Best Judgment Assessments for Unregistered or Cancelled GST Registrations

The Goods and Services Tax (GST) landscape involves meticulous assessments, especially for unregistered or cancelled registrations. Section 63 of the Central Goods and Services Tax Act, 2017, plays a pivotal role in conducting best judgment assessments for entities falling under these categories. This comprehensive guide delves into the nuances of Section 63, elucidating its key points, timeframes, and the appeal process.

UNVEILING SECTION 63: BEST JUDGMENT ASSESSMENTS UNDER GST FOR UNREGISTERED OR CANCELLED REGISTRATIONS

(Central Goods and Services Tax Act, 2017 and Central Goods and Services Tax Rules, 2017)

Assessments:

Section 63: Where there is liability to pay tax in respect of the persons, who are not registered or whose registration has been cancelled, best judgment assessment shall be made 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.

Assessments under the Goods and Services Tax (GST) regime involve the determination of a taxpayer’s tax liability. Section 63 of the Central Goods and Services Tax Act, 2017, deals with the best judgment assessment in cases where there is a liability to pay tax for persons who are not registered or whose registration has been cancelled. Let’s break down Section 63 and provide examples to illustrate its application:

Section 63 Overview:

Section 63 empowers the tax authorities to make best judgment assessments when there is a tax liability for individuals or entities who are either not registered under GST or whose registration has been cancelled.

Key Points of Section 63:

• Liability to Pay Tax: This provision applies to situations where there is a tax liability that has not been discharged. Such liability may arise due to the non-registration of a taxable person or due to the cancellation of registration.
• Best Judgment Assessment: In these cases, the proper officer is authorized to make a best judgment assessment. This means that the officer will use their best judgment and available information to determine the tax liability.
• Time Limit: Section 63 specifies that best judgment assessments should be made within a period of five years from the date specified under Section 44 for furnishing the annual return for the financial year to which the unpaid tax relates.

Example: Let’s consider an example to illustrate Section 63:

Suppose there is a small business, XYZ Electronics, which is engaged in selling electronic appliances. For the financial year 2020-2021, XYZ Electronics is required to file an annual return by September 30, 2021. However, XYZ Electronics neither registers for GST nor files the annual return for the financial year 2020-2021.

The tax authorities become aware of the unregistered business and non-filing of annual returns. They find evidence that suggests XYZ Electronics had a tax liability for the financial year 2020-2021.

In this case, Section 63 allows the tax authorities to make a best judgment assessment to determine the tax liability for XYZ Electronics. The assessment is based on the available information and the best judgment of the proper officer.

The time limit specified under Section 63 is five years from the date specified under Section 44 for furnishing the annual return. Since XYZ Electronics was required to file the annual return for the financial year 2020-2021 by September 30, 2021, the best judgment assessment can be made up to September 30, 2026.

The proper officer assesses the tax liability, including the unpaid taxes, penalties, and interest, and issues a demand notice to XYZ Electronics.

XYZ Electronics is then liable to pay the assessed tax, penalties, and interest.

Key Takeaways:

Section 63 of the CGST Act allows for best judgment assessments in cases where there is a liability to pay tax for individuals or entities who are not registered under GST or whose registration has been cancelled.

Best judgment assessments are based on the judgment of the proper officer and available information.

The time limit for making best judgment assessments is five years from the date specified under Section 44 for furnishing the annual return related to the unpaid tax. This provision helps ensure that unpaid taxes are addressed within a reasonable timeframe.

Rule 100 (2): While issuing notice of assessment under Section 63, proper officer shall allow time of fifteen days to the registered person to reply.

Rule 100(2) under the Central Goods and Services Tax (CGST) Rules, 2017, deals with the issuance of notices of assessment under Section 63 and outlines the timeline for registered persons to reply to such notices. Let’s break down Rule 100(2) and provide examples to illustrate its application:

Rule 100(2) Overview:

Rule 100(2) specifies that when a proper officer issues a notice of assessment under Section 63, they must allow the registered person a specific period to reply to the notice.

Key Points of Rule 100(2):

• Assessment under Section 63: This rule applies in cases where the tax authorities are conducting a best judgment assessment under Section 63. Such assessments typically occur when there are tax liabilities related to unregistered individuals or entities or in cases where the registration has been cancelled.
• Notice Issuance: When the proper officer determines the tax liability through the best judgment assessment, they are required to issue a notice to the registered person.
• Time for Reply: Rule 100(2) stipulates that the registered person must be allowed a period of fifteen days to reply to the notice. During this period, the registered person can provide clarifications, present additional documentation, or address any concerns raised by the proper officer regarding the assessment.

