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Chapter 13 Assessment

When the service tax initially came into force on 01-07-1994, Section 70 of the Act provided for the regular assessment of service tax assessees !he Act incorporated the provisions for "est #udgment assessment and re-assessment also in Sections 7$ and 7% respectively !he system of regular assessment as prescri"ed "y Section 70 &as replaced &ith the system of self-assessment &ith effect from 1'-07-$001 !he provision for reassessment provided "y Section 7% &as done a&ay &ith And Section 7$ providing for the "est #udgment assessment had "een omitted &ith effect from 10-09-$004, &hich has no& "een reintroduced "y the (inance Act, $00) &ith effect from 10-0*-$00) As on date, the principal procedure of assessment under service tax provisions is self-assessment &here no provision of verification of return "y the Superintendent of +entral ,xcise exists -n addition to this, provisions for provisional assessment and best judgment assessment have "een provided in Service !ax .ules, 1994 1. Self-Assessment With effect from 1'-07-$001, every assessee is re/uired to himself assess the tax due on the services provided "y him and to furnish a return to the Superintendent of the +entral ,xcise in the prescri"ed is complete &ith the filing of service tax return in (orm S!-%1 "ymanner the due 0Self-assessment1 date When system of self-assessment &as introduced on 1'-07-$001, the self-assessed return filed "y the assessee &as to "e verified "y the Superintendent of +entral ,xcise under Section 71 With effect from 10-09-$004, Section 71 relating to verification of the self-assessed return has "een omitted Prior to 10-09-2004, Section 71 empo&ered the Superintendent of +entral ,xcise to verify the correctness of the service tax assessed "y the assessee on the "asis of information contained in (orm S!-% Again, for the purpose of such verification, the concerned officer could re/uire the assessee to produce any accounts, documents or other evidence as and &hen re/uired -t may "e noted that there &as no time-limit prescri"ed in Section 71 for completion of assessment Section 71, further empo&ered the Superintendent of +entral ,xcise to refer the matter to the Assistant +ommissioner23eputy +ommissioner of +entral ,xcise, if he noticed on verification that the service tax on any service provided "y the assessee had escaped assessment or had "een underassessed -n such a case A+23+ could pass such order of assessment as he thought fit As per the clarification given, the assessment order &as to "e passed only "y the A+23+ $ and not "y the Superintendent &ho &as re/uired should simply to refer the matter to A+23+ -n this regard, +4,+ 5aster +ircular 6o 972)2$007-S!, dated $%-0)-$007 states that normally, under self-assessment scheme, the service taxpayer assesses his tax lia"ility himself and pays the 1 7rovisions relating to filing of return have "een explained in 7art 4 8 +hapter 11 $ As per +4,+ -nstruction 9etter 6o 4-11212$001-!.:, dated 09-07-$001

same ;o&ever, if a service taxpayer is not in a position to determine the service tax lia"ility, say, for the reason that valuation or classification of taxa"le service or issue of admissi"ility of an exemption notification cannot "e determined <or any such other reason= at the time of filing the return, he may opt for assessment of service tax on provisional "asis after o"taining an order from the #urisdictional 3eputy +ommissioner2 Assistant +ommissioner !he assessment shall "e made in terms of the said order and &ould continue to "e provisional till the issue is finalised :pon finalisation, there may "e additional tax lia"ility or refund -n such cases, the taxpayer &ould have to either pay the differential amount of tax &ith interest or claim refund, as the case may "e 2. Provisional Assessment -f the assessee is una"le to correctly estimate the actual amount of service tax on the date of deposit, he may deposit the tax provisionally and later on the final tax may "e assessed "y the +entral ,xcise Authority and ad#ustment can "e made for any difference in the tax paid and the tax due >.ule ' of the Service !ax .ules, 1994? Procedure for provisional assessment Su"-rules 4, * ' apply of .ule of the Service !ax .ules, 1994, and provisions of +entral ,xcise: .ules, $001, asand they to' provisional assessment have "een summarised "elo&@ <i= Seeking permission for provisional assessment. (or resorting to provisional assessment, the assessee needs to maAe a &ritten re/uest to the Assistant +ommissioner23eputy +ommissioner of +entral ,xcise giving reasons for payment of service tax on provisional "asis !he A+23+, on receipt of such re/uest, may allo& payment of service tax on provisional "asis on such value of taxa"le service as may "e specified "y him <ii= Filing of Memorandum in Form S -!" along #it$ t$e servi%e ta& return. !he assessee &ho has sought permission for provisional assessment, and has made provisional payments of service % tax, needs to file a memorandum in (orm S!-%A along &ith the half-yearly return <(orm S!-%= !his memorandum is a statement &hich gives details of the difference "et&een the service tax deposited and the service tax paya"le for each month ;o&ever, a discrepancy in filing (orm S!-%A 4 does not alter the character of provisional assessment -n Hari Shankar Almal v . CCE ' the appellant, a stocA-"roAer, made provisional payment of service tax though inadvertently (orm S!-%A &as not filed &ith the return -t &as held that simply "ecause the appellant did not su"mit the statement in (orm S!-%A, it could not "e concluded that the assessments &ere not provisional, especially &hen the same had "een finally assessed "y the proper officer at the re/uest of the appellant <iii= (ompletion of "ssessment under )Provisional "ssessment*. Where the assessee su"mits (orm S!-%A, the Assistant +ommissioner or 3eputy +ommissioner of +entral ,xcise may complete the assessment &herever he deems it necessary (or the purpose of final assessment he may call for such further documents or records &hich he considers necessary and proper !hough .ule '<'= of the Service !ax .ules does not prescri"e any time-limit for completion of assessment "ut according to .ule 7<%= of the +entral ,xcise .ules, $00$, the A+23+ shall pass the final assessment order maximum &ithin a period of six months from the communication of provisional assessment !he period of six months, ho&ever, may "e extended "y the +ommissioner "y another six months for reasons to "e recorded in &riting and "y the +hief +ommissioner for such further period as he may deem necessary <iv= Servi%e a& Pa+able or ,efund -ue on Final "ssessment. After the completion of final assessment, the assessee may "e re/uired to pay service tax in addition to the tax already paid under provisional assessment Similarly, he may "e entitled to refund in % !he reference to /uarterly return in .ule '<*= is redundant, for & e f 1'-10-199), only halfyearly return in (orm S!-% shall "e filed "y all types of assessees 4 <$00$= 14* ,9! *7) <!ri" -BolAata=

