JANUARY 28, 2026

Best Judgement - When Officers Play Oracle Without a Statute

By Vijay Kumar

GUESSWORK is not Law - Extrapolation is not Evidence!

Assessment is the process of determining the tax liability of a person under GST law. It is arithmetic with a statute, not astrology with a spreadsheet.

Types of Assessment under CGST Act, 2017:

- Self-assessment (Sec. 59) - Taxpayer calculates and pays tax and files returns.

- Provisional assessment (Sec. 60) - When value/rate is uncertain, taxpayer requests provisional assessment.

- Scrutiny (Sec. 61) - Proper Officer scrutinises the returns and related particulars to verify the correctness of the return and informs the taxpayer of the discrepancies noticed.

- Best judgement assessment (Secs. 62 & 63) - Officer estimates liability when taxpayer fails to comply.

- Summary assessment (Sec. 64) - Immediate assessment to protect revenue in special cases.

Each assessment has its own statutory script; officers cannot improvise new acts on stage. Tax officers are actors bound by script; improvisation belongs to theatre, not taxation

In the story this week, the taxpayers are wholesale dealers engaged in the supply of groceries and Fast Moving Consumer Goods. The CGST Department received information that the assessees have been grossly under-reporting their sales turnover in the GST returns. Search operations were conducted. The computer systems used for billing and the documents containing sales data were seized from the premises. Statements of the manager, accountant, software supplier, customers etc., were recorded under Section 70 of CGST Act. The proprietors were arrested. Show cause notices dated 29.06.2024 under Section 74 of the CGST Act were issued proposing tax demand for different financial years together with penalty and interest. Orders were passed which are challenged in the High Court.

The taxpayer argues that during inspection, the officials did not obtain the sales data for the entire assessment period. What was retrieved from the electronic devices was only a data for a limited period. This was extrapolated by the proper officer to encompass the entire assessment period. Their primary contention is that the proper officer could not have passed an order by adopting best judgement assessment method under Section 74 of the CGST Act, 2017.

The stand of the proper officer is that since sales and turnover data for the entire period had not been made available by the assessees, he had to resort to what is known as best judgement assessment. In other words, he swapped statute for speculation…. and speculation is no substitute for legislation.

The question of law for consideration by the High Court was: whether he had the jurisdiction to do so when the statute did not expressly provide for the same.

The High Court noted: Amritha Marketing vs Joint Commissioner of CGST - 2026-TIOL-148-HC-Mad-GST

1. Sections 62 and 63 of the CGST Act, 2017 are the provisions that provide for best judgement assessment.

2. Section 62(1) of CGST Act, 2017 states that where a registered person fails to furnish the return under Section 39 or Section 45, even after the service of a notice under Section 46, the proper officer may proceed to assess the tax liability of the said person to the best of his judgement taking into account all the relevant material which is available or which he has gathered.

3. Section 63 of the Act states that where a taxable person fails to obtain registration even though liable to do so or whose registration has been cancelled, the proper officer may proceed to assess his tax liability to the best of his judgement for the relevant tax periods.

The High Court observed that it was not the case of the proper officer that the impugned orders against the writ petitioners have been passed by invoking either Sections 62 or 63 of the Act. It was obvious and plain that those provisions are inapplicable to the case. The impugned orders have been passed under Section 74 of the Act. But in Section 74, the High Court was not able to find any provision conferring the power on the proper officer to assess the tax liability of the noticee or the assessee to the best of his judgement.

Section 74(9) of the Act states that the proper officer shall after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. The omission in Section 74(9) conferring power to make determination to the best of judgement of the authority appears to be conscious. What has been deliberately and consciously left over by the legislature cannot be supplied by the Courts. Assessment is a quasi-judicial function. The expression "assessment" comprehends the entire procedure for ascertaining and imposing liability upon tax payers.

It is well settled that the provisions of a taxing statute have to be construed strictly. When the method of assessment has been prescribed, the assessing officer cannot travel beyond the said norms.

The High Court noted that there are different kinds of assessment - The Act prescribes different kinds of assessment, each with its own statutory path. The assessment to be made by the officer has to be based on material either filed by the assessee or gathered by the authority.

The Court further observed,

If the material is scanty or the assessee suppresses or withholds the same, the authority can opt for best judgement assessment. But then, the statute must authorise him to tread that path.

In matters relating to taxation, the principle "what is not prohibited is permitted" cannot be invoked. There has to be a statutory basis for any action to be taken by the assessing officer. The enabling power must flow from the statute.

Only mystics can materialise objects from thin air. (Tax officers must conjure liability from records, not from crystal balls. Crystal balls may work for astrologers, but not for assessing officers.) The proper officer is not endowed with such powers. Article 265 of the Constitution not only talks about levy of tax but also collection of tax. Levy as well as collection can be done only by the authority of law. The constitutional mandate is therefore that what is not envisaged by law directly cannot be done indirectly in the matter of tax collection.

The Full Bench of the Madras High Court had (PS.Subramaniam Chettiar & Sons vs. Joint Commercial Tax Officer III, Dindigul) held that there is no room for holding that there is an implied power to assess by best judgement when the Section does not expressly provide for the same.

The Court's attention was drawn to the discussion that took place in the 6th GST Council Meeting held on 11th December, 2016. When it was suggested to include a clause to permit extrapolation of short levy where the taxpayer was not furnishing the details, the then Commissioner, GST Council explained that the settled legal position was that Tax Department could raise demand only to the extent that it had evidence and that extrapolation would not stand legal scrutiny. This also fortifies the conclusion that the omission is conscious and deliberate.

The Council knew extrapolation was a bridge too far- Even the Council refused to cross that bridge-yet officers marched on with stilts made of assumptions.

The High Court, therefore, upheld the contention of the counsel for the assessees that while passing an order under Section 74 of the CGST Act, 2017