Example: To understand Rule 100(2) better, let’s consider an example:

Suppose there is a business, ABC Traders, which is a registered taxpayer under the GST regime. However, during a routine tax audit, the tax authorities find discrepancies in ABC Traders’ records for the financial year 2019-2020. They suspect that ABC Traders has underreported their sales and underpaid GST for that financial year.

The proper officer initiates a best judgment assessment under Section 63 for the financial year 2019-2020 and calculates the estimated tax liability based on the available information.

In accordance with Rule 100(2), the proper officer issues a notice of assessment to ABC Traders, specifying the determined tax liability and the reasons for the assessment.

The notice also informs ABC Traders that they have fifteen days from the date of receipt of the notice to reply. During this period, ABC Traders can provide additional sales records, invoices, and any other relevant documentation to challenge or clarify the assessment.

ABC Traders, upon receiving the notice, reviews the assessment and gathers the necessary documents to support their case.

They reply to the notice within the stipulated fifteen-day period, presenting the additional documentation that shows their actual sales and tax payments for the financial year 2019-2020.

The proper officer reviews the response from ABC Traders and considers the newly provided information.

After a thorough review, the proper officer may either revise the assessment based on the additional evidence or uphold the initial assessment. 

Key Takeaways: 

• Rule 100(2) is applied when a proper officer issues a notice of assessment under Section 63 for best judgment assessments.

• The rule requires that the registered person has a fifteen-day period to reply to the notice, during which they can provide documentation and clarifications to challenge or support the assessment.

• The purpose of this rule is to ensure a fair and transparent assessment process, allowing registered persons the opportunity to present their case and evidence in response to the tax authorities’ determinations.

Appeals:- 

Section 107 (1) & Rule 108 — Aggrieved person may appeal within three months from the date on which the said decision or order is communicated to such person.

Appeals in the context of the Goods and Services Tax (GST) involve the process of challenging decisions or orders issued by the tax authorities. Section 107(1) of the Central Goods and Services Tax (CGST) Act, 2017, and Rule 108 of the CGST Rules, 2017, set forth the timeline within which an aggrieved person may file an appeal. Let’s break down Section 107(1) and Rule 108 and provide examples to illustrate their application:

Section 107(1) Overview: 

Section 107(1) states that an aggrieved person may appeal within a specific time frame from the date on which the decision or order is communicated to them. 

Rule 108 Overview: 

Rule 108 provides more details regarding the procedure for filing appeals and the documents required for the appeal.

Key Points of Section 107(1): 

• Aggrieved Person: An “aggrieved person” refers to a taxpayer or any other party who is dissatisfied with a decision or order issued by the tax authorities, such as an assessment, penalty, or other tax-related decisions.

• Timeline for Appeal: Section 107(1) specifies that the aggrieved person has a time frame of three months from the date on which the decision or order is communicated to them to file an appeal.

Example: To illustrate Section 107(1) and Rule 108, consider the following scenario:

ABC Ltd. is a manufacturing company, and they have been operating under the GST regime. The tax authorities recently conducted a tax audit of ABC Ltd. for the financial year 2020-2021 and issued an assessment order on June 15, 2022. This assessment order indicates that ABC Ltd. owes an additional ₹50,000 in taxes.

In this case: 

• ABC Ltd. is the “aggrieved person” because they disagree with the assessment order and believe that the additional tax liability is incorrect.
• The assessment order was communicated to ABC Ltd. on June 15, 2022.
• According to Section 107(1), ABC Ltd. has a period of three months from the date of communication (i.e., until September 15, 2022) to file an appeal against the assessment order.
• ABC Ltd. prepares the necessary documents and grounds for appeal and submits the appeal to the appropriate appellate authority by the September 15, 2022, deadline.
• The appellate authority reviews the appeal and conducts proceedings to determine whether the assessment order is correct or if any adjustments are needed.

Key Takeaways: 

• Section 107(1) and Rule 108 outline the procedures and timelines for filing appeals in GST matters.

• An “aggrieved person” can file an appeal within three months from the date on which a decision or order is communicated to them.

• Timely appeals are essential for taxpayers to address disputes or disagreements with the decisions or orders issued by the tax authorities. Failure to file an appeal within the specified timeframe may result in the decision becoming final and binding.

107 (2) – Officer may file application within six months from the date on which the said decision or order is communicated. 

Section 107(2) of the Central Goods and Services Tax (CGST) Act, 2017, addresses the authority of an officer to file an application for appeal within a specified timeframe. This section provides a mechanism for tax authorities to file appeals against decisions or orders they believe are incorrect. Let’s break down Section 107(2) and provide examples to illustrate its application: 

Section 107(2) Overview: 

• Section 107(2) allows an officer, which refers to a tax authority or the government, to file an application for an appeal within a specified time frame.

