ASSESSMENT AND AUDIT UNDER GST
Meaning of assessment
“Assessment” means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment – clause 2(12) of GST Model Law, 2016.
Assessment means determining the tax liability.
‘Assess’ in a taxing statute means the computation of the income of assessee, the determination of tax payable by him, and the procedure for collecting or recovering the tax – Bhopal Sugar Industries v. State of MP – AIR 1979 SC 537 = (1979) 3 SCC 792- similar view in J K Iron v. ITO AIR 1967 All 248 = 65 ITR 386 (All HC).
The word ‘assessment’ can comprehend the whole procedure for ascertaining and imposing liability upon the tax payer – Kalavati Devi v. CIT AIR 1968 SC 162 = 66 ITR 680 (SC).
Self-Assessment in GST
Every registered taxable person shall himself assess the taxes payable under this Act and furnish a return for each tax period as specified under section 27 – clause 44 of GST Model Law, 2016.
Goods received returned to supplier – Where goods received in pursuance of an inward supply are returned by the recipient to the supplier within a period of six months from the date of the relevant invoice, the tax payable on such return supply shall be equal to the input tax credit availed of earlier in respect of such inward supply – explanation to clause 44 of GST Model Law, 2016.
In effect, this is reversal of input tax credit taken when goods were received.
It is advisable to prepare proper tax invoice for such return. In such case, where the return is within six months or after six months will not make any difference. The supplier to whom goods were returned can take input tax credit of GST charged in the invoice.
Provisional Assessment under GST
Where the taxable person is unable to determine the value of goods and/or services or determine the rate of tax applicable thereto, he may request the proper officer in writing giving reasons for payment of tax on a provisional basis and the proper officer may pass an order allowing payment of tax on provisional basis at such rate or on such value as may be specified by him – clause 44A(1) of GST Model Law, 2016.
Bond with security – The payment of tax on provisional basis may be allowed, if the taxable person executes a bond in such form as may be prescribed in this behalf, and with such surety or security as the proper officer may deem fit, binding the taxable person for payment of the difference between the amount of tax as may be finally assessed and the amount of tax provisionally assessed – – clause 44A(2) of GST Model Law, 2016.
Final assessment within six months – The proper officer shall, within a period not exceeding six months from the date of the communication of the order issued, pass the final assessment order after taking into account such information as may be required for finalizing the assessment:
The period specified in this sub-section may, on sufficient cause being shown and for reasons to be recorded in writing, be extended by the Joint/Additional Commissioner for a further period not exceeding six months and by the Commissioner for such further period as he may deem fit — clause 44A(3) of GST Model Law, 2016.
Interest payable if tax payable after final assessment is more than tax paid – The taxable person shall be liable to pay interest on any amount payable to the Central/State Government, consequent to the order for final assessment from the first day after the due date of payment of tax in respect of the said goods and/or services till the date of actual payment, whether such amount is paid before or after the issue of order for final assessment – clause 44A(4) of GST Model Law, 2016.
Refund if tax payable was less – Where the taxable person is entitled to a refund consequent to the order for final assessment, interest shall be paid on such refund as provided in section 39. Such refund is subject to doctrine of unjust enrichment.
Scrutiny of returns
The proper officer may scrutinize the return and related particulars furnished by the taxable person to verify the correctness of the return – – clause 45(1) of GST Model Law, 2016.
The proper officer shall inform the taxable person of the discrepancies noticed, if any, after such scrutiny.
In case the explanation is found acceptable, the taxable person shall be informed accordingly and no further action shall be taken in this regard.
In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the taxable person, after accepting the discrepancies, fails to take the corrective measure within a reasonable period, the proper officer may initiate appropriate action including those under section 49, 50 or section 60, or proceed to determine the tax and other dues under sub-section (6) of section 51 A or under sub-section (6) of section 51 B – – clause 45(4) of GST Model Law, 2016.
Best Judgment Assessment of non-filers of returns
If a registered taxable person fails to furnish the return even after the service of a notice, the proper officer may, after allowing a period of fifteen days from the date of service of the notice, proceed to assess the tax liability of the said person to the best of his judgment taking into account all the relevant material which is available or which he has gathered and issue an assessment order within the time limit specified – clause 46(1) of GST Model Law, 2016.
Where the taxable person furnishes a valid return within thirty days of the service of the assessment order under sub-section (1), the said assessment order shall be deemed to have been withdrawn.
