Assessment Procedure, Authorities, and Basics of GST notes — Unit 5

A Return of Income (ITR) is a formal declaration by the taxpayer of their income, deductions, and tax paid, submitted to the Income Tax Department.

⇒Who MUST file a Return? (Sec 139(1))

• Companies and Firms: Compulsory filing, regardless of whether they have a profit or a loss.
• Individuals/HUF/AOP/BOI: Compulsory if their Gross Total Income (before Chapter VI-A deductions) exceeds the Basic Exemption Limit (e.g., ₹2.5L or ₹3L depending on the regime/age).
• Foreign Asset Holders: Any resident individual holding an asset located outside India must file, even if their income is zero.

⇒Due Dates

Returns must be filed by specific dates. Generally:

• July 31st: For individuals and non-audit cases.
• October 31st: For companies and cases requiring a tax audit.

The law provides flexibility for filing returns under different circumstances.

⇒Belated Return (Section 139(4))

If you miss the due date, you can still file a belated return at any time before 31st December of the relevant Assessment Year, or before the completion of assessment, whichever is earlier. (Subject to late fees under Sec 234F and interest).

⇒Revised Return (Section 139(5))

If you discover any omission or wrong statement in your original return, you can revise it. The timeline is the same as the belated return (before 31st Dec of AY). A revised return completely substitutes the original one.

⇒Defective Return (Section 139(9))

If the Assessing Officer finds the return incomplete (e.g., missing annexures, taxes not fully paid), they declare it defective and give the assessee 15 days to rectify it. If not rectified, it is treated as an invalid return (as if never filed).

Assessment is the process by which the tax department verifies the income declared and the tax paid by the assessee.

⇒1. Self-Assessment (Section 140A)

Before filing the return, every taxpayer must calculate their own tax, deduct any TDS/Advance Tax already paid, and pay the remaining balance. This is self-assessment.

⇒2. Summary Assessment (Section 143(1))

Once the return is uploaded, the computerized system processes it automatically. It checks for arithmetical errors or obvious incorrect claims. The computer then sends an intimation generating a refund or demanding extra tax. No human officer is involved.

⇒3. Scrutiny Assessment (Section 143(3))

A small percentage of returns are selected for detailed scrutiny by an Assessing Officer (AO) to ensure the assessee hasn't understated income or overstated expenses. The AO demands evidence, books of accounts, and conducts hearings before passing a final Assessment Order.

⇒4. Best Judgment Assessment (Section 144)

This is an extreme step taken by the AO when the taxpayer totally fails to cooperate. The AO estimates the income based on their 'best judgment' if the assessee:

• Fails to file the return.
• Fails to comply with notices to produce documents.
• Fails to get accounts audited when ordered.

The AO must gather material and make an honest guess, not act vindictively.

⇒5. Income Escaping Assessment (Section 147)

If an AO has 'reason to believe' that any income chargeable to tax has escaped assessment (e.g., they find out about a hidden Swiss bank account 3 years later), they can reopen the past assessment. Notices under Section 148 are issued to initiate this process, subject to strict time limits.

⇒Hierarchy of Tax Authorities (Section 116)

The administrative machinery is structured top-down:

• CBDT (Central Board of Direct Taxes): The supreme administrative body, issuing circulars and framing policies.
• Principal Chief Commissioners / Chief Commissioners: Oversee regional administration.
• Commissioners / Principal Commissioners.
• Assessing Officers (AO): (Includes Additional/Joint/Deputy/Assistant Commissioners and Income Tax Officers). These are the ground-level officers who conduct scrutiny assessments and issue notices.

⇒The Appellate Hierarchy

If an assessee is unhappy with an Assessment Order passed by an AO, they can appeal:

• 1st Appeal: Commissioner of Income Tax (Appeals) [CIT(A)].
• 2nd Appeal: Income Tax Appellate Tribunal (ITAT). This is the final fact-finding authority.
• 3rd Appeal: High Court (ONLY if the appeal involves a 'substantial question of law', not on facts).
• Final Appeal: Supreme Court.

Implemented on July 1, 2017 (via the 101st Constitutional Amendment), GST revolutionized indirect taxation in India. It replaced a chaotic web of central and state taxes (Excise, VAT, Service Tax, Octroi) with a single, unified tax.

⇒The Concept: One Nation, One Tax

GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.

• Destination-Based: The tax revenue goes to the State where the goods are finally consumed, not the State where they were manufactured.
• Multi-Stage: It is levied at every step of the supply chain (manufacturer -> wholesaler -> retailer -> consumer).

⇒Taxes Subsumed

GST swallowed Central Excise Duty, Service Tax, State VAT, Central Sales Tax, Entry Tax, and Luxury Tax.

(Exceptions: Alcohol for human consumption, Petroleum crude, Diesel, Petrol, ATF, and Natural Gas are currently OUTSIDE the GST net and still attract old Excise/VAT).

Because India is a federal country, both the Centre and the States need tax revenue. GST was designed as a 'Dual' structure.

⇒Intra-State Supply (Within the same State)

If a seller in Mumbai sells to a buyer in Pune (Maharashtra to Maharashtra), two equal taxes are levied concurrently:

• CGST (Central GST): Revenue goes to the Central Government.
• SGST (State GST): Revenue goes to the Maharashtra State Government.
• (If the rate is 18%, 9% is CGST and 9% is SGST).

⇒Inter-State Supply (Between two States)

If a seller in Mumbai sells to a buyer in Delhi:

• IGST (Integrated GST): A single tax is levied by the Central Government. (Rate: 18%).
• The Centre later apportions 50% of this IGST to the 'Destination State' (Delhi in this case, because that's where consumption happens).

ITC is the mechanism that prevents the 'cascading effect' (tax on tax). It ensures that tax is levied only on the Value Addition at each stage.

