Best Judgment Assessment Cannot Survive if Valid GST Returns Subsequently Filed

Summary: Section 62 of the CGST/TNGST Acts provides for best judgment assessment where a registered person fails to furnish returns even after notice under Section 46. The provision contains a deeming fiction under Section 62(2), under which a best judgment assessment is deemed withdrawn once a valid return is filed within the permitted period, although interest and late fees remain payable. Recent decisions of the Madras High Court and other High Courts have held that this time limit is directory rather than mandatory, and that filing valid returns with payment of tax, interest and late fees causes the best judgment assessment to lose its force. Thereafter, the department cannot continue recovery based on the estimated assessment but must proceed through regular assessment, scrutiny or proceedings under the appropriate provisions if discrepancies remain. Courts have also emphasized that Section 62 is a temporary compliance measure, not a substitute for regular assessment, and that penalties or recovery cannot continue solely on the basis of earlier estimated figures once actual returns are filed.

When Best Judgment Assessment Dies: Effect of Subsequent Return Filing under Section 62 of GST Act

1. Introduction

Best judgment assessment under section 62 of the CGST/TNGST Acts is one of the most frequently misused provisions in the GST regime.
It was conceived as a temporary tool to nudge non‑filers into compliance, but in practice it is often treated as a final demand and a substitute for regular assessment or recovery, leading to unnecessary litigation.

A recent line of decisions, particularly from the Madras High Court and other High Courts, has now made it clear that once a registered person files the pending returns and discharges the legitimate tax dues, a best judgment assessment under section 62 automatically loses its force.
The revenue, if still dissatisfied, must then move into the normal reassessment framework, rather than clinging to a notional, best‑judgment figure.

This article discusses the statutory scheme of section 62, explains the Madras High Court approach, examines the consequences for both taxpayers and the department, and suggests practical strategies for handling such cases.

2. Statutory Framework of Section 62

Section 62 deals with assessment of non‑filers of returns and allows the proper officer to determine the tax liability on “best judgment” basis when a registered person fails to furnish returns even after being served with a notice under section 46.

The provision is meant for situations where the officer has no reliable return data and has to estimate liability from available information, such as e‑way bills, inspection reports, or third‑party data.

Sub‑section (2) creates an important deeming fiction: if the registered person furnishes a valid return within the permitted period (earlier 30 days, now effectively extended by amendments and notifications), the best judgment assessment “shall be deemed to have been withdrawn,” though interest and late fees remain payable.
This statutory fiction is central—once it operates, the section 62 order is treated in law as if it does not exist for the period covered by the valid return, and the assessment must thereafter be based on the filed return.

3. Madras High Court Line: Time Limit Directory, Not Mandatory

The Madras High Court has repeatedly held that the time limit in section 62(2) for filing returns after a best judgment assessment is directory and not strictly mandatory.

In other words, delay in filing returns beyond the stipulated period does not automatically extinguish the statutory benefit of deemed withdrawal, especially when the taxpayer ultimately comes forward with genuine compliance and full payment.

In one prominent decision, the Court considered a case where the taxpayer received best judgment orders under section 62 for non‑filing of returns, but later filed the pending returns after the 30‑day period then specified in the statute.

The department insisted that because the returns were filed beyond the statutory 30 days, the section 62 order continued to be valid, and recovery could proceed.

The Court disagreed and observed that several judicial precedents treat the 30‑day timeline as directory, emphasizing that procedural timelines should not override substantive compliance where the law itself encourages regularisation through filing of returns.

It therefore held that once a valid return is filed and tax liability is admitted and paid, the statutory consequence under section 62(2) must follow: the best judgment order stands automatically withdrawn.

4. Best Judgment Order as a Temporary Measure

An important theme in these decisions is the characterization of section 62 assessment as a temporary, coercive arrangement and not a final adjudication of liability.

The Courts have underlined that section 62 exists because the officer has no return to work with, and hence is forced to rely on estimates or external data; once that handicap is removed by filing of proper returns, any continuation of the best judgment order would be contrary to the statutory scheme.

