Assessment of Unregistered Persons – Section 63 of GST

Introduced as part of the CGST Act, 2017, Section 63 deals with the assessment of unregistered persons who are liable to pay tax under GST but have either failed to obtain registration or whose registration has been cancelled. This provision plays a critical role in ensuring compliance and bringing such defaulters into the tax net.

What is Section 63 of the CGST Act?

Section 63 empowers the proper officer under the GST law to assess the tax liability of unregistered persons who are liable to be registered but have not done so, or whose registration has been cancelled under Section 29(2) but who were still liable to pay tax.

This assessment is commonly known as a best judgment assessment, where the officer assesses the tax liability based on available information.

Key Takeaway: If you are liable to be registered under GST and have not obtained registration or your registration has been cancelled, you can still be assessed and taxed under Section 63.

Applicability of Section 63

Section 63 applies under the following conditions:

1. The person is liable to obtain GST registration but has failed to do so.

2. The person’s GST registration has been cancelled under Section 29(2), but tax liability for a certain period still exists.

3. The person has not discharged tax liabilities, even though taxable supplies were made.

Legal Provision of Section 63 (Updated as of Finance Act, 2024)

“Notwithstanding anything to the contrary contained in section 73 or section 74 or section 74A, 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.“

This clause was enforced from 1st July 2017, and was recently amended by the Finance Act (No. 2), 2024, which added reference to Section 74A of the CGST Act.

Time Limit for Assessment

The assessment order under Section 63 must be issued within five years from the due date for filing the annual return for the financial year in which tax was not paid.

Example:

If a person was liable to pay tax for FY 2020–21 and failed to register, the proper officer can assess and issue an order under Section 63 up to 31st December 2026, assuming the due date for filing the annual return was 31st December 2021.

Principles of Natural Justice

Before passing an assessment order under this section, the GST officer must provide an opportunity of being heard to the person. This is in line with the principles of natural justice, ensuring that the taxpayer can present his case before any demand is made.

Documents and Data Used for Assessment

Since Section 63 involves a best judgment assessment, the officer may rely on various sources of data:

• Bank statements

• E-way bill data

• TDS/TCS filings

• Third-party information (e.g., from suppliers or customers)

• Any other relevant business records

Recent Amendment: Insertion of Section 74A

The Finance Act (No. 2), 2024 introduced Section 74A, which has now been incorporated into the scope of Section 63. While the full details of Section 74A will vary depending on its specific text, its reference suggests a broader scope of recovery or re-assessment in special cases.

This inclusion ensures that assessment proceedings under Section 63 remain independent and overriding, even if the conditions of Sections 73, 74, or 74A are also attracted.

Penalties and Consequences

Assessment under Section 63 can lead to:

• Demand for unpaid tax along with interest and penalties.

• Initiation of recovery proceedings if payment is not made.

• Ineligibility to claim Input Tax Credit (ITC) for the periods under assessment.

How to Avoid Assessment Under Section 63

To steer clear of unwanted scrutiny or assessments under this section, follow these key steps:

• Ensure timely registration under GST if you meet the threshold limit.

• Respond promptly to any notice or intimation from the GST department.

• Maintain accurate books of accounts and documents.

• If registration is cancelled, consider applying for revocation if you’re still conducting taxable supplies.

Conclusion

Section 63 of the CGST Act serves as a powerful enforcement tool to bring unregistered taxable persons under the GST umbrella. With the backing of legal amendments and a clearly defined timeline, this provision emphasizes the importance of voluntary compliance and acts as a deterrent against tax evasion.

If you’re unsure about your liability to register or have received a notice under Section 63, it’s advisable to consult with a Chartered Accountant to ensure timely resolution and avoid hefty penalties.

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