Non-filer assessment orders under GST in cases of non-existent/ non-genuine taxpayers
Office of the Commissioner of the State Tax, Maharashtra State, issued Internal Circular No. 03A of 2022 dated February 25, 2022 regarding non-filer assessment orders under GST in cases of non-existent/ non-genuine taxpayers.
Synopsis
Assessment of return non-filers u/s 62 is done as a measure to ensure filing of return. However, the taxpayers are detected as non-existent / non-genuine and the registrations are cancelled consequently, the issue of addressing the liability arising out of the UAO has cropped up which is dealt with in this circular.
Background:
Best judgment non-filer assessment orders u/s 62 in case of return non-filers (hereinafter referred to as ‘UAO), is very widely used in follow up of return defaulters who do not file return even after service of notice under section 46 (GSTR-3A notice). The guidelines for prioritization in passing of UAOs and subsequent action thereupon have been issued vide Internal Circular referred above at Sr. No. 01. However, certain issues have been cropped up in some of UAOS due to detection of non-genuine / non-existent taxpayers subsequent to such UAO. It has been noticed that demands of tax are raised under UAOS against such non-existent / non-genuine entities under the presumption of supplies made by them. However, these entities are indulged in bill trading or fake bill issuing without any underlying supply of goods or services and they are persons of no means. The demand raised under these UAOS is based on presumption of supply, which doesn’t exist in the cases of non-existent / non-genuine entity. Hence enforcing such demand from such non-existent / non-genuine entities would amounts to imposition of GST on transaction without supply of goods or services, which don’t augur to the test of law. The actual benefit of fake invoices issued without supply of goods or services are availed by actual beneficiary recipients of such non-existent / non-genuine entities. The conditions provided in section 16 (2) of the GST Act, which are pre-requisite for availing ITC, are not satisfied in case of ITC availed on the strength of fake invoices / bills. Therefore, the recovery actions to this effect needs to be enforced upon actual beneficiary. These presumptive demands in UAOS would un-necessarily give an opportunity to actual beneficiary recipients of such fake invoices to take shelter against recovery from them, which makes this issue of dues on account of non-filer assessment of non-genuine taxpayers an issue prejudicial to the interest of revenue.
In view of this it would be prudent to avoid non-filer assessment in cases of non-existent/ non-genuine taxpayers. It is also necessary to revise the cases wherein such orders are passed prior to cancellation of GST registration.
Corrective measures with respect to already passed UAOs in case of non-existent / non genuine entities:
In some cases, UAOS have been passed against taxpayer and subsequently said taxpayers are found non-existent / non-genuine. The proper officer shall first undertake the cancellation of GST registration with ab-initio effect by selecting the reason of cancellation as “Fraud, willful mis-statement and suppression of facts (FWSF)” (Please refer internal circular no. 38A of 2019 dated November 21, 2019 and CST Instructions dated November 09, 2021). After cancellation of GST registration with ab-initio effect, the appeal proceedings for annulment of the UAO be initiated. However, where time limit has expired to file appeal, the revision of the UAO already passed be recommended.
In some cases, UAOS have been passed and GST registrations are also cancelled with prospective effect. In such cases of non-existent/non-genuine entities, the proper officer shall first file appeal u/s 107 or as the case may be, recommend the revision u/s 108, for the purpose of retrospective cancellation of registration. After the order of appeal or revision is passed to effectuate the RC cancellation at ab-initio, the proper officer shall give effect to it in BO system by use of “Appeal Effect” functionality. In cases where GST registration is cancelled by quoting any other reason, then it shall also be changed to “Fraud, willful mis-statement and suppression of facts (FWSF)” by way of appeal or revision and use of “Appeal Effect” functionality. The proper officer shall thereafter file appeal u/s 107 or as the case may be, recommend the revision u/s 108, of the UAO if any for annulment of the UAO.
In some cases, UAOS have been passed and GST registrations are subsequently cancelled with ab-initio by quoting any other reason, then the reason of cancellation shall also be changed to “Fraud, willful mis-statement and suppression of facts (FWSF)” by way of appeal or revision and use of “Appeal Effect” functionality. The proper officer shall thereafter file appeal u/s 107 or as the case may be, recommend the revision u/s 108, of the UAO if any for annulment of the UAO.
The appeal/ revision orders of the UAO shall be passed on priority. The appellate/revisional authority upon a proper appraisal of the facts of the case and evidence submitted by the proper officer shall pass the appeal / revision order and may annul the UAO, if found appropriate.
It may be noted that the proper officer, upon receipt of appeal/revision order annulling the demand under UAO, shall give effect of appeal/revision order in BO system by posting the order details vide “Appeal Effect” functionality. He shall also upload the appeal/revision order while giving effect to such orders.
Actions to be taken to avoid UAO in cases of non-existent / non-genuine entities:
The proper officer shall undertake the field visit of the taxpayer in whose case he is going to pass the UAO. Verification pertaining to place of business, nature of business activity and other relevant details shall be undertaken as prescribed in Internal Circular 23A of 2019.
The UAO shall be passed only in cases of taxpayers found existing after field visit. The proper officer shall upload the copy of the visit report on the BO system in Tab “References” of UAO for future reference.
The proper officer may exercise his judgment as not to undertake field visits in cases of taxpayers who were already visited and were found existing as also established taxpayers paying substantial amounts of tax in cash, etc.
In cases of taxpayers found to be non-existent / non-genuine where GST registration is required to be cancelled ab-initio, UAO shall not be passed. Further, the proper officer shall complete the process of cancellation of registration ab-initio and submission of evidence folder in required cases in one and half month after field visit. The of such field visit reports shall also be uploaded in the “Reference” tab of RC cancellation proceeding. The reason for cancellation of GST registration in all such cases of non-existent / non-genuine entities shall be “FWSF”.
Completion of task in mission mode:
In order to have parity with respect to reasons of cancellation in cases across India and have better data for analysis, it is endeavor of the Department to complete the task of correcting the reasons as stated in the earlier paras in mission mode along with revision of UAOs. All Zonal Additional Commissioner of State Tax shall take the review of such cases.
All Zonal Additional Commissioners of State Tax shall download the recovery list of their respective Zone from BO, identify the pending recovery on account of UAOs of non-existent /non-genuine entities and pursue the case till logical end as directed above.
The aforesaid directions shall be scrupulously followed by all proper officer or supervisory officers as the case may be.
The Circular can be accessed at - https://mahagst.gov.in/sites/default/files/Internal%20Circular%2003A%20of%202022.pdf