Even if such best judgment assessment is made, payment of interest and late fee is still payable
Best judgment Assessment of unregistered persons
Where a taxable person fails to obtain registration even though liable to do so, the proper officer may proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of five years from the due date for filing of the annual return for the year to which the tax not paid relates.
No such assessment order shall be passed without giving a notice to show cause and without giving the person a reasonable opportunity of being heard – – clause 47 of GST Model Law, 2016.
It has been held that though best judgment assessment is an estimate and involves guess work, the estimate must relate to some evidence or material and it must be something more than mere suspicion – Raghubar Mandal v.State of Bihar – (1957) 8 STC 770 (SC) = AIR 1957 SC 810.
Even a best judgment assessment must be made reasonably and not surmises – Kathyaini Hotels v. ACCT (2004) 135 STC 77 (SC).
In State of Kerala v. C. Velukutty – (1966) 17 STC 465 = 60 ITR 239 (SC), it was held that ‘best of judgment’ means it does not depend on arbitrary caprice. Though there is element of guesswork, it shall have reasonable nexus to the available material and circumstances of the case.
There is no doubt that authorities should try to make an honest and fair estimate of the income even in best judgment assessment and should not act arbitrarily, there is always a certain degree of guess work in best judgment assessment. If assessee did not maintain proper books of account, he himself has to be blamed for such assessment – Kachwala Gems v. JCIT (2007) 158 Taxman 71 (SC).
In CST v. H M Esufali – (1973) 90 ITR 271 = 1973 SCC (Tax) 484 = 32 STC 77 (SC), it was observed – ‘The distinction between ‘best judgment assessment’ and assessment based on accounts submitted by an assessee must be borne in mind. Sometimes there may be innocent or trivial mistakes in the accounts maintained by assessee. There may be even certain unintended or unimportant omissions in those accounts; but yet the accounts may be accepted as genuine and substantially correct. In such case, assessments are made on basis of accounts maintained, even though the assessing officer may add back to the accounts price of items that might have been omitted to be included in the accounts. In such case, the assessment made is not a ‘best judgment’ assessment. It is primarily made on the basis of accounts maintained by the assessee. – – – If the assessee is maintaining false accounts to evade taxes, it is not possible for the Assessing Officer to find out precisely the turnover suppressed. He can only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him is not arbitrary and has nexus with facts discovered, the same cannot be questioned. In the very nature of things, the estimate made may be over-estimate or an under-estimate. But, that is no ground for interfering with his ‘best judgment’. – . – . – . – . – . – If the estimate made by assessing authority is a bona fideestimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. The ‘best judgment’ is of the Assessing Officer and of nobody else. – . – . – High Court cannot substitute its best judgment for that of Assessing Officer – . – . – Court will have to first see whether accounts maintained by assessee were rightly rejected as unreliable’.
In Dhakeswari Cotton Mills v. CIT AIR 1955 SC 65 = (1954) 26 ITR 775 (SC 5 member), it was held that technical rules of evidence and pleadings are not applicable in ‘best judgment assessment’, but it cannot be pure guess. There must be something more than mere suspicion to support assessment.
The best judgment assessment should be based on some material and basis must be disclosed to dealer. Dealer’s explanation has to be considered. – S Mohammed v. CCT (1999) 116 STC 28 (Karn. HC DB) * Dwijendra Kumar v. Suptd. of Taxes (1990) 78 STC 393 (Gau HC) * Sankar Trading v. State of Tripura (1991) 92 STC 22 (Gau HC DB).
In New Vishwakarma Engg. Works v. CTT (1998) 110 STC 412 (All HC), it was held that even in case of best judgment assessment, principles of natural justice are required to be followed. Dealer should be informed of the material on which charge was going to be imposed and dealer must be given opportunity to rebut the effect of material, if he can.
Estimate of turnover on the basis of particulars available in dealer’s nooks is not a best judgment assessment –Arul Constructions v. State of Tamil Nadu (2011) 43 VST 157 (Mad HC DB).
Summary assessment in certain special cases
The proper officer may, on any evidence showing a tax liability of a person coming to his notice, with the previous permission of Additional/Joint Commissioner, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order – clause 48(1) of GST Model Law, 2016.
Such summary assessment order can be passed if proper officer has sufficient grounds to believe that any delay in doing so will adversely affect the interest of revenue.
