PROVISIONAL ASSESSMENT IN GST

[Dr. Sanjiv Agarwal]

Statutory provisions (Section 60)

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) 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) 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) 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) 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.

Need for provisional assessment

A supplier will come to know the extent of his tax liability which has to be discharged on a continuous and regular basis only after assessment. Assessment means determination of tax liability and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment. The major determinants of the tax liability are generally the applicable tax rate and the value. There might be situations when these determinants might not be readily ascertainable and may be subject to the outcome of a process that requires deliberation and time. Hence like under the previous laws, when due to various circumstances it might not be always possible, at that point of time, to carry out an assessment and determine the exact duty liability, the GST law also provides for provisional assessment.

The Assistant Commissioner/Deputy Commissioner of Central Tax provisionally determines the amount of tax payable by the supplier and is subject to final determination. On provisional assessment, the supplier can pay tax on provisional basis but only after he executes a bond with security, binding them for payment of the difference between the amount of tax as may be finally assessed and the amount of tax provisionally assessed. On finalization of the provisional assessment, any amount that has been paid on the basis of such assessment is to be adjusted against the amount that has been finally determined as payable. In case of short payment, the same has to be paid with interest and incase of excess payment, the same will be refunded with interest.

Provisional assessment provides a method for determining the tax liability in case the correct tax liability cannot be determined at the time of supply. The payment of provisional tax is allowed only against a bond and security. The provisional assessment has to be finalized within six months unless extended. On finalization, the tax liability can either be more or less as compared to the provisionally paid tax. In case of increase in the tax liability, the difference is payable along with interest and in case of decrease in the tax liability the amount will be refunded with interest.

When can provisional assessment be resorted to

For determination of taxes correctly, the taxable person needs to know the correct taxable value of goods and/or services supplied by him and correct rate of tax applicable on the supply of such goods and/or services. In case the taxable person is unable to correctly determine the taxable value and/or the rate of tax to be applied on such value. As provided in section 60(1) of the CGST Act, 2017, such taxable person has the option to apply to proper officer under GST for permitting him to determine and deposit the tax on provisional basis. In his request to the proper officer, such taxable person is required to detail the reasons for payment of tax on provisional basis and the application needs to be made on common portal.

A provisional assessment can thus be resorted to in the following situations:

(a)   Value of supply cannot be determined by the taxable person, viz., there is difficulty about:

(i)    Transaction value to be adopted for determination of tax payable,

(ii)   Inclusion or exclusion of any receipts in the value of supply.

(b)   Rate of tax applicable on the supply cannot be determined by the taxable person, viz., there is difficulty about:

(i)    Classification of the goods and/or services under the relevant Schedule,

(ii)   Eligibility to any exemption notification or compliance with conditions associated with such exemption.

Therefore, provisional assessment can be invoked by a taxable person by making a request/application to the assessing officer and such request can be made only under the following two circumstances:

(a)   if he is not able to determine the value of the supplies, or

(b)   if he is not certain about the tax rate applicable to such supplies.

Steps in provisional assessment

The following steps are required to be followed for provisional assessment:

• Requests for provisional assessments to be given in writing
• Proper officer can allow paying tax on provisional basis at a rate or on a value or on both specified by him.
• Order to be passed within 90 days from date of request.
• Taxable person has to issue a bond with a security promising to pay the difference between provisionally assessed tax and final assessed tax.
• The proper officer can ask for further information before final assessment.
• Provisional assessments will be followed by final assessment.
• Issuance of order

Request to Proper officer to assess the amount of tax payable by the taxable person

As provided in section 60(1) of the CGST Act, 2017, the request for provisional assessment has to be made by the registered taxable person to the proper officer in Form GST ASMT 01 on the common portal. On that request proper officer will determine the genuineness of such request and allow the same to taxable person. The proper officer in his own initiative will not order for provisional assessment.

Application for provisional assessment

A taxable person requesting the proper officer for provisional assessment needs to make an application on common portal giving the following details:

(a)   Grounds or reasons for non determination of tax correctly together with relevant documents or information in this regard.

(b)   Period desired for provisional assessment.

(c)   The rate of tax or the taxable value proposed to be applied by taxable person in his provisional assessment.

(d)   An undertaking to appear before the proper officer on the date and time fixed by such officer along with documents and information as may be required by proper officer for arriving at the final assessment of value and/or the rate of tax.

For provisional assessment, a request needs to be made to proper officer for filing return on provisional basis. In case the taxable person furnishes the return on self assessment basis, he foregoes the right to make an application for permission to furnish return and pay tax on provisional basis.

