Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Assessment and Audit under CGST Act, 2017

Word “Assessment” has been defined in Section 2(11) of the CGST Act, 2017. As per Section 2(11), Assessment means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment.

In simple words, ‘Assessment’ is estimation of tax liability of a registered person i.e., the amount of tax payable on the value of goods or services or both supplied by him.

In the GST Regime, every person registered under the Act shall himself assess the tax liability payable by him for a tax period and after such assessment he shall file the return required u/s 39. This system of Self-assessment facilitates easy calculation and payment of taxes. GST continues to promote self-assessment just like the Excise, VAT and Service Tax under current tax regime.

Table of Contents

1.   Self-Assessment [Section 59 of the CGST Act, 2017]

Every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39.

2.   Provisional Assessment [Section 60 of the CGST Act, 2017]

Provisional Assessment is carried out in cases where a taxable person is unable to determine his value of supplies or rate of tax applicable thereto. In such case tax liability is discharged on provisional basis subject to finalisation of assessment by the department. Once assessment is finalised, the taxable person becomes liable to pay the difference or, as the case may be, gets entitled for refund. Concept of provisional assessment was present in the Earlier Indirect Tax Regime (i.e., Pre-GST Regime) as well.

(1)   Payment of Tax Liability on Provisional Basis [Section 60(1)]

Subject to the provisions of sub-section (2), where the taxable person is unable to determine the value of goods or  services or both 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 shall pass an order, within a period not later than ninety days  from the date of receipt of such request, allowing payment of tax on provisional basis at such rate or on such value as may be  specified by him.

(2)   Execution of Bond with Surety or Security [Section 60(2)]

The payment of tax on provisional basis may be allowed, if the taxable person executes a bond in such form as may be prescribed, 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.

(3)   Finalisation of Provisional Assessment [Section 60(3)]

The proper officer shall, within a period not exceeding six months from the date of the communication of the order issued under sub-section (1), pass the final assessment order after taking into account such information as may be required for finalizing the assessment:

Provided that 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 Commissioner or Additional Commissioner for a further period not exceeding six months and by the Commissioner for such further period not exceeding four years.

(4) Liability to Pay Interest under Provisional Assessment [Section 60(4)]

The registered person shall be liable to pay interest on any tax payable on the supply of goods or services or both under  provisional assessment but not paid on the due date specified under sub-section (7) of section 39 or the rules made  thereunder, at the rate specified under sub-section (1) of section 50, from the first day after the due date of payment of tax in  respect of the said supply of goods or services or both till the date of actual payment, whether such amount is paid before or  after the issuance of order for final assessment.

(5) Interest on Refund Consequent to Finalisation of Provisional Assessment [Section 60(5)]

Where the registered person is entitled to a refund consequent to the order of final assessment under sub-section (3), subject to the provisions of sub-section (8) of section 54, interest shall be paid on such refund as provided in section 56.

3.   Scrutiny of Returns [Section 61 of the CGST Act, 2017]

(1) Communication of Discrepancy Found in Scrutiny and Seeking Explanation Thereto [Section 61(1)]

The proper officer may scrutinize the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed, if any, in such manner as may be prescribed and seek his explanation thereto.

(2) No Further Action is required if Explanation found to be satisfactory [Section 61(2)]

In case the explanation is found acceptable, the registered person shall be informed accordingly and no further action shall be taken in this regard.

(3) Failure to Furnish Satisfactory Explanation or Failure to Take Corrective Measure in Return after Discrepancy is Accepted [Section 61(3)]

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 registered person, after accepting the discrepancies, fails to take  the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues  under section 73 or section 74.

See also  Payment of GST in GST Regime

4.   Assessment of Non-filers of Returns [Section 62 of the CGST Act, 2017]

(1) Best Judgment Assessment upon Failure to Furnish Periodical Return or Final Return [Section 62(1)]

Notwithstanding anything to the contrary contained in section 73 or section 74, where a registered person fails to furnish  the return under section 39 or section 45, even after the service of a notice under section 46, the proper officer may proceed to  assess the tax liability of the said person to the best of his judgement taking into account all the relevant material which is  available or which he has gathered 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.

(2) Withdrawal of Best Judgment Assessment Order upon Filing of Valid Return within 30 Days [Section 62(2)]

Where the registered person furnishes a valid return within thirty days of the service of the assessment order under subsection (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under sub-section (1) of section 50 or for payment of late fee under section 47 shall continue.

5.   Assessment of Unregistered Persons [Section 63 of the CGST Act, 2017]

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  judgment 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.