Key Points of Section 107(2): 

• Officer’s Appeal: Section 107(2) allows a tax officer or the government to file an appeal against a decision or order if they believe it is incorrect. This is typically used when the officer believes the decision benefits the taxpayer inappropriately.

• Timeline for Officer’s Appeal: The section specifies that the officer may file an application for appeal within six months from the date on which the decision or order is communicated.

Example: Let’s consider a hypothetical example to illustrate Section 107(2):

ABC Ltd. is a manufacturing company, and they recently filed a refund claim for the excess input tax credits. After reviewing their claim, the tax authorities found that ABC Ltd. is eligible for a refund of ₹20,000. 

• The assessment order for the refund claim was issued by the tax authorities on July 1, 2022, and communicated to ABC Ltd. on the same day.

• The tax officer, however, believes that ABC Ltd. is not eligible for the full refund and that the decision is incorrect. The officer thinks that only ₹15,000 should be refunded.

• Under Section 107(2), the tax officer has the authority to file an application for an appeal within six months from the date of communication, which in this case means until January 1, 2023.

• The tax officer prepares the necessary documents and grounds for the appeal and submits the appeal application to the appropriate appellate authority by the January 1, 2023, deadline.

• The appellate authority will then conduct proceedings to review the appeal and determine whether the assessment order should be modified or upheld.

Key Takeaways: 

• Section 107(2) provides the tax authorities or the government the option to file an application for appeal against a decision or order if they believe it is incorrect.

• The application for appeal must be filed within six months from the date on which the decision or order is communicated to the taxpayer. This provision allows the tax authorities to challenge decisions that they believe may result in inappropriate tax benefits to the taxpayer.

• The appeal process is an essential part of the tax administration, allowing for checks and balances and ensuring that decisions are made in accordance with the law.

Section 107 (4) — If satisfied with on the sufficient cause proved, appellate authority may allow further period of one month in addition to the said three or six months. 

Section 107(4) is a provision typically found in Indian laws, particularly in statutes related to taxation, where it pertains to the appellate process. This provision deals with the authority’s power to grant additional time for filing an appeal or taking some other action in specific situations. Let’s break down the section and provide detailed analyses and explanations with examples. 

Section 107(4) Explanation: 

Section 107(4) typically reads as follows:

“If satisfied with the sufficient cause proved, appellate authority may allow further period of one month in addition to the said three or six months.”

Let’s break down this provision step by step:

1. Appellate Authority: The “appellate authority” refers to the body or individual responsible for hearing appeals in the context of a particular statute or law. This authority is responsible for reviewing decisions made by lower authorities and determining whether they should be upheld, modified, or overturned.

2. Sufficient Cause: “Sufficient cause” refers to a valid and justifiable reason for an appellant (the person filing an appeal) not being able to meet a deadline or requirement set by the law. It implies that the appellant had genuine reasons that prevented them from taking the necessary action within the stipulated time.

3. Additional Time: The provision grants the appellate authority the power to allow an additional period of one month. This additional time is granted on top of a pre-existing time limit, which could be either three months or six months, depending on the context of the law.

Analysis: 

Section 107(4) serves an essential purpose in the legal system by recognizing that circumstances can arise where a person, due to a valid and justifiable reason, may not be able to meet the original time limit for filing an appeal. It provides flexibility to the appellate authority to assess such cases on their merits and, if satisfied that there is a sufficient cause, grant an additional one-month extension. This extension can be crucial in ensuring that individuals have a fair chance to exercise their right to appeal.

Examples: 

1. Taxation: Suppose a taxpayer receives a notice from the tax authorities stating that they must file an appeal against an adverse tax assessment within three months. However, due to a sudden illness that rendered them unable to collect and organize the necessary documents, they couldn’t file the appeal within the three months. In such a case, the appellate authority, upon being satisfied with the sufficient cause (the illness), may grant an additional one-month period for filing the appeal.

2. Property Disputes: In the context of property disputes, there may be a requirement to file an appeal within a specified time frame. If, for instance, an appellant can demonstrate that they were unable to file the appeal within the original time frame because of unforeseen circumstances such as a natural disaster or other valid reasons, the appellate authority may use its discretion to extend the filing period by one month.

In both examples, the additional one-month extension granted by the appellate authority is in line with the provisions of Section 107(4) to ensure that individuals are not unfairly disadvantaged due to circumstances beyond their control.

Conclusion: Understanding the nuances of GST Section 63, along with related rules and provisions, is crucial for businesses and individuals navigating the intricacies of best judgment assessments. This guide provides a comprehensive overview, from the application of Section 63 to the appeal process, ensuring a transparent and fair assessment system under the GST regime. Navigating the GST landscape becomes more manageable when armed with knowledge about these critical sections and rules.