GST Non-Filers and Best Judgment Assessment

Introduction:

GST law mandates monthly filing of GSTR-3B (hereinafter ¹“Return”) on or before 20th day of succeeding month. As per Section 46 of² CGST Act read with Rule 68 of³ CGST Rules, Proper officer shall issue in electronic form a notice in Form GSTR-3A (hereinafter “Notice”) requiring defaulting tax payer to furnish such non filed return(s) within fifteen (15) days of service of such notice.

Consequences if such return is not filed even after service of notice:

If defaulting tax payer fails to furnish return within 15 (Fifteen) days from the service of notice, proper officer may assess such person under section 62 of the CGST Act, based on the relevant material available and issue order in Form ASMT-13. Such assessment is popularly called “Best Judgement Assessment”. Needless to say such assessment generally are high pitched assessment for want of required details with proper officer and very nature of such proceedings. Once order in form ASMT-13 is issued, proper officer shall also upload summary order for such demand in Form GST-DRC-07.

Further recourse available to defaulting tax payer:

Generally if adverse order is passed against tax payer, one of the remedy available with tax payer is to file appeal against such order, however considering the fact that order in question is not a full-fledged order but a best judgment assessment order (“Order”), GST law provides one more opportunity to defaulting tax payer and if return is filed within 30(Thirty) days of the service of the order, such order shall be deemed to have been withdrawn. However if return is not filed within a period of 30 days then such order will survive and defaulting tax payer will then have to file appeal against such order by paying 100% of accepted dues and 10% of disputed dues.

Supreme Court decisions on Best judgment assessment:

In past Hon’ble Supreme Court has laid down golden principles on this matter. Some of noteworthy remarks are as under:
Estimate must be honest and fair [Brij Bhushan Lal Parduman Kumar v CIT (1978) 115 ITR 524 (SC)].

Best judgement assessment must have reasonable nexus to the available material [State of Kerala v C Velukutty (1966) 60 ITR 239 (SC)].
In best judgement assessment guesswork is necessary and it is not required that the figures have to be proved of the exact amount determined by taxing authorities [see Lake Palace Hotels & Motels (P) Ltd v CIT (1995) 213 ITR 735 (Raj)].
It is well settled that in a best judgement assessment, there is always a certain degree of guesswork. No doubt, the authorities concerned should try to make an honest and fair estimate of the income even in a best judgement assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgement assessment, and it is the assessee himself [Kachwala Gems v JCIT, Jaipur (2007) 158 Taxman 71 (SC).]

Materials available with Proper Officer for Best Judgement Assessment

Present GST system provides enough material to proper officer for best judgment assessment viz. GSTR-1, wherein tax payer has disclosed outward supply and resultant liability, Eway bills generated for outward supply, GSTR-2A etc. Even past period records and returns can be relied upon to complete such assessment. Further in terms of section 70 of CGST Act, Joint Commissioner may authorize any officer to enter place of business of registered person to inspect books of account, documents, computers, software etc. and to collect necessary details. Details collected during such inspection can also be a source to complete best judgment assessment.

Circular no. 129 dated 24th December, 2019

CBIC has issued circular no 129 to bring uniformity in best judgement assessment and related procedures.  Circular lays down following guidelines, to be followed by department officers.

1. GST system may sent system generated message (may be by way of SMS or email) to all the registered persons 3 (Three) days before the due date to remind them about due date ( Time Line say 17th day of X month)
2. Once due date is over a system generated message (may be by way of SMS or email) would be sent to all the defaulters intimating fact of such default. (Time line say 21st day of X month)
3. Proper officer to issue a notice in FORM GSTR-3A electronically requiring such defaulters to furnish pending returns within 15(Fifteen) days from service of such notice. (Time line say 25th day of X month)
4. In case defaulting tax payer files pending return and discharge liability then no further action is required. (Time line say upto 10th day of X+1 month)
5. Commissioner may resort to provisional attachment to safeguard interest of revenue (Time line say any time after 10th day of X+1 month)
6. In case defaulting tax payer fails to file pending return within 15(Fifteen) days, proper officer may proceed to pass best judgment order in Form ASMT-13 and upload summary order in form DRC-07 (Time line say 11th day of X+1 month)
7. In case defaulting tax payer files pending return within 30 (Thirty) days from service of assessment order in FORM GST ASMT-13, the said assessment order shall be deemed to have been withdrawn. Tax payer should also take care of paying interest for delayed payment to avoid Show Cause Notice. (Time line say upto 10th day of X+2 months)
8. Proper officer may also initiate recovery proceedings to recover dues as per Order ( Time line say any time after 10th day of X+2 months)
9. Proper officer may also initiate action for suo motu cancellation of registration in case of continuous default of 6 months or more in case of monthly filers.

Worry factor:

As per circular in “deserving cases” the Commissioner may resort to provisional attachment to protect interest of revenue under section 83 of the CGST Act, even before issuance of FORM GST ASMT-13. Deserving cases are not specified and left to the judgment of Commissioner. For any reason if tax payer fails to furnish GSTR-3B and delay is more than 20 days then sword of provisional attachment will be hanging on the head of such tax payer. Commissioner is empowered to attach any property (movable as well as immovable including bank accounts) to protect interest of revenue. Though one can argue that built in safeguards are already provided as only Commissioner may resort to provisional attachment, however many times authorities are in revenue mobilization drive and bank account attachment in such situation may prove fatal to longevity of business of small tax payers. Further GST is payable on accrued basis and more often than not small tax payers fails to pay GST in time as their recipients might have not paid them in time.

Parting Remarks:

In any taxation system periodic returns plays important role and it is expected that tax payers should adhere to due dates prescribed. At the same time law should be flexible enough to protect honest tax payers who might have due to various genuine reasons failed to furnish return. Threat of provisional attachment may kill enterprising spirit of genuine businessman. Unless tax payer is a chronic defaulter, it is expected that authorities will exercise restraint before resorting to bank account attachment.

¹Due dates, frequency and form type depends upon type of tax payer. E.g. composition taxable person is mandated to make quarterly payment on or before 18th of every month following end of quarter. Since majority of tax payer files GSTR-3B, we have referred such form in our blog.
²CGST Act : Central Goods and Services Tax Act, as amended
³CGST Rules : Central Goods and Services Tax Rules, as amended