6.   Summary Assessment in certain Special Cases [Section 64 of the CGST Act, 2017]

The proper officer may, on any evidence showing a tax liability of a person coming to his notice, with the previous permission of Additional Commissioner or Joint Commissioner, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order, if he has sufficient grounds to believe that any delay in doing so may adversely affect the interest of revenue:

Provided that where the taxable person to whom the liability pertains is not ascertainable and such liability pertains to supply of goods, the person in charge of such goods shall be deemed to be the taxable person liable to be assessed and liable to pay tax and any other amount due under this section.

(1)   Withdrawal of Order Passed u/s 64(1) and Determination of Liability under section 73 or 74 [Section 64(2)]

On an application made by the taxable person within thirty days from the date of receipt of order passed under subsection (1) or on his own motion, if the Additional Commissioner or Joint Commissioner considers that such order is erroneous, he may withdraw such order and follow the procedure laid down in section 73 or section 74.

7.   Audit by Tax Authorities [Section 65 of the CGST Act, 2017]

Tax liability on supply of goods or services or both is computed by a registered person under self-assessment scheme of the Act. In order to ensure whether the Tax liability has been correctly computed and discharged by the registered person, it becomes essential for the Department to conduct an audit of Records maintained by the person.

(1) Power with the Commissioner to Undertake Audit of any Registered Person [Section 65(1)]

The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed.

(2) Option to conduct Audit at Place of Business or in Office of the Commissioner or Authorised Officer [Section 65(2)]

The officers referred to in sub-section (1) may conduct audit at the place of business of the registered person or in their office.

(3) Prior Intimation to the Registered Person to Conduct Audit at a Future Date [Section 65(3)]

The registered person shall be informed by way of a notice not less than fifteen working days prior to the conduct of audit in such manner as may be prescribed.

(4) Time Limit for Completion of Audit [Section 65(4)]

The audit under sub-section (1) shall be completed within a period of three months from the date of commencement of the audit:

Provided that where the Commissioner is satisfied that audit in respect of such registered person cannot be completed within three months, he may, for the reasons to be recorded in writing, extend the period by a further period not exceeding six months.

Explanation. —For the purposes of this sub-section, the expression “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 registered person or the actual institution of audit at the place of business, whichever is later.

(5) Duty of the Registered Person to Afford Necessary Facility, Information and Assistance to the Authorised Officer [Section 65(5)]

During the course of audit, the authorised officer may require the registered person, —

(i) to afford him the necessary facility to verify the books of account or other documents as he may require;

(ii) to furnish such information as he may require and render assistance for timely completion of the audit.

(6) Communication of Findings of Audit, Rights & Obligations of Registered Person on Completion of Audit [Section 65(6)]

On conclusion of audit, the proper officer shall, within thirty days, inform the registered person, whose records are audited, about the findings, his rights and obligations and the reasons for such findings.

(7) Initiation of Action under section 73 or 74 in certain cases [Section 65(7)]

Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.

8.   Special audit [Section 66 of the CGST Act, 2017]

(1) Who is Authorised to Direct Special Audit and When such Direction can be made? [Section 66(1)]

If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not below the rank of  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 registered person by a communication 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.

See also  Taxability - Income from Other Sources [Sections 56 to 59]

(2) Time Limit for Completing Special Audit and Extension thereof [Section 66(2)]

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 Assistant Commissioner mentioning therein such other particulars as may  be specified:  Provided that the Assistant Commissioner may, on an application made to him in this behalf by the registered person or  the chartered accountant or cost accountant or for any material and sufficient reason, extend the said period by a further  period of ninety days.

(3) Special Audit May be Directed Even if Accounts are Audited under Any Other Law [Section 66(3)]

The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the registered person have been audited under any other provisions of this Act or any other law for the time being in force.

(4) Registered Person Must be Given Opportunity of Being Heard Prior to Using any Finding of Special Audit Against Him [Section 66(4)]

The registered person shall be given an opportunity of being heard in respect of any material gathered on the basis of special audit under sub-section (1) which is proposed to be used in any proceedings against him under this Act or the rules made thereunder.

(5) Expenses of Special Audit including Remuneration of Auditor to be Determined and Paid by the Commissioner [Section 66(5)]

The expenses of the examination and audit of records under sub-section (1), including the remuneration of such chartered accountant or cost accountant, shall be determined and paid by the Commissioner and such determination shall be final.

(6) Initiation of Demand & Recovery u/s 73 or 74 where Special Audit Results in Detection of Tax Liability [Section 66(6)]

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 wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.

Some important FAQs released by CBEC on 31.3.2017

1.  Who is the person responsible to make assessment of taxes payable under the Act? [Question No. 1 of FAQ’s]

Ans. Every person registered under the Act shall himself assess the tax payable by him for a tax period and after such assessment he shall file the return required under section 39.

