CGST Section 63 — Assessment of unregistered persons

Section 63 of the CGST Act empowers tax officials to assess the GST liability of individuals or businesses who should have registered for GST but failed to do so, or whose registration was cancelled but who remain liable to pay tax. It allows the tax officer to estimate the tax due based on their best judgment.

This section is primarily applicable to two categories of individuals or businesses:

• Those who were required to register under GST but didn't: This means their turnover exceeded the threshold limit for registration or they were involved in activities mandating compulsory registration, yet they failed to obtain a GSTIN.
• Those whose GST registration was cancelled but who still had tax liabilities: Even if a registration is cancelled (e.g., due to business closure or non-compliance), the individual or business might still be liable for tax on transactions that occurred before the cancellation.

Here are the key conditions and exceptions related to Section 63:

• Best Judgment Assessment: The assessing officer estimates the tax liability to the best of their judgment, using available information and evidence. They aren't bound by the taxpayer's reported (or unreported) data.
• Opportunity of Being Heard: Before issuing an assessment order under Section 63, the proper officer must provide the individual or business an opportunity to be heard. This means they'll receive a notice, allowing them to present their side of the story, provide relevant documents, and challenge the officer's preliminary findings.
• Time Limit: The assessment order must be issued within five years from the date specified under Section 44 for filing the annual return for the financial year to which the unpaid tax relates. This means the tax authorities cannot indefinitely pursue assessments under this section. The date specified under Section 44 is typically 31st December of the year following the financial year.
• Overriding Effect: Section 63 operates notwithstanding Sections 73 or 74 (or 74A). This means that it can be invoked even if the procedures outlined in sections dealing with demands and recovery of tax are not fully followed in certain circumstances.

Let's illustrate with a few practical examples:

• Example 1: A small retail business crosses the GST registration threshold but neglects to register. After a year, the tax authorities discover this and, using sales data from suppliers and market surveys, estimate the business's turnover and GST liability. Before issuing the final order, the business owner will receive a notice and a chance to present their own sales records and defend their position.
• Example 2: A catering service registered under GST closes down. However, they failed to pay GST for the last two months of operation. Even after cancellation of their registration, the tax officer can assess the unpaid tax liability for those two months under Section 63.
• Example 3: An e-commerce seller operating through various platforms failed to register despite exceeding the aggregate turnover threshold. The tax authorities may use data obtained from the e-commerce operators to determine the seller's tax liability and initiate assessment proceedings under section 63.

Amendment History

The Finance Act (No. 2), 2024 inserted "or section 74A" into Section 63. Section 74A deals with cases where tax is not paid or short paid or input tax credit is wrongly availed or utilized by reason of fraud etc. Section 63 can now be applied even if the procedures outlined in section 74A are not fully followed.

In conclusion, Section 63 is a crucial tool for the tax authorities to ensure compliance and recover tax from those who avoid or evade GST registration. Business owners need to be aware of the registration requirements and ensure they are compliant. If faced with an assessment under Section 63, it's crucial to cooperate with the tax authorities, present relevant information, and exercise the right to be heard to ensure a fair and accurate assessment of tax liability.