Requirement of Execution of bond with surety

Section 60(2) of CGST Act, 2017 provides about requirement of executing a bond in Form GST ASMT 05 with security on such terms and conditions as may be approved by proper officer. As far as the requirement of bond is concerned, the proper authority has no discretion in this regard to waive off the requirement of executing a bond.

However, the amount of security shall be decided by proper officer as he may deem fit in the circumstances of each case. He may decide not to take any security. So executing a bond is compulsory in provisional assessment but not the requirement of security.

Rule 98(3) of CGST Rules, 2017, in this regard provides that proper officer shall consider and decide the amount of security to be furnished, the amount of which will not exceed 25% of the amount covered under bond. Rule 98(4) of CGST Rules, 2017 provides that the security will be in the form of bank guarantee of the amount as determined in rule 98(3) of CGST Rules, 2017.

Details and conditions which may be prescribed by proper officer

The proper officer on being satisfied about the genuineness of the assessee’s request, the payment of tax on provisional basis may be allowed to the taxable person on his request. The order of permission will be issued by proper officer containing the following details:

(a)   The grounds on which provisional assessment has been permitted.

(b)   The value and the rate of tax which needs to be applied during the permitted period.

(c)   Period of permission of provisional assessment.

(d)   Execution of a bond by taxable person in such form and manner and for the amount of differential amount.

(e)   The amount of surety or security to be furnished by taxable person.

Time limit for finalisation of provisional assessment

As provided in section 60(3) of the CGST Act, 2017, time period of 6 months from the date of communication of order permitting payment on provisional basis has been prescribed for passing of final order of assessment by the proper officer.

The period of six months may be extended by the Additional/Joint Commissioner, if sufficient cause is shown that the order cannot be finalized in six month and such extension will be for a period not exceeding six months. The Commissioner may extend this period (after the first extension) to such further period not exceeding four years that he may deem fit.

Authority	Extension period
Additional/Joint Commissioner	For further period of 6 months
Commissioner	For further period not exceeding four years

Consequences of Provisional Assessment

The consequences on conclusion of the provisional assessment by way of passing final assessment order can be as follows:

1. Excess remittance of tax on provisional basis: In case of excess remittance of taxes in terms of final assessment order, the registered person is entitled to refund of such excess remittance in the manner as provided in Section 54(8) of CGST Act, 2017 along with interest as provided under Section 56 of CGST Act, 2017.
2. Additional tax liability: In case of short remittance of taxes in terms of final assessment order, the additional tax liability, if any should be remitted along with interest at the rate prescribed under Section 50(1) of the CGST Act, 2017 for delay in remittance of taxes viz., from the first day after the due date of remittance of taxes as prescribed under Section 39(7) of CGST Act, 2017 till the date of actual payment.

Consequences of short/excess payment

As provided in sub-section (4) of section 60 of the CGST Act, 2017, in case where provisional assessment has been permitted by the proper officer, the final assessment of tax done by proper officer results into short/excess payment than the provisional payment made by the taxable person.

The taxable person would be liable for the payment of any short payment so determined along with interest at the applicable rate of interest from the first day of due date of payment of such tax to the date of actual payment. Similarly, in case final order results in determination of excess tax paid by the taxable person, such taxable person would be entitled to seek refund of such excess payment in accordance with refund rules of the Act.

Example:

For the month of June, 2021, M/s. Ram and Co. made provisional payment of tax amounting to INR 5 lakhs. In the month of September, 2021, the proper officer determined tax of INR 7 lakhs payable by Ram and Co. for the month of June, 2021. The difference amount of tax of INR 2 lakhs would be payable by Ram and Co. along with interest from 20^th July to the date of actual payment.

Under sub-section (4) of section 60 of CGST Act, 2017, interest is liable to be paid on tax payable as quantified in provisional assessment but not paid as required by section 39(7) of CGST Act, 2017 for the period from 1^st day after due date till actual date of payment. Further, interest would be payable whether such amount is paid before or after the issuance of final assessment order.

In case of refund, as a result of final assessment order, the refund shall be subject to section 54(8) and 56 of CGST Act, 2017.  Section 54(8) of CGST Act, 2017 provides that refundable amount may be paid to the appellant in certain situations. Section 56 of CGST Act, 2017 provides for interest for delayed refunds.

Interest on Additional Tax Payable and Refunds

• The tax payer will have to pay interest on any tax payable under provisional assessment which was not paid within the due date.
• Interest period will be calculated from the day when tax was first due on the goods/services (and not the date of provisional assessment) till the actual payment date, irrespective of payment being before or after final assessment.
• Rate of interest will be maximum 18%.
• If the tax as per final assessment is less than provisional assessment then the taxable person will get a refund. He will also get interest on refund.
• Rate of interest will be maximum 9% on refund.

