GST Defaulter Loses: Court Refuses to Quash Best Judgment Assessment Orders

Get the full picture - access the original judgement of the court order here

Case Name

M/s Bridge Hygiene Services Private Limited v. The State Tax Officer, Second Circle, SGST Department & The Commissioner of State GST

Court Name: High Court of Kerala at Ernakulam

Case No.: WP(C).No.25066 of 2019(G)

Decision on: 23rd September 2019

Key Takeaways

1. Best Judgment Assessment is a Consequence of Non-Filing: Under Section 62 of the SGST Act, if a registered taxpayer fails to file returns on time, the tax officer is empowered to assess the tax liability on a “best judgment” basis using whatever information is available.

2. The 30-Day Escape Window: The law gives taxpayers a second chance — if you file a valid return within 30 days of receiving the best judgment assessment order, the order is automatically withdrawn (except for interest liability on late payment).

3. "I Can’t Afford to Pay" is NOT a Valid Excuse: The petitioner’s argument that he couldn’t use the 30-day window because he lacked funds to pay the tax was firmly rejected by the court.

4. Strict Interpretation Against the Taxpayer: The court held that the 30-day provision under Section 62(2) must be interpreted strictly against the assessee and in favour of the revenue, similar to how exemption provisions in tax statutes are interpreted.

5. Courts Cannot Extend Statutory Deadlines: The High Court made it clear that it cannot grant an extension of the 30-day period prescribed under Section 62(2) to help a taxpayer escape a best judgment assessment.

Issue

Can the High Court quash best judgment assessment orders passed under Section 62 of the GST Act on the ground that they were arbitrary, when the taxpayer has a statutory remedy available but claims inability to use it due to financial constraints?

The short answer from the court: No.

Facts

• The Company: M/s Bridge Hygiene Services Private Limited is a GST-registered company located at Vadavathoor, Kottayam, Kerala. It is represented by its Managing Director, Sajan Mathew.
• The Default: The company stopped filing GST returns from July 2018 onwards. This is a fundamental obligation under the GST law.
• Partial Catch-Up: The company did eventually file returns up to August 2018 and paid the tax with interest for those months. But the returns for the subsequent months remained unfiled.
• The Assessment Orders: Because the company wasn’t filing returns, the State Tax Officer, Second Circle, SGST Department, Kottayam stepped in and passed best judgment assessment orders (Ext.P1 series) for the following months:
• July 2018 (Exhibit P1)
• August 2018 (Exhibit P1A)
• September 2018 (Exhibit P1B)
• October 2018 (Exhibit P1C)
• November 2018 (Exhibit P1D)
• December 2018 (Exhibit P1E)
• January 2019 (Exhibit P1F)
• February 2019 (Exhibit P1G)
• The Writ Petition: The company approached the High Court of Kerala challenging these assessment orders, arguing they were passed arbitrarily and without following the guidelines in Section 62.
• The Real Problem: The company admitted it couldn’t file returns within the 30-day window provided by Section 62(2) because it didn’t have the money to pay the tax that would be due on those returns.

Arguments

Petitioner’s Arguments (M/s Bridge Hygiene Services):

1. Arbitrary Assessment: The company argued that the 1st respondent (State Tax Officer) passed the best judgment assessment orders in an arbitrary manner, without following the yardsticks/guidelines prescribed under Section 62 of the GST Act.

2. Futility of the 30-Day Remedy: The company acknowledged the statutory remedy under Section 62(2) (filing returns within 30 days to get the assessment withdrawn), but argued this remedy was practically useless for them. Why? Because even if they filed the returns within 30 days, they could not pay the admitted tax liability due to lack of funds.

3. Prayer: The company therefore prayed for the court to quash Exhibits P1 to P1(g) — all the assessment orders issued by the State Tax Officer.

Respondents’ Arguments (State Tax Officer & Commissioner of State GST):

The respondents, represented by Smt. Thushara James, Government Pleader, essentially defended the assessment orders. The court’s reasoning aligns with the respondents’ position:

1. Valid Exercise of Power: The assessment orders were passed because the assessee failed to file returns — which is precisely the trigger for action under Section 62.

2. Statutory Remedy Exists: The law already provides a clear remedy for the aggrieved assessee — file returns within 30 days. The assessee’s financial inability to pay tax is not a ground to quash the orders.

