Section 63 of GST – Assessment of unregistered persons
Notwithstanding anything to the contrary contained in section 73 or section 74, where a taxable person fails to obtain registration even though liable to do so, or whose registration has been cancelled under sub section (2) of section 29 but who was liable to pay tax, the proper officer may proceed to assess the tax liability of such taxable person to the best of his judgement for the relevant tax periods and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. Provided that no such assessment order shall be passed without giving the person an opportunity of being heard. Related provisions of the Statute
Analysis of this section
Introduction This section commences with a non obstante clause, meaning whenever the provisions of section 73 or 74 applies, the provisions of section 63 of the Act cannot be invoked. This Section is applicable to unregistered persons i.e., persons who are liable to obtain registration under Section 22 and have failed to obtain registration, will come within scope of operation of this Section. This provision also covers cases where registration was cancelled under section 29(2). Section 29(2) of the Act covers 5 instances where registration may be cancelled by proper officer:
(a) A person who contravenes the provisions of this Act or Rules made thereunder; or(b) A composition person who fails to furnish returns for 3 consecutive tax periods; or(c) A person other than composition person who fails to furnish returns for 6 consecutive months or(d) A person who has sought voluntary registration but has failed to commence business within 6 months; or(e) Where registration has been obtained by way of fraud, willful misstatement or suppression of facts.
Analysis This is a remarkable provision where even when a taxable person is ‘unregistered’, Proper Office is vested with jurisdiction to not only identify taxable transactions but also pass an order of assessment on best judgement basis and fasten an enforceable demand. This section too begins with the phrase “Notwithstanding anything to the contrary contained in section 73 or section 74”. It therefore permits assessment under section 63 to be carried out independent of section 73 and Section 74, however, procedures contained in section 73 or 74 to the extent they are not inconsistent such as 73(5) or 74(5) are to be followed while completing this assessment. As in the case of section 62, this section 63 too contains a period of limitation of 5 years from due date applicable for filing annual return for the financial year to which tax not paid relates. It is interesting to note the following ingredients for this section 63 to be attracted:
Taxable person – is the one in respect of whom this procedure may be adopted. As a result, all ingredients to establish a person to constitute ‘taxable person’ as per section 2(107) must be satisfied. In the absence of SCN, Proper Officer appears to come under great scrutiny for invoking this jurisdiction. All aspects that the Proper Officer admitted at the time of invoking these provisions will need to stand scrutiny. But that would be the proceedings by way of response to the notice granting opportunity under section 63 (not section 73 or 74) or in further appellate proceedings;Fails to obtain registration – is a positive act on the part of such taxable person. ‘Fail’ is not the same as ‘omits’ to obtain registration. Clearly, being conscious of the requirement to obtain registration will be required and as such come in for examination. While no ‘intent’ needs to be established for such failure but clearly it cannot be supported merely on account of an inference about taxability or bona fide view on nontaxability of a transaction or judicial interpretation; orRegistration cancelled but liable to pay tax – here, reference is provided to cancellation under section 29(2). The entire section 29(2) is where ‘cancellation’ is done by Proper Officer. It is not taxable person’s responsibility if Proper Officers decides to cancel registration (in the five circumstances listed) and then proceeds to invoke jurisdiction under section 63 to pass a best judgement order. It is a wonder that on one hand Proper Officer will cancel registration under section 29(2) and then proceed to fasten a demand on taxable person by an assessment order under section 63 without issuing an SCN. Experts view that the use of this section will come in for severe judicial scrutiny for failure to retain the registration and issue SCN on all grounds that would afford taxable person to not only defend on continuance of registration but also suspected tax liabilities. It would be appropriate that Proper Officer ‘suspend’ registration under rule 21-A (2) instead of cancelling the registration.
Please refer discussion on ‘best judgement assessment’ under section 62. For assessment under this section, notice has to be issued as per Rule 100(2) in FORM GST ASMT-14 + DRC 1 by the proper officer. The notice would contain the reasons / grounds on which the assessment is proposed to be made on best judgment basis. The registered person is allowed a time period of 15 days to furnish his reply, if any. After considering the said explanation, the order has to be passed in FORM GST ASMT- 15 + DRC 7. Special attention is to be paid to the appended forms in DRC1 with the order which contains the detailed grounds on which the said best judgement assessment would be passed and then DRC7 would accompany final demand (see rule 100(2) for details). 63.3 Comparison with equivalent provisions in other laws: Section 23(4) of the MVAT Act contains similar provision as that contained in Section 63 of the CGST Act. 63.4 Issues and Concerns The application of the aforesaid section is a discretionary power vested in the officer when it comes to his notice that a person although liable to registered has not obtained registration. The powers vested in the section 63 can be invoked only when the proper officer is in possession of information that is material for initiating the proceedings. An unregistered person does not qualify as a registered person under section 2(94) of the CGST Act, 2017, hence annual return and audit is not applicable for him. Judicial Review: Any procedure that side-steps the ‘rule of law’ in the form of issuing an SCN is always open for judicial review for (a) illegality, (b) irrationality, (c) procedural impropriety and (d) proportionality. Judicial review is a remedy in public law where HC or SC will interfere when failure of a public authority in discharging its duties takes place. Civilized society must declare its ‘law’ and implement those laws with ‘certainty’. Uncertainty of both the law and procedure, – are the hallmarks of a society where there’s absence of ‘rule of law’ (which is also referred as ‘due process’). Concept of ‘rule of law’ is well guarded in art. 21 of our Constitution. It is important to invoke Court intervention when reason for judicial review (four causes stated above) have occurred and this must be brought to Court’s attention. When the Proper Officer who is to follow the ‘rule of law’ is found to violate these four grounds, then Courts are not reluctant to issue ‘writ’ or a direction. High Court which has powers of judicial review will not go into appreciating evidence or verification of claims, etc. It will only issue writ to the public authority and: A rough test laid down in SL Hegde v. MB Tirumale AIR 1960 SC 137 where it does not take prolonged arguments to bring it (cause for intervention by SC or HC) to the surface. High Courts will reject petitions if it is not found to be maintainable on grounds such as (a) petitioner lacking any locus to approach court (b) availability of alternate remedy (c) mere apprehension of any violation without any real basis and (d) inordinate delay in approaching the court. High Courts have power not only to protect any instance of violation of fundamental rights but also craft a remedy that threatens to be an affront to the ‘rule of law’ that is committed in the Constitution. Recommended Articles –
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