In other words, best judgment assessment is a “bridging” measure to prevent revenue leakage during periods of non‑compliance, but it is not intended to replace the normal self‑assessment and scrutiny mechanism.

To continue to enforce a notional demand even after actual returns are on record is to give primacy to estimate over facts, which the Courts have described as frustrating the very object of the Act.

5. Consequence of Filing Returns: Deemed Withdrawal

The logical consequence, as reinforced by Madras High Court and echoed in other High Courts, is that once the registered person files the pending returns and pays tax, interest and late fees, the section 62 assessment is deemed withdrawn by operation of law.
No separate order of withdrawal is required; the statute itself declares the legal effect, and any further recovery based solely on the earlier section 62 order becomes without jurisdiction.

In the Madurai Bench case discussed in several commentaries, it was held that belated filing of GST returns automatically nullifies the best judgment assessment issued under section 62 of the State GST Act, even though the return was filed beyond the 30‑day period referred to in sub‑section (2).
The Court clarified that the department is free to verify the return, and if any discrepancy or short payment is found, it can issue a fresh show cause notice under the appropriate provisions, but it cannot continue recovery on the earlier estimated order.

Thus, the revenue’s remedy, once returns are filed, lies not in clinging to the best judgment order but in moving into the regular assessment or reassessment route based on verified figures.

6. Illustrative Example: Notional vs Actual Liability

Consider a small trader who fails to file GSTR‑3B for six months due to a software failure and human lapse.
The department, seeing e‑way bill data of outward supplies of ₹1.20 crore, passes a best judgment order under section 62 estimating tax at 18% on turnover and adding 100% penalty under section 74, resulting in a demand of, say, ₹25 lakh.

Three months later, the trader regularises compliance: he files all pending GSTR‑3B returns, declares outward tax of ₹18 lakh and ITC of ₹11 lakh, and pays the net tax, interest and late fees.
If the department insists that its earlier section 62 order still survives and continues recovery proceedings for ₹25 lakh, it is effectively ignoring the statutory scheme that once returns are filed and tax is paid, the notional order must yield to actual figures.

Applying the principles laid down by the Madras High Court and other Courts, such recovery would be unsustainable; the best judgment assessment must be treated as withdrawn, and any further action must be anchored on the actual returns, either through scrutiny, section 73/74 proceedings, or other appropriate mechanisms.

7. AP and Other High Courts: Same Direction

Other High Courts have taken a similar view.

For instance, the Andhra Pradesh High Court has reiterated that once pending returns are filed, best judgment orders under section 62 collapse by the deeming fiction, and any recovery based on such withdrawn orders is unlawful.

In that case, the Court noted that demands were raised on a purely notional turnover basis, but after the assessee filed actual returns and paid tax, interest and late fees, the department still persisted in recovery on the original section 62 order.

The Court set aside the assessment and recovery, emphasizing that GST is a compliance‑first regime and that punitive demands cannot be sustained where substantive compliance has been achieved.

Some High Courts have also explicitly held that the 60‑day limit in section 62(2) is directory and that delay can be condoned where the assessee shows sufficient cause, reinforcing the idea that the law’s primary goal is to secure correct tax, not to punish technical lapses.

8. Practical Consequences for Revenue

These rulings have important practical implications for tax officers:

They cannot treat section 62 orders as final assessments once returns are filed.
Any further action must take into account the returns and should proceed under the ordinary assessment or reassessment provisions.

Recovery proceedings based solely on a section 62 order must be halted once the return is filed and the statutory fiction of deemed withdrawal comes into play.

Continuing recovery would be without jurisdiction and vulnerable to writ challenge.

If the department believes that the filed returns understate turnover or claim inadmissible ITC, the proper course is to issue a show cause notice under section 73 or 74, or the relevant rule, and base the demand on concrete material rather than on an earlier estimate.