3. Strict Construction: The 30-day provision must be interpreted strictly, and the court should not extend this period.

Key Legal Precedents

Interestingly, this judgment does not cite any prior case law by name. The court’s reasoning is entirely based on a statutory interpretation of the GST Act provisions. Here are the key statutory provisions discussed:

1. Section 62 of the SGST Act (Best Judgment Assessment)

• Section 62(1): Empowers the proper officer to assess the tax liability of a registered person who fails to furnish returns on a best judgment basis, using all relevant material available or gathered.
• Section 62(2): Provides that if the assessee furnishes a valid return within 30 days of service of the best judgment assessment order, the assessment order shall be deemed to have been withdrawn, except for the liability to pay interest for late payment of tax.

Key Interpretive Principle Applied:

The court applied the well-established principle that provisions enabling an assessee to get an order set aside must be interpreted strictly against the assessee and in favour of the revenue — similar to how exemption provisions in taxing statutes are interpreted.

“The provision must be interpreted in the same manner as an exemption provision in a taxing statute.”

Judgment

The Respondents (Tax Department) won. The Petitioner (M/s Bridge Hygiene Services) lost.

The Court’s Decision:

The Writ Petition was dismissed by Justice A.K. Jayasankaran Nambiar on 23rd September 2019.

The court’s logic was clear and straightforward:

1. The law is clear: Under Section 62 of the SGST Act, the proper officer is fully justified in passing best judgment assessment orders when a taxpayer fails to file returns. The officer must use all available relevant material for this purpose.

2. A remedy already exists: The legislature has already thought about aggrieved taxpayers and provided a remedy — file your returns within 30 days of receiving the assessment order, and it gets automatically withdrawn (you only pay interest for the delay).

3. Financial inability is irrelevant: The petitioner’s argument that he can’t use this remedy because he can’t afford to pay the tax was not accepted. The court held that the 30-day period must be strictly construed against the assessee.

4. Courts cannot rewrite the law: The High Court held that it would not be justified in granting an extension of the 30-day period under Section 62(2) to help the assessee escape the best judgment assessment.

5. Prayer denied: Since the petitioner’s only real grievance was that he couldn’t use the statutory remedy due to financial constraints — and the court found no basis to extend the deadline — the prayer to quash the assessment orders was rejected.

FAQs

Q1: What is a “best judgment assessment” under GST?

A best judgment assessment under Section 62 of the SGST Act is when the tax officer estimates your tax liability based on available information when you fail to file your returns. It’s essentially the government’s way of saying, “Since you won’t tell us what you owe, we’ll figure it out ourselves.”

Q2: What happens if I file my returns after a best judgment assessment order?

Under Section 62(2) of the SGST Act, if you file a valid return within 30 days of receiving the best judgment assessment order, the order is automatically withdrawn. However, you will still have to pay interest for the late payment of tax.

Q3: Can I challenge a best judgment assessment if I think it was done arbitrarily?

Yes, you can challenge it — but the court in this case indicated that the first step should be to use the statutory remedy (filing returns within 30 days). If you believe the assessment was arbitrary, you should file your actual returns to show the correct figures, rather than directly approaching the High Court.

Q4: What if I can’t afford to pay the tax even after filing returns?

Unfortunately, as this case shows, financial inability to pay tax is not a valid legal ground to get a best judgment assessment quashed. The court was clear that the 30-day window must be used, and the court cannot extend it just because you can’t pay.

Q5: Why did the court compare the 30-day provision to an “exemption provision”?

The court used this analogy to explain why the 30-day deadline should be interpreted strictly. In tax law, exemptions are construed narrowly — you must strictly meet the conditions to claim them. Similarly, the 30-day window to escape a best judgment assessment must be strictly complied with; the court won’t bend the rules for you.

Q6: What should a GST taxpayer do to avoid this situation?

The simple answer is: file your returns on time! If you’ve already missed the deadline and received a best judgment assessment order, use the 30-day window under Section 62(2) to file your returns and pay the tax (plus interest). Don’t wait and hope the court will help you — as this case shows, it won’t.

Q7: Does this judgment set a precedent for other GST cases?

Yes, this judgment reinforces the principle that the 30-day remedy under Section 62(2) is the exclusive remedy for taxpayers aggrieved by best judgment assessments, and courts will not interfere with this statutory framework. It sends a strong message that financial hardship alone cannot be a ground to challenge tax assessment orders.

The petitioner, who is an assessee under the Goods and Services Tax Act (hereinafter referred to as the 'GST Act') on the rolls of the 1st respondent, defaulted on filing of returns from July 2018 onwards. It is stated that although there was default in filing of the returns upto July 2018, returns upto August 2018 have later been filed satisfying the tax due with interest. The grievance in the writ petition is against Ext.P1 series of orders of assessment passed by the 1st respondent under Section 62 of the GST Act, pursuant to a best judgment assessment.

2. In the writ petition, the case of the petitioner is that

although there is a provision under the Act for an automatic

setting aside of the best judgment assessment in circumstances

where the registered dealer furnishes a valid return within 30 days

of service of the assessment order, the petitioner sees this

provision as futile in his case inasmuch as even if the petitioner

were to file the returns within the extended time of 30 days from

the date of receipt of the best judgment assessment orders, he

would not be in a position to pay the admitted tax liability as

reflected from the returns. It is therefore that he prays for a

direction to quash Exts.P1 to P1(g) orders issued by the 1st

respondent on the ground that the 1st respondent, while passing

the said assessment orders on best judgment basis, did not adhere

to the yardsticks indicated in Section 62 for exercise of the power.

3. I have heard the learned counsel for the petitioner and

Smt. Thushara James, the learned Government Pleader for the

respondents.

4. On a consideration of the facts and circumstances of the

case as also the submissions made across the Bar, I find that as per

provisions of Section 62 of the SGST Act, it is only in

circumstances where an assessee refuses to furnish the particulars

required for an assessment under the Act, through the filing of a

return within time that the proper officer has to proceed to finalise

the assessment on the best of his judgment, taking into account all

relevant material which is available or which he has gathered for

the said purpose. Sub section (2) of Section 62 indicates that even

after the service of the best judgment assessment order on the

assessee, if the assessee furnishes a valid return within 30 days

thereafter, the assessment order passed on best judgment basis

will be deemed to have been withdrawn save for the continuance

of the liability to pay interest for late payment of the tax. Thus,

the statutory provisions are clear with regard to the time frame

within which the assessee has to file his return and pay tax based

on the said returns if he wants the assessment done on best

judgment basis to be cancelled.

5. In the instant case, it is not in dispute that the assessee

failed to file the returns within the time normally available under

the SGST Act. It is also not in dispute that it was on account of

the failure of the assessee to file the returns within time that the

proper officer was constrained to complete the assessment on best

judgment basis. Although the petitioner has a case that the

assessment on best judgment basis was itself done in an arbitrary

manner and without adhering to the guidelines indicated in the

Section, I find that the statutory provisions enable the assessee,

who is aggrieved by the assessment order passed on best

judgment basis, to furnish his returns within a further period of 30

days and pay tax thereon on the basis of the return filed by him,

and in that event, the order of the proper officer passed on best

judgment basis will stand automatically withdrawn.

6. The submission of the learned counsel for the petitioner

in the instant case however is that he cannot resort to even this

procedure since even if he were to file returns within the period of

30 days specified in Section 62(2) of the SGST Act, he would not

be able to pay the admitted tax liability on account of paucity of

funds.

7. In my view, the statutory prescription of 30 days from the

date of receipt of the assessment order passed under sub section

(1) of Section 62 has to be strictly construed against an assessee

and in favour of the revenue, since this is a provision in a taxing

statute that enables an assessee to get an order passed against

him on best judgment basis set aside. The provision must be

interpreted in the same manner as an exemption provision in a

taxing statute.

This Court may not be justified in granting an extension of

the period contemplated under sub section (2) of Section 62, so as

to enable the assessee to file a return beyond the said period for

the purposes of getting the benefit of withdrawal of an assessment

order passed on best judgment basis under Section 62(1) of the

GST Act. Under such circumstances I find that the prayer sought

for in the writ petition cannot be granted. The writ petition

therefore fails, and is accordingly dismissed.

SD/-

A.K.JAYASANKARAN NAMBIAR

JUDGE