Forms to be issued

According to rule 98 of CGST Rules, 2017, following forms are required to be used for various purposes and are to be filed online:

S.No.	Form No.	Purpose
	GST ASMT-01	Application by registered person for provisional assessment
	GST ASMT-02	Notice by proper officer for additional information
	GST ASMT-03	Reply by registered person of ASMT-02
	GST ASMT-04	Provisional assessment order by proper officer
	GST ASMT-05	Execution of bond and security by registered person
	GST ASMT-06	Notice by proper officer for finalization of assessment
	GST ASMT-07	Issue of final assessment order by proper officer
	GST ASMT-08	Application by registered person for release of security
	GST ASMT-09	Order by proper officer for release of security

Applicable Rules

Rule 98 of the CGST Rules, 2017 provide for manner and procedure for provisional assessment under section 60 of the CGST Act, 2017 which inter-alia, contain the following :

Sub-rule	Providing for
1	Provides for manner of application for provisional assessment along with documents as per sub-section (1).
2	Provides for manner of issuing notice on receipt of application and seeking additional information by proper officer. Provides for the manner in which reply to notice issued under sub-rule (2) has to be given by registered person.
3	Provides for issuance of provisional assessment order indicating the amount of tax payable on provisional basis and also the amount for which bond and security may be furnished by registered person.
4	Provides for the manner in which registered person shall execute bond and furnish security / bank guarantee.
5	Provides for the manner of issuance of notice by proper officer for seeking information / records for final assessment and issuance of final order indicating the amount payable or amount refundable.
6	Provides for manner of filing application by registered person for applying for release of security.
7	Provides for release of security to the registered person after ensuring that full payment has been made within seven days of its application.

Following judicial pronouncements in relation to provisional assessment under central excise, service tax and GST may be relevant:

• In COLLECTOR OF C. EX. VERSUS PHARMASIA PVT. LTD. [1988 (6) TMI 256 - CEGAT, NEW DELHI], it was held that provisional assessment was effective only in respect of goods under clearance and not those already cleared. Past clearances was to be treated as provisionally assessed only when goods were assessed provisionally and there was no question of treating past clearances as provisionally assessed, otherwise.

• In WINDOW GLASS LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, CALCUTTA [1988 (10) TMI 154 - CEGAT, NEW DELHI], assessment had been made provisionally under Rule 9B of the Central Excises and Salt Act, 1944 at assessee’s request and on the strength of provisional duty bond executed by them, when the assessment was provisional, it was held that differential duty demand, made on provisional basis has to be finalized eventually and adjustment of duty limitation starts only from the date after finalization of provisional assessment The demand issued were, therefore, not time-barred, even if the normal time limit of six months were to be applied.

• In COLLECTOR OF CENTRAL EXCISE VERSUS P. MT MACHINE TOOLS [1991 (3) TMI 163 - CEGAT, NEW DELHI], once the assessment was provisional, it was held that it was provisional for all purposes. [Also see: KERALA ELECTRIC LAMP WORKS LTD. AND ANOTHER VERSUS COLLECTOR OF CENTRAL EXCISE, COCHIN AND ANOTHER - 1987 (11) TMI 197 - CEGAT, NEW DELHI].

• In PROJECTS DEVELOPMENT INDIA LTD. VERSUS COLLECTOR OF CUSTOMS [1989 (4) TMI 236 - CEGAT, CALCUTTA], it was held that there is a requirement for making final assessment before raising the demand on the assessee. [Also see: UNION OF INDIA VERSUS GODREJ & BOYCE MFG. CO. PVT. LTD. - 1989 (5) TMI 204 - BOMBAY HIGH COURT].

• In COLLECTOR OF CENTRAL EXCISE, PATNA VERSUS ITC. LIMITED [1994 (2) TMI 62 - SUPREME COURT], it was held that before finalization of provisional assessment, assessee should be given an opportunity of personal hearing especially in such cases where because of finalization, the assessee would be burdened with additional demand of service tax.

• In PONDS (INDIA) LTD. VERSUS ASSISTANT COLLR. OF C. EXCISE, MADRAS-V DIVISION [1994 (7) TMI 95 - MADRAS HIGH COURT], it was held that Section 11A of Central Excises & Salt Act, 1944 was not invocable at the stage of finalisation of provisional assessment but invocable only after finalisation of assessment and under the circumstances stated in that section. Therefore, reference to Section 11A in the show cause notice which was for finalisation of the assessment was inappropriate and impermissible. It was also held that before taking up adjudication of the show cause notice issued for finalisation of assessments, the Assistant Collector had to settle the price list first.