If liability is not ascertainable, the person in charge of such goods shall be deemed to be the taxable person liable to be assessed and pay tax and amount due – clause 48(1) of GST Model Law, 2016.
On any application made within thirty days from the date of receipt of order passed under section 48(1) by the taxable person or on his own motion, if the Additional/Joint Commissioner considers that such order is erroneous, he may withdraw such order and follow the procedure laid down in section 51 (of regular SCN and demand) – clause 48(2) of GST Model Law, 2016.
Assessment, adjudication, notice etc. not to be invalid on minor grounds
No assessment, re-assessment, adjudication, review, revision, appeal, rectification, notice, summons or other proceedings done, accepted, made, issued, initiated, or purported to have been done, accepted, made, issued, initiated in pursuance of any of the provisions of the Act shall be invalid or deemed to be invalid merely by reason of any mistake, defect or omission therein, if such assessment, re-assessment, adjudication, review, revision, appeal, rectification, notice, summons or other proceedings is/are in substance and effect in conformity with or according to the intents, purposes and requirements of the Act or any earlier law- clause 128(1) of GST Model Law, 2016.
Rectification of clerical mistakes in order
If there is clerical or arithmetical error or mistake, arising from any accidental slip in any order, summons, notice, certificate etc., it can be rectified if mistake is brought to notice of CGST/SGST officer within three months. Rectification cannot be done after six months – clause 129 of GST Model Law, 2016.
Audit by tax authorities
“Audit” means detailed examination of records, returns and other documents maintained or furnished by the taxable person under this Act or rules made thereunder or under any other law for the time being in force to verify, inter alia, the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or rules made thereunder – clause 2(14) of GST Model Law, 2016.
The Commissioner of CGST/Commissioner of SGST or any officer authorised by him, by way of a general or a specific order, may undertake audit of the business transactions of any taxable person for such period, at such frequency and in such manner as may be prescribed – clause 49(1) of GST Model Law, 2016.
The tax authorities may conduct audit at the place of business of the taxable person and/or in their office.
The taxable person shall be informed, by way of a notice, sufficiently in advance, not less than fifteen working days, prior to the conduct of audit.
The audit under shall be carried out in a transparent manner and completed within a period of three months from the date of commencement of audit.
‘Commencement of audit’ shall mean the date on which the records and other documents, called for by the tax authorities, are made available by the taxable person or the actual institution of audit at the place of business, whichever is later.
If the Commissioner is satisfied that audit in respect of such taxable person cannot be completed within three months from the date of commencement of audit, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months – clause 49(4) of GST Model Law, 2016.
Procedure during departmental audit
During the course of audit, the authorised officer may require the taxable person –
(i) to afford him the necessary facility to verify the books of account or other documents as he may require and which may be available at such place
(ii) to furnish such information as he may require and render assistance for timely completion of the audit.
On conclusion of audit, the proper officer shall without delay inform the taxable person, whose records are audited, of the findings, the taxable person’s rights and obligations and the reasons for the findings.
Where the audit conducted results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 51 – clause 49(7) of GST Model Law, 2016.
Special audit by Chartered/Cost Accountant
If at any stage of scrutiny, enquiry, investigation or any other proceedings before him, any officer not below the rank of Deputy/Assistant Commissioner having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such taxable person by notice in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner in this behalf – clause 50(1) of GST Model Law, 2016.
Audit report within 90 days with further extension of 90 days – The chartered accountant or cost accountant so nominated shall, within the period of ninety days, submit a report of such audit duly signed and certified by him to the said Deputy/Assistant Commissioner mentioning therein such other particulars as may be specified.
The proper officer may, on an application made to him in this behalf by the taxable person or the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by another ninety days.
Special audit in addition to any other audit – The provision of special audit shall have effect notwithstanding that the accounts of the taxable person have been audited under any other provision of this Act or any other law for the time being in force or otherwise – clause 50(3) of GST Model Law, 2016.
Opportunity of hearing to taxable person – The taxable person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit which is proposed to be used in any proceedings under this Act or rules made thereunder.
Expenses of special audit – The expenses of, and incidental to, the examination and audit of records, including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and that such determination shall be final.
Demand notice on basis of special audit report – Where the special audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, the proper officer may initiate action under section 51- clause 50(6) of GST Model Law, 2016.