Chapter 3: Assessment of Unregistered Persons (Section 63)

In the Goods and Services Tax (GST) regime, registration is a fundamental requirement for entities involved in the supply of goods or services. The law mandates registration to ensure compliance, transparency, and the effective functioning of the tax system.

Generally, a supplier is liable for registration if their aggregate turnover in a financial year exceeds a specified threshold, typically twenty lakh rupees, or ten lakh rupees in special category States or for specific supplies. Beyond turnover, several categories of persons are mandatorily liable for registration, irrespective of their aggregate turnover:

Persons making any inter-State taxable supply.

Casual taxable persons making taxable supplies.

Persons required to pay tax under the reverse charge mechanism.

Non-resident taxable persons making taxable supplies.

Persons required to deduct tax at source (TDS).

Agents supplying goods or services on behalf of other taxable persons.

Input Service Distributors.

Persons taking over a business as a going concern.

Persons registered under existing laws on the appointed day.

Transferees in cases of amalgamation or de-merger, from the date of incorporation certificate.

Conversely, certain entities are generally exempt from registration, such as those exclusively supplying non-taxable or wholly exempt goods or services, and agriculturists to the extent of supplying produce from cultivation.

When a person liable for GST registration fails to obtain it, they contravene the law. In such instances, the GST Act empowers tax authorities to assess the tax liability of these unregistered persons. This process, known as “Assessment of Unregistered Persons,” is governed by Section 63 of the CGST Act.

The assessment process involves several key steps:

Identification of Unregistered Person: A proper officer identifies an individual or entity liable for registration but who has failed to register. This identification can stem from various sources, including intelligence reports, data analysis, or information gathered during other proceedings.

Best Judgment Assessment: The proper officer is authorized to assess the tax liability of such a person to the best of their judgment. This implies that the assessment is not based on precise records provided by the assessee (as they are unregistered and may not have maintained them) but rather on the information available to the officer.

Factors Considered for Best Judgment: To arrive at a fair estimation of tax liability, the proper officer may consider various factors:

The nature and scale of the business operations.

Information from past transactions, if traceable.

Industry benchmarks and averages.

Information obtained from suppliers, customers, or other third parties.

Any other relevant material or information available with the tax authorities.

Opportunity to be Heard: A critical procedural safeguard under Section 63 is that the unregistered person must be given an opportunity to be heard. Before finalizing the assessment and issuing an order, the person being assessed will have a chance to present any evidence, explanations, or arguments. This ensures due process and prevents arbitrary assessments.

Issuance of Assessment Order: After considering all available information and any representations made by the unregistered person, the proper officer issues a formal assessment order. This order quantifies the tax liability, including any applicable interest and penalties, for the period during which the person was liable but remained unregistered.

Tax Payment: The assessment order specifies the amount of tax, interest, and penalties due. The unregistered person is then required to remit the determined tax liability within the period stipulated in the order.

Rectification of Errors: If the assessed person identifies any errors or discrepancies in the assessment order, they retain the right to seek rectification. This typically involves applying to the proper officer for the correction of manifest mistakes in the order.

The assessment of unregistered persons under Section 63 serves as a crucial mechanism to prevent revenue loss due to non-compliance with registration requirements and to integrate such persons into the tax framework.