act from April 2018 to October 2018.  The proper officer assessed the tax liability of the petitioner to the best of his judgment taking into the material available with him.  The petitioner ought to have filed the return within 30 days of receipt of the best judgment order.  But he did not file the return and pay the tax liability.  The petitioner saw Section 62 as futile in his case inasmuch as even if the petitioner were to file the returns within the extended time of 30 days from the date of receipt of the best judgment assessment orders, he would not be in a position to pay the admitted tax liability as reflected from the returns. It is therefore the petitioner prayed for a direction to quash the order issued by the 1st respondent on the ground that the 1st respondent, while passing the said assessment orders on best judgment basis, did not adhere to the yardsticks indicated in Section 62 for exercise of the power.

The High Court held that the statutory provisions are clear with regard to the time frame within which the assessee has to file his return and pay tax based on the said returns if he wants the assessment done on best judgment basis to be cancelled.   Although the petitioner has a case that the assessment on best judgment basis was itself done in an arbitrary manner and without adhering to the guidelines indicated in the Section, the High Court found that the statutory provisions enable the assessee, who is aggrieved by the assessment order passed on best judgment basis, to furnish his returns within a further period of 30 days and pay tax thereon on the basis of the return filed by him, and in that event, the order of the proper officer passed on best judgment basis will stand automatically withdrawn.   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 against an assessee and in favor of the revenue, 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 High Court further held that the High Court may not be justified in granting an extension of the period contemplated under Section 62(2), so as to enable the assessee to file a return beyond the said period for the purposes of getting the benefit of withdrawal of an assessment order passed on best judgment basis under Section 62(1) of the GST Act. 

The said judgment has been followed in ‘JS Fusion Industries Private Limited v. The State Tax Officer 1, SGST Department, Ettumanoor and the Commissioner Of State GST State GST Department, Tax  Towers, Thiruvananthappuram’ – 2019 (9) TMI 1245 – Kerala High Court.

Assessment of unregistered persons

Section 63 provides that where a taxable person fails to obtain registration even though liable to do so or whose registration has been cancelled but who was liable to pay tax, the proper officer may proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of 5 years from the date specified for furnishing of the annual return for the financial year to which the tax not paid relates.   No such assessment order shall be passed without giving the person an opportunity of being heard.