2.. When can a taxable person pay tax on a provisional basis? [Question No. 2 of FAQ’s] 

Ans. As a taxpayer has to pay tax on self-assessment basis, a request for paying tax on provisional basis has to come from the taxpayer which will then have to be permitted by the proper officer. In other words, no tax officer can suo-moto order payment of tax on provisional basis. This is governed by section 60 of CGST/SGST Act. Tax can be paid on a provisional basis only after the proper officer has permitted it through an order passed by him. For this purpose, the taxable person has to make a written request to the proper officer, giving reasons for payment of tax on a provisional basis. Such a request can be made by the taxable person only in such cases where he is unable to determine:

(a)        the value of goods or services to be supplied by him, or

(b)        determine the tax rate applicable to the goods or services to be supplied by him.

In such cases the taxable person has to execute a bond in the prescribed form and with such surety or security as the proper officer may deem fit.

3. What is the latest time by which final assessment is required to be made? [Question No. 3 of FAQ’s]

Ans. The final assessment order has to be passed by the proper officer within six months from the date of the communication of the order of provisional assessment. However, on sufficient cause being shown and for reasons to be recorded in writing, the above period of six months may be extended:

(a)     by the Joint/Additional Commissioner for a further period not exceeding six months, and

(b)        by the Commissioner for such further period as he may deem fit not exceeding fours.

Thus, a provisional assessment can remain provisional for a period of maximum of five years.

4. Where the tax liability as per the final assessment is higher than in provisional assessment, will the taxable person be liable to pay interest? [Question No. 4 of FAQ’s]

Ans. Yes. He will be liable to pay interest from the date the tax was due to be paid originally till the date of actual payment.

5. What recourse may be taken by the officer in case proper explanation is not furnished for the discrepancy detected in the return filed, while conducting scrutiny under section 61 of CGST ACT? [Question No. 5 of FAQ’s]

Ans. If the taxable person does not provide a satisfactory explanation within 30 days of being informed (extendable by the officer concerned) or after accepting discrepancies, fails to take corrective action in the return for the month in which the discrepancy is accepted, the Proper Officer may take recourse to any of the following provisions:

(a)        Proceed to conduct audit under Section 65 of the Act;

(b)     Direct the conduct of a special audit under Section 66 which is to be conducted by a Chartered Accountant or a Cost Accountant nominated for this purpose by the Commissioner; or

(c)      Undertake procedures of inspection, search and seizure under Section 67 of the Act; or

(d)     Initiate proceeding for determination of tax and other dues under Section 73 or 74 of the Act.

6. If a taxable person fails to file the return required under law (under section 39 (monthly/quarterly), or 45 (final return), what legal recourse is available to the tax officer? [Question No. 6 of FAQ’s]

Ans. The proper officer has to first issue a notice to the defaulting taxable person under section 46 of CGST/ SGST Act requiring him to furnish the return within a period of fifteen days. If the taxable person fails to file return within the given time, the proper officer shall proceed to assess the tax liability of the return defaulter to the best of his judgement taking into account all the relevant material available with him – Section 62.

7. Under what circumstances can a best judgment assessment order issued under section 62 be withdrawn? [Question No. 7 of FAQ’s]

Ans. The best judgment order passed by the Proper Officer under section 62 of CGST/SGST Act shall automatically stand withdrawn if the taxable person furnishes a valid return for the default period (i.e., files the return and pays the tax as assessed by him), within thirty days of the receipt of the best judgment assessment order.

8. What is the time limit for passing assessment order u/s 62 (Best Judgment) and 63 (non-filers)? [Question No. 8 of FAQ’s]

Ans. The time limit for passing an assessment order under section 62 or 63 is five years from the due date for furnishing the annual return.

9. What is the legal recourse available in respect of a person who is liable to pay tax but has failed to obtain registration? [Question No. 9 of FAQ’s]

Ans. Section 63 of CGST/SGST Act provides that in such a case, the proper officer can assess the tax liability and pass an order to his best judgment for the relevant tax periods. However, such an order must be passed within a period of five years from the due date for furnishing the annual return for the financial year to which non-payment of tax relates.

10. Under what circumstances can a tax officer initiate Summary Assessment? [Question No. 10 of FAQ’s]

See also  “Income from House Property” [Section 22 to 27]

Ans. As per section 64 of CGST/SGST Act, Summary Assessments can be initiated to protect the interest of revenue when:

(a)     the proper officer has evidence that a taxable person has incurred a liability to pay tax under the Act, and

(b)     the proper officer believes that delay in passing an assessment order will adversely affect the interest of revenue.