⇒How ITC works

When a business buys raw materials, it pays tax (Input Tax). When it sells the finished product, it collects tax from the customer (Output Tax). The business doesn't pay the entire Output Tax to the government. It deducts the Input Tax it already paid, and only deposits the balance.

• Example:
• Manufacturer buys raw material for ₹100, pays ₹10 GST. (Input Tax = ₹10).
• Manufacturer makes a product and sells it for ₹150, charging ₹15 GST from the wholesaler. (Output Tax = ₹15).
• Manufacturer's Liability to Govt = Output Tax (₹15) - Input Tax Credit (₹10) = ₹5.
• The ₹5 represents the tax purely on his value addition (₹50).

This seamless flow of credit continues until the final consumer, who bears the entire tax burden (but cannot claim any ITC).

In the old regime, tax was triggered by 'manufacture' or 'sale' or 'provision of service'. In GST, there is only one trigger: Supply.

⇒Scope of Supply (Section 7 of CGST Act)

Supply includes:

• All forms of supply of goods or services (sale, transfer, barter, exchange, license, rental, lease).
• Made or agreed to be made for a consideration.
• By a person in the course or furtherance of business.

⇒Supply without Consideration (Schedule I)

Normally, no money = no supply. But Schedule I lists 4 specific activities treated as Supply even without consideration, to plug tax loopholes:

• 1. Permanent transfer of business assets where ITC has been availed.
• 2. Supply between related persons or distinct persons (e.g., A company's factory in Gujarat sends goods to its depot in Rajasthan for free).
• 3. Supply between Principal and Agent.
• 4. Import of services from a related person outside India for business.

Often, goods and services are bundled together and sold for a single price. How do we determine the tax rate?

⇒Composite Supply

Two or more taxable supplies which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

• Example: Buying a laptop (Goods - 18%) which comes with free delivery (Service - 5%). You can't easily buy them separately.
• Tax Treatment: The entire bundle is taxed at the rate of the Principal Supply (Laptop - 18%).

⇒Mixed Supply

Two or more individual supplies bundled together artificially and sold for a single price, which are NOT naturally bundled.

• Example: A Diwali gift hamper containing Chocolates (18%), Dry fruits (12%), and a Gold Coin (3%) sold for ₹5000.
• Tax Treatment: The entire bundle is taxed at the rate of the item with the HIGHEST tax rate (Chocolates - 18%).

⇒Threshold for Registration (Section 22)

Not every small shopkeeper needs a GST number. Registration is mandatory only if aggregate turnover in a financial year exceeds:

• ₹40 Lakhs for exclusive supply of Goods (in most states).
• ₹20 Lakhs for supply of Services (or mixed goods/services).
• (Thresholds are halved for special category states like North East).

⇒Compulsory Registration (Section 24)

Regardless of turnover, some must register (e.g., persons making inter-state taxable supply, e-commerce operators, casual taxable persons).

⇒Composition Scheme (Section 10)

A relief scheme for small businesses (turnover up to ₹1.5 Crores). Instead of maintaining massive records and calculating ITC, they can pay a flat, low percentage of their turnover as tax (e.g., 1% for traders, 5% for restaurants). But they CANNOT collect tax from customers, and CANNOT claim ITC.

GST requires coordination between the Centre and 28 States. The GST Council is the constitutional body created to make recommendations on GST rates, exemptions, and laws.

⇒Composition

• Chairperson: Union Finance Minister.
• Members: Union Minister of State for Finance, and the Finance/Taxation Ministers of all States.

⇒Voting Power and Decisions

The voting structure prevents either the Centre or the States from dictating terms unilaterally:

• Central Government has 1/3rd weightage.
• State Governments collectively have 2/3rd weightage.
• Every decision requires a 3/4th majority (75%) of the weighted votes to pass.

This means the Centre holds a veto (as 25% is needed to block, and they have 33%), and the States together also hold a veto. Decisions require consensus.

Two critical concepts determine when tax is to be paid and on how much.

⇒Time of Supply (When to pay)

Determines the point in time when the liability to pay GST arises.

• For Goods: Earlier of (a) Date of issue of invoice, or (b) Last date on which invoice should have been issued.
• (Advance payments for goods are no longer taxed at the time of receipt).

⇒Value of Supply (How much to pay) - Sec 15

The value of a supply shall be the Transaction Value (the price actually paid or payable), provided the buyer and seller are not related, and price is the sole consideration.

• Value includes: Any taxes other than GST, incidental expenses charged by supplier, subsidies (other than Govt subsidies).
• Value excludes: Discounts given before or at the time of supply.

⇒Summary of Master Concepts

• Returns: Due dates are July 31/Oct 31. Belated and Revised returns can be filed before Dec 31 of AY.
• Assessment: Scrutiny (detailed check), Best Judgment (non-cooperation), Escaping Assessment (reopening).
• Appeals: CIT(A) -> ITAT -> High Court -> Supreme Court.
• GST Framework: Dual Model (CGST+SGST for intra-state, IGST for inter-state).
• Supply: The only taxable event. Schedule I taxes supply even without consideration.
• Composite vs Mixed: Principal rate vs Highest rate.
• ITC: Prevents cascading effect by allowing deduction of tax paid on purchases.

⇒University Exam Tips for this Unit (Premium Advice)

• Best Judgment Assessment: A highly frequent 5-10 marker. State clearly the 3 conditions of non-cooperation that trigger it.
• Composite vs Mixed Supply: Always explain with examples (Laptop+Delivery vs Gift Hamper). It guarantees full marks.
• ITC Mechanism: If asked to explain GST or ITC, use a simple mathematical example (like the ₹100 raw material -> ₹150 finished goods on Page 8) to prove how cascading is eliminated.