APRIL 24, 2020

By Narendra Singhvi, Joint Partner & Anshul Kumat, Consultant, Lakshmikumaran & Sridharan, Jaipur

CHAPTER XII of the Central Goods & Services Tax Act, 2017 (CGST Act) deals with assessment under GST. Section 62 and 63 thereunder provide for best judgment assessment in cases of (a) non-filers of returns, and (b) unregistered persons, respectively. This article analyzes the provisions of Section 62 of the CGST Act, particularly in light of recent order of the Appellate Authority in M/s Omsai Professional Detective and Security Services Private Limited. The provisions of Section 62(1) contain various requirements, which are broadly summarized as under:

a) Best judgment assessment under Section 62 can be made notwithstanding anything to the contrary under Section 73 and Section 74 (pertaining to issuance of SCN in case of short-payment etc.).

b) It can be initiated only against a registered person, when he fails to furnish the return under Section 39 or Section 45, even after service of notice under Section 46 requiring him to furnish returns.

c) The tax liability is to be assessed by the proper officer on best judgment basis taking into account all relevant material.

d) For this purpose, an assessment order is to be issued, within 5 years from the date specified in Section 44 for furnishing of annual return for the relevant period.

It is important to note that while the provisions of Section 62 are non-obstante those of Section 73 and Section 74, the applicability of provisions of Section 75 has not been ousted. Section 75 of the CGST Act contains general provisions relating to determination of tax and sub-section (4) thereof mandates grant of an opportunity of hearing, where any adverse decision is contemplated against a person chargeable with tax. Further, Section 75(6) requires that the proper officer shall set out the relevant facts and the basis of his decision in his order. An order passed under Section 62(1) of the CGST Act is for purposes of determination of tax liability of a non-filer of return and thus, the aforesaid requirements of Section 75 are equally applicable to such orders. In fact, such orders are also appealable under Section 107 of the CGST Act.

It is equally important to note the requirement inbuilt in Section 62(1) itself, that the tax liability on best judgment basis is to be determined taking into account all relevant material. The concept of best judgment assessment is not unique to the GST laws, and has been followed in almost all tax laws. This concept has been subject to frequent judicial scrutiny and as a settled law, the assessment made on best judgment basis must be based on cogent material, and not inferences and presumptions. This is more so, when Section 75(6) also requires the proper officer to set out the basis of his decision in the order.

Reference, in this background, is made to recent order of the Appellate Authority in M/s Omsai Professional (supra). In this case, the Appellant filed Form GSTR-1 on monthly basis declaring its outward taxable supplies, but did not file Form GSTR-3B due to cash crunch. The Assessing Officer resorted to Section 62 and estimated the taxable turnover of the Appellant by enhancing the reported outward taxable supplies in Form GSTR-1 by 50% towards probable supplies and levying GST @ 18% thereon, alongwith interest under Section 50 and penalty, equivalent to amount of tax determined, under Section 122. In appeal filed against such order, the Appellate Authority held as under:

a) The order of Assessing Officer is not in conformity with Section 62, as it is pure guess work, and not based on any authenticate/dependable evidence.

b) Return in Form GSTR-3B is not a return contemplated under Section 39, as held by Hon'ble Gujarat High Court in AAP & Co v. Union of India, - 2019-TIOL-1422-HC-AHM-GST. Invocation of Section 62 is subject to non-filing of return under Section 39 and thus, non-filing of return in Form GSTR-3B does not invite application of Section 62.

c) There is no suppression of turnover or willful omission to file returns in GSTR-3B and thus, penalty under Section 122 cannot be imposed.

On basis of the above findings, the Appellate Authority modified the assessment order by upholding the demand of tax on turnover declared in Form GSTR-1 along with interest, and setting aside the remaining demand including full penalty.

The following points on the order of the Appellate Authority are to be noted:

a) The finding on the assessment order not being in conformity with requirements of Section 62 is correct, in as much as there was no basis cited therein for enhancement of turnover by 150%.

b) The finding of non-application of Section 62 for failure to file Form GSTR-3B is incorrect, in as much as Rule 61(5) was amended, vide Notification No. 49/2019-CT, dated 09.10.2019, with retrospective effect from 01.07.2017 to provide that return in Form GSTR-3B is the return prescribed under Section 39 in specified circumstances. This retrospective amendment was made after decision of Hon'ble Gujarat High Court in AAP & Co (supra), apparently to overcome the said decision. This retrospective amendment was not considered by the Appellate Authority.

c) In any case, if the above finding of non-application of Section 62 for failure to file Form GSTR-3B is correct, the appropriate course for the Appellate Authority should have been to set aside the assessment order itself. The modification of the assessment order by reducing the demand of tax to that on the turnover declared in Form GSTR-1, even after the finding that failure to file Form GSTR-3B does not invite application of Section 62, is completely beyond the powers of the Appellate Authority.

d) The initiation of proceedings under Section 62 is subject to prior notice under Section 46 for filing of returns. If no such notice is issued, proceedings under Section 62 cannot be initiated validly. In its appeal, the Appellant specifically pointed out non-issuance of notice under Section 46, which argument was not considered by the Appellate Authority.

e) The setting aside of imposition of penalty under Section 122, in absence of any suppression/ willful omission, is correct, as the turnover was duly declared in Form GSTR-1 and non-filing of Form GSTR-3B was due to cash crunch.

[The views expressed are strictly personal.]