Such order can be passed after seeking permission from the Additional Commissioner/Joint Commissioner.

11. Other than appellate remedy, is there any other recourse available to the taxpayer against a summary assessment order? [Question No. 11 of FAQ’s]

Ans. A taxable person against whom a summary assessment order has been passed can apply for its withdrawal to the jurisdictional Additional/Joint Commissioner within thirty days of the date of receipt of the order. If the said officer finds the order erroneous, he can withdraw it and direct the proper officer to carry out determination of tax liability in terms of section 73 or 74 of CGST/SGST Act. The Additional/Joint Commissioner can follow a similar course of action on his own motion if he finds the summary assessment order to be erroneous (section 64 of CGST/SGST Act).

12. Is summary assessment order to be necessarily passed against the taxable person? [Question No. 12 of FAQ’s]

Ans. No. In certain cases, like when goods are under transportation or are stored in a warehouse, and the taxable person in respect of such goods cannot be ascertained, the person in charge of such goods shall be deemed to be the taxable person and will be assessed to tax (proviso to Section 64 of CGST/SGST Act).

13. Who can conduct audit of taxpayers? [Question No. 13 of FAQ’s]

Ans. There are three types of audits prescribed in the GST Act(s) as explained below:

(a)     Audit by Chartered Accountant or a Cost Accountant: Every registered person whose turnover exceeds the prescribed limit, shall get his accounts audited by a chartered accountant or a cost accountant. (Section 35(5) of the CGST/SGST Act)

(b)     Audit by Department: The Commissioner or any officer of CGST or SGST or UTGST authorized by him by a general or specific order, may conduct audit of any registered person. The frequency and manner of audit will be prescribed in due course. (Section 65 of the CGST/SGST Act)

(c)      Special Audit: If at any stage of scrutiny, inquiry, investigations or any other proceedings, if department is of the opinion that the value has not been correctly declared or credit availed is not within the normal limits, department may order special audit by chartered accountant or cost accountant, nominated by department. (Section 66 of the CGST/SGST Act)

14. Whether any prior intimation is required before conducting the audit? [Question No. 14 of FAQ’s]

Ans. Yes, prior intimation is required and the taxable person should be informed at least 15 working days prior to conduct of audit.

15. What is the period within which the audit is to be completed? [Question No. 15 of FAQ’s]

Ans. The audit is required to be completed within 3 months from the date of commencement of audit. The period is extendable for a further period of a maximum of 6 months by the Commissioner.

16. What is meant by commencement of audit? [Question No. 16 of FAQ’s]

Ans. The term ‘commencement of audit’ is important because audit has to be completed within a given time frame in reference to this date of commencement. Commencement of audit means the later of the following:

(a)     the date on which the records/accounts called for by the audit authorities are made available to them, or

(b)        the actual institution of audit at the place of business of the taxpayer.

17. What are the obligations of the taxable person when he receives the notice of audit? [Question No. 17 of FAQ’s]

Ans. The taxable person is required to:

(a)     facilitate the verification of accounts/records available or requisitioned by the authorities,

(b)     provide such information as the authorities may require for the conduct of the audit, and

(c)        render assistance for timely completion of the audit.

18. What would be the action by the proper officer upon conclusion of the audit? [Question No. 18 of FAQ’s]

Ans. The proper officer shall, on conclusion of audit, within 30 days inform the taxable person about his findings, reasons for findings and the taxable person’s rights and obligations in respect of such findings.

19. Under what circumstances can a special audit be instituted? [Question No. 19 of FAQ’s]

Ans. A special audit can be instituted in limited circumstances where during scrutiny, investigation, etc. it comes to the notice that a case is complex or the revenue stake is high. This power is given in section 66 of CGST /SGST Act.

20. Who can serve the notice of communication for special audit? [Question No. 20 of FAQ’s]

Ans. The Assistant/Deputy Commissioner is to serve the communication for special audit only after prior approval of the Commissioner.

21. Who will do the special audit? [Question No. 21 of FAQ’s]

Ans. A Chartered Accountant or a Cost Accountant so nominated by the Commissioner may undertake the audit.

22. What is the time limit to submit the audit report? [Question No. 22 of FAQ’s]

Ans. The auditor will have to submit the report within 90 days or within the further extended period of 90 days.

23. Who will bear the cost of special audit? [Question No. 23 of FAQ’s]

Ans. The expenses for examination and audit including the remuneration payable to the auditor will be determined and borne by the Commissioner.

24. What action the tax authorities may take after the special audit? [Question No. 24 of FAQ’s]

Ans. Based on the findings/observations of the special audit, action can be initiated under Section 73 or Section 74 of the CGST/SGST Act.

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