In short, section 62 is not a substitute for regular assessment or recovery.

It is merely a temporary device to prod non‑filers and secure provisional amounts until returns are filed.

9. Practical Strategy for Taxpayers and Professionals

For taxpayers and practitioners, these decisions offer both an opportunity and a caution.

First, the safest strategy is to ensure that returns are filed within the statutory 60/120 days from the section 62 order, thereby clearly satisfying the letter of section 62(2) and availing the explicit deeming provision.
This minimizes litigation and avoids the need to rely on judicial discretion for condonation of delay.

Second, where the returns have been filed beyond the statutory period, professionals should:

Emphasize that the time limit is directory and not mandatory, relying on Madras High Court and other High Court rulings.

Highlight that the department’s continuance of recovery on a best judgment order after full compliance is contrary to the statutory scheme and violates the principle that estimates must give way to actual figures.

Third, if the department insists on continuing recovery, a carefully drafted representation should be filed before the jurisdictional officer citing the relevant judgments and seeking withdrawal or keeping recovery in abeyance.
If necessary, a writ petition may be considered, particularly where coercive recovery (such as bank attachment) continues despite full compliance.

10. Additional Illustration: Bank Attachment and Adjustment

In one Madurai Bench case, the department had attached the taxpayer’s bank account based on a section 62 order; after returns were filed and the Court recognized that the assessment stood withdrawn, it directed that any amount already collected be adjusted towards future tax liabilities and that the bank attachment be lifted.
This illustrates how the Courts view section 62 orders as temporary and subordinate to subsequent return‑based assessment.

From a practitioner’s viewpoint, this suggests that where bank attachments are based only on section 62 orders, a timely writ or representation citing this jurisprudence can secure both adjustment of amounts already realized and release of attachments.

11. Section 62 Is Not a Back Door for Section 74 Penalties

Another interesting aspect, highlighted in commentaries and case notes, is the misuse of section 62 as an indirect vehicle for imposing section 74 penalties based on notional turnovers.
Some orders have combined best judgment assessment with 100% penalty under section 74 purely on estimated figures, without a full inquiry and without confronting the assessee with concrete evidence.

The emerging judicial view is that once returns are filed and actual liability crystallizes, any penalty must be examined afresh in the proper proceedings, not by mechanically retaining the earlier estimated demand.
Continuing to enforce penalties based on earlier estimates would not only be inconsistent with section 62(2) but also offend principles of natural justice.

12. Key Takeaways for Advisory Practice

For GST professionals advising clients:

Treat section 62 notices and orders as serious early warning signs, but also reassure clients that they still have a statutory window to regularise compliance.

Encourage immediate filing of pending returns with full tax, interest and late fee, even if the formal 60/120‑day window has lapsed; Courts have been sympathetic to genuine assessees who come forward voluntarily.

When faced with continued recovery, rely on the growing body of jurisprudence that treats best judgment assessments as automatically withdrawn once valid returns are filed.

Document all factual circumstances—technical glitches, portal issues, staff attrition, financial distress—to support the case that delay was not wilful and that substantive compliance has been achieved.

By adopting a structured representation backed by case law, professionals can often resolve such matters at the departmental level without long‑drawn litigation.

13. Conclusion

The clear message from the Madras High Court and other High Courts is that best judgment assessment under section 62 is not an enduring assessment; it is a temporary mechanism that collapses once the taxpayer files valid returns and pays the admitted dues.
To allow such an order to survive despite subsequent compliance would subvert the statutory scheme, privilege estimates over reality, and unduly penalise genuine taxpayers.

For the revenue, the lawful course after subsequent return filing is to initiate reassessment or scrutiny proceedings if discrepancies remain, not to continue recovery based on a withdrawn best judgment order.

For taxpayers and professionals, the path is equally clear: cure non‑filing at the earliest, rely on the deeming fiction of section 62(2), and, where necessary, assert the judicial principle that best judgment assessments cannot survive in the face of later, valid returns.