• In ORIENT PAPER & INDUSTRIES LTD. VERSUS SUPERINTENDENT, C. EX., JHARSUGUDA [1995 (7) TMI 86 - ORISSA HIGH COURT], it was held that provisional assessments were subject to appeal by an aggrieved party.

• In METAL FORGINGS VERSUS UNION OF INDIA [2002 (11) TMI 90 - SUPREME COURT], it was held that order classifying goods not to be treated provisional merely because appeal or other proceedings questioning correctness of said order are pending. Clearances to be made during pendency of appeal. Revision is not to be treated as provisional and to establish that clearances were on provisional basis, an order under Rule 9B of erstwhile Central Excise Rules, 1944 and clearances/payment of duty on provisional basis, was essential.

It was also held that it is a settled position in law that unless and until there is a specific injunction/stay granted by a competent court which restrains an authority, from issuing the required notice, merely because some interim order is made, the authorities empowered to issue such notice cannot refrain from issuing the required notice within the period of limitation nor can they plead the existence of such interim order as a defence against the plea of limitation.

It was also held that order of the assistant collector determining classification was to be considered to be the final order. Hence, mere filing of appeal against such order does not make subsequent clearances as made on provisional basis, so there could not be invocation of time limit. [In Case of SAMRAT INTERNATIONAL (P) LTD. VERSUS COLLECTOR OF CENTRAL EXCISE [1990 (9) TMI 106 - SUPREME COURT] was distinguished, COASTAL GASES & CHEMICALS PVT. LTD. VERSUS ASSTT. CCE., VISAKHAPATNAM [1977 (4) TMI 41 - SUPREME COURT] followed].

• In VALERIUS INDUSTRIES VERSUS UNION OF INDIA [2019 (9) TMI 618 - GUJARAT HIGH COURT], the court observed that the order of provisional attachment before the assessment order is made, may be justified if the assessing authority or any other authority empowered in law is of the opinion that it is necessary to protect the interest of revenue. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far fetching, which would warrant the formation of the belief.

Power of provisional attachment under section 83 should be exercised by authority only if there is a reasonable apprehension that assessee may default the ultimate collection of demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution. Further, power under section 83 for provisional attachment should be exercised only if there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of wholly or any part of his/her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective. Also, the power under section 83 should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. The attachment of bank account and trading assets should be resorted to only as a last resort or measure. The provisional attachment under section 83 should not be equated with the attachment in the course of the recovery proceedings.

•   In M/S SANGEETHA JEWELLERY VERSUS THE STATE TAX OFFICER, S.G.S.T. DEPARTMENT ADIMALI. IDUKKI [2019 (3) TMI 1692 - KERALA HIGH COURT], where the assessee filed a writ petition challenging the constitutional validity of Section 174 of the Central Kerala Goods and Services Tax Act, 2017 and order of assessment, on the grounds of limitation and the Single Judge of the Kerala High Court had dismissed the writ petition relying on a common judgment passed by the Kerala High Court in the case of M/S. SHEEN GOLDEN JEWELS (INDIA) PVT. LTD. VERSUS THE STATE TAX OFFICER (IB) -1, AND OTHERS [2019 (2) TMI 300 - KERALA HIGH COURT] without considering the assessee's contentions on limitation, the matter was ordered to be remanded to Single Judge for considering the ground of limitation made against the assessment.

• In URBANCLAP TECHNOLOGIES INDIA PVT LTD, VERSUS STATE TAX OFFICER, CHENNAI, JOINT COMMISSIONER (ST, INTELLIGENCE- II CHENNAI-, STATE TAX OFFICER, COMMISSIONER OF COMMERCIAL TAXES, CHEPAUK CHENNAI [2020 (9) TMI 206 - MADRAS HIGH COURT], three orders of assessment, all dated 14.02.2020, passed in terms of the provisions of the Central Goods and Services Tax, 2017 for the periods 2017-18 to 2019-20 were challenged. The main ground agitated and argued was the violation of the principles of natural justice. It was contended by the respondent that effective opportunity, as urged, does not appear to have been extended to the petitioner insofar as personal hearing notice was issued on 13.02.2020 listing the matter for hearing on 14.02.2020, the very next day and the impugned orders have been passed on the same day.

It was held that the Assessing Officer, in all fairness, should wait till the end of the working day when the personal hearing was fixed, before finalizing the assessment. Finalization of assessment on the same day when the matter was listed for hearing would militate against the requirement of natural justice. The court directed that the notice be issued afresh to the petitioner to enable them to appear and make their submissions and let orders be passed within eight (8) weeks from the date of the first hearing, following law. The impugned order was set aside and the petition disposed of.

Discussions to this article

[Ganeshan Kalyani]

Very informative article. Thanks.