A supplier will come to know the extent of his tax liability which has to be discharged on a continuous and regular basis only after assessment.
Section 2(11)-Assessment means determination of tax liability and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment.
The major determinants of the tax liability are generally the applicable tax rate and the value. There might be situations when these determinants might not be readily ascertainable and may be subject to the outcome of a process that requires deliberation and time.
Under section 60 of the GST Act, The Asst. Commissioner/Dy. Commissioner of Central Tax provisionally determines the amount of tax payable by the supplier and is subject to final determination. Provisional assessment provides method for determining tax liability, in case correct tax liability cannot be determined at the time of supply.
On provisional assessment, the supplier can pay tax on provisional basis but only after he executes a bond with security, binding them for payment of the difference between the amount of tax as may be finally assessed and the amount of tax provisionally assessed.
> Procedure-Rule 98 of CGST Rules, 2017
The supplier requesting for payment of tax on a provisional basis has to furnish an application to The Asst. Commissioner/Dy. Commissioner of Central Tax along with the documents in support of his request, electronically in FORM GST ASMT-01 on the common portal.
No application will be entertained if it is applied without furnishing reasons.
FORM GST ASMT-02– Notice for additional information or documents
FORM GST ASMT–03-Reply to above Notice
FORM GST ASMT-04-Order within a period not later than 90 days from the date of receipt of the request, allowing the payment of tax on a provisional basis.
FORM GST ASMT-05– Supplier has to execute the bond in FORM GST ASMT-05 along with a security in the form of a bank guarantee.
* The security will not exceed 25 percent of the amount covered under the bond.
The provisional assessment will be finalized within 6 months from the date of issuance of FORM GST ASMT-04.
The Asst. Commissioner/Dy. Commissioner of Central Tax will issue a notice in FORM GST ASMT-06, calling for information and records required for finalization of assessment &
shall issue a final assessment order, specifying the amount payable by the registered person or the amount refundable, if any, in FORM GST ASMT-07. On sufficient cause being shown and for reasons to be recorded in writing, the time limit for finalization of provisional assessment can be, extended by the Joint Commissioner or Additional Commissioner for a further period not exceeding six months and by the Commissioner for such further period not exceeding four years.
> Interest liability
In case any tax amount becomes payable subsequent to finalization of the provisional assessment, then interest at the rate u/s 50 of the GST Act will also be payable by the supplier from the first day after the due date of payment of the tax till the date of actual payment, whether such amount is paid before or after the issuance of order for final assessment.
In case any tax amount becomes refundable subsequent to finalization of the provisional assessment, then interest (subject to the eligibility of refund and absence of unjust enrichment) at the rate u/s 56 of the CGST Act will be payable to the supplier.
Judgement Effect-The interest shall be payable on the shortfall at the rate u/s 50 @18% from the first day after the due date of payment of the tax till the date of actual payment, whether such amount is paid before or after the issuance of order for final assessment.
-To overcome the decision of Ceat Limited V. CCE, 2015 (317) ELT 192 (Bom), maintained by the Supreme Court in Commissioner V. Ceat Ltd., 2016 (342) ELT A181 (SC)
The appellant contended that on a plain reading of Rule 7(4) of the Central Excise Rules, 2002, the liability to pay interest would arise only if an amount payable is determined consequent to the final assessment.
Held that-The liability to pay interest arises on any amount payable to Central Government and consequent to order for final assessment under Rule 7 sub-rule (3). The Hon’ble Court is in agreement with the Assessee in the present case that the later part of sub-rule (4) is not attracted
> Release of Security consequent to Finalization
Once the order in FORM GST ASMT-07 is issued, the supplier has to file an application in FORM GST ASMT- 08 for the release of the security furnished. On receipt of this application the Asst. Commissioner/Dy. Commissioner of Central Tax will issue an order in FORM GST ASMT–09 within a period of 7 working days from the date of the receipt of the application, releasing the security after the amount payable if any as specified in FORM GST ASMT-07 has been paid.
> Brainstorming Questions
Q 1: Will concept of unjust enrichment applicable to provisional assessment?
Ans: Concept of Unjust enrichment refers to situations in which one person is enriched at the expense of another in circumstances which the law treats as unjust
a. The Tribunal in Mohan Crystal Glass Works vs. CCE, Ghaziabad 2003 (160) ELT 283 (Tri. – Del.) held that, any amount deposited towards duty provisionally during the provisional assessment proceedings is paid as pre-deposit and does not cease to have character of pre-deposit merely by adjudicating authority treating amount as payment of duty and same will not be governed by the doctrine of unjust enrichment provided in Section 11B of CEA, 1944.
b. Payment for provisional assessment not subject to unjust enrichment: The Hon’ble Gujarat High Court in CCE&C vs. J. M. Baxi & Co. 2011 (271) ELT 19 (Guj.) held that, amount payable under adjudication order, paid voluntarily without directions of appellate authority for its payment as precondition for hearing the appeal, has to be treated as pre-deposit for hearing of appeal and assessee is entitled to its refund without going through test of unjust enrichment.
Q2: Whether refund of duty paid under provisional assessment is similar to duty paid under protest as both are “on account” payments adjustable on finalization of assessment or vacating the protest?
Ans: The decision of nine-Judge Constitution Bench in Mafatlal Industries Ltd. v. Union of India, it is important to note that there is a difference between making of refund and claiming of refund. Refund of duty paid under protest after final assessments attracts bar of unjust enrichment whereas bar of unjust enrichment not applicable to refund consequent upon finalization of provisional assessment.
In some situation it often happens that the value at which duty is paid at the time of removal of final goods is “provisional” viz not final i.e. subject to change like eligibility of quantity discounts, cash discounts etc. The customers at the time of removal are aware of the quantum of the discounts eligible but the same is passed on to them only after reaching the target.
The sale price at the time of original removal of goods from the factory was provisional and it was subsequently settled by issue of credit notes on monthly basis, the discounted price, net of the credit note was to be treated as assessable value. It was also held that such credit notes having indicated revised prices as well as Cenvat amounts, there was no question of passing higher amount of duty to the buyers. Hence the assessee was eligible to refund of duty paid on excess amount at the time of original removal of goods-CCex V/s Triveni Glass Ltd -2015 (320) ELT A338 (S.C)
> Important Key Take-Away: Making of refund vs. Claiming of Refund
Learning from Ruling given in C C. EX. Vs Allied Photographics India Ltd
-Where assessment was made provisionally, entitlement to refund would be known only when duty was finally adjusted. Here, Proper officer was duty bound to refund the duty without requiring the assessee to make a separate refund application. Therefore, this provision is for making of refund.
-On other side, Section 11B of CEA/Section 54 of the CGST Act, 2017 dealt with claiming of refund by the person who has paid duty on his own accord.