BEST JUDGMENT ASSESSMENT IN SERVICE TAX

[Dr. Sanjiv Agarwal]

Best Judgment Assessment (Section 72)

The provisions of best judgment assessment were omitted w.e.f. 10.09.2004 by the Finance Act, 2004 and reinserted w.e.f. 10.5.2008 by the Finance Act, 2008.

Section 72 provides for best judgment assessment as follows –

If any person, liable to pay service tax –

(a) fails to furnish the return under section 70;

(b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder;

the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

Section 72 authorizes the Central Excise Officer to make assessment according to his best judgment in certain circumstances and after complying with certain conditions. Such a power has to be exercised only when assessee or the person liable to pay service tax fails to –

(a) furnish the return of Service Tax u/s 70, or

(b) furnish the return but fails to assess the tax (self assessment).

Thus, there should be a failure on the part of assessee for (a) or (b) above or both. Such a power of best judgment should be exercised after following the principles of natural justice after allowing assessee an opportunity to represent his case.

Following points are important for best judgment assessment –

(a) Person liable to pay Service Tax should fail to furnish the return or assess the tax.

(b) Power of best judgment assessment should be exercised by Central Excise Officer only and not by any other person below his rank.

(c) Central Excise Officer may require the person on whom best judgment assessment is proposed to produce any accounts, documents or other evidences as he may deem necessary.

(d) Before such assessment, central excise officer should take into account all relevant material available on record and/or evidences gathered by him as aforesaid.

(e) Central excise officer should make assessment of the value of taxable service to the best of his judgment.

(f) Central excise officer shall also determine the sum payable by the assessee or sum refundable to the assessee on the basis of such assessment.

(g) Best judgment assessment order has to be in writing.

(h) Order shall be made only after the person (assessee) has been granted an opportunity of being heard.

It may be noted that best judgment assessment is a method or power given to Central Excise Officer to raise demand on evidence on hand or evidence gathered. The burden of proof to provide information for best judgment assessment is on the person to be assessed.

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 (5) TMI 28 - SUPREME COURT OF INDIA;. Even a best judgment assessment must be made reasonably and not on surmises - Kathyaini Hotels v. ACCT 2002 (1) TMI 1134 - SUPREME COURT OF INDIA.

Though 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 project books of account, he himself has to be blamed for such assessment [Kachwala Gems v. JCIT 2006 (12) TMI 83 - SUPREME COURT ]

Best judgment assessment means that it does not depend on arbitrary caprice. Though there is an element of guess work, it should have reasonable nexus to the available material and circumstance of the case - State of Kerala v. C Velukutty 1965 (12) TMI 32 - SUPREME Court;  [Also see : Brij Bhushan Lal v. ClT 1978 (10) TMI 2 - SUPREME Court; CST v. Shyam Vastra Bhandar (1997) 406 STC 326 (MP-DB); PC Lttymathew v. State of Kerala 1975 (10) TMI 81 - KERALA HIGH COURT; LAbdulla Kunhi Son v. State of Kerala 2000 (10) TMI 927 - KERALA HIGH COURT; Noble Watch Co. v. State of West Bengal 1999 (5) TMI 577 - CALCUTTA HIGH COURT; P P Raju v. State of Kerala 1993 (6) TMI 222 - KERALA HIGH COURT; Kaniampuram Brothers v. State of Kerala-1998 (4) TMI 499 - KERALA HIGH COURT; Shiv Prasad Sahu v. State of Orissa - 2008 (7) TMI 839 - ORISSA HIGH COURT ; Raj Kumar Madhogariav. CTO-2009 (5) TMI 807 - TAXATION TRIBUNAL.].

In N.B.C. Corporation Ltd. v. CST 2014 (1) TMI 151 - DELHI HIGH COURT, it was held that the scope of best judgment assessment is ordinarily understood under Income Tax Act, 1961 and section 72 of Finance Act, 1994 which mandates assessee to appear and furnish books of account, documents and material accordingly assessing officer is required to pass order. Thus, assessment order passed under best judgment assessment was not ex parte order. It will be akin to ex parte order when assessee fails to produce records and assessing officer pass the order on the basis of other information or data available.

In Theodolos Pavlou T/A The Fisherman v. CCE 2003 (7) TMI 681 - UNITED KINGDOM VAT & DUTIES TRIBUNALS, where assessee had not submitted a return, it was held that resorting to best judgment assessment by Department could not be challenged as invalid by the assessee.