case he had paid excess service tax earlier <(or details regarding filing of claim for refund, refer +hapter on 0.efund of Service !ax1 = ? -n case the assessee is re/uired to pay differential tax after the final assessment, he shall "e lia"le to pay interest on the amount so paya"le to the +entral Covernment from the first day of the month succeeding the month for &hich such amount is determined, till the date of payment thereof !he rate of interest &ould "e the rate specified "y the +entral Covernment "y notification issued under Section 11AA or Section 11A4 of the +entral ,xcise Act ? -n case the assessee is entitled to a refund conse/uent to the order of final assessment, there shall "e paid an interest on such refund from the first day of the month succeeding the month for &hich such refund is determined, till the date of refund !he rate of interest &ould "e the rate * specified "y the +entral Covernment "y notification issued under Section 1144 of the Act Section 7$, "efore its deletion from 10-09-$004, empo&ered the Assistant +ommissioner23eputy +ommissioner of +entral ,xcise to maAe the "est #udgment assessment under the follo&ing circumstances@ <i= When the assessee failed to maAe the return under Section 70, or <ii= When the return &as furnished "ut the assessee failed to comply &ith the provisions of Section 71, i e , did not produce the accounts, documents, or other evidence as demanded, or <iii= When the A+23+ &as not satisfied &ith the correctness2completeness of the accounts of the assessee !hereafter, the Assistant or 3eputy +ommissioner of +entral ,xcise, after taAing into account all relevant material &hich he might have gathered, &as re/uired to maAe a "est #udgment assessment and determine the sum paya"le "y or refunda"le to the assessee !he "est #udgment assessment method &as to "e applied in accordance &ith the principles of natural #ustice i e the service provider &as to "e given opportunity to present his case, particularly if it &as not favoura"le to the service provider 3. Best Judgment Assessment Revived under Servi e !a" Section 72 has "een reintroduced "y the (inance Act, $00) to authorise the +entral ,xcise Dfficer for assessment on the "asis of his "est #udgment after allo&ing assessee to represent his case &here assessee fails to maAe service tax return as re/uired under Section 70 or if the returns have "een made out, fails to assess the tax appropriately 7rior to 10-09-$004 also, the provision of "est #udgment assessment &as there under service tax !he (inance Act, $004 had done a&ay &ith the provision of "est #udgment assessment "y omitting Section 7$ &ith effect from 10-09$004, &hich has no& "een again "rought in force in the year $00) !he ne& provision reads as follo&s@ -f any person, lia"le to pay service tax,8 <a= fails to furnish the return under Section 70E <b= having made a return, to assess the tax in accordance &ith the provisions of this +hapter or rules made fails thereunder, the +entral ,xcise Dfficer, may re/uire the person to produce such accounts, documents or other evidence as he may deem necessary and after taAing into account all the relevant material &hich is availa"le or &hich he has gathered, shall "y an order in &riting, after giving the person an opportunity of "eing heard, maAe the assessment of the value of taxa"le service to the "est of his #udgment and determine the sum paya"le "y the assessee or refunda"le to the assessee on the "asis of such assessment -t may "e noted that the "est #udgment provision under service tax can "e invoAed only in the t&o specified circumstances mentioned a"ove * 7rescri"ed rate of interest on delayed refunds is 'F p a vide 6otification 6o '72$00%-+ , <6 ! =, dated 1$-09-$00%

!he concept of "est #udgment assessment has not "een hitherto provided under the +entral ,xcise Act, ho&ever, under -ncome !ax Act and Sales !ax Act, it is extensively used -n this regard, various #udicial pronouncements uphold that the principle of natural #ustice should "e follo&ed "y the Authorities in applying the "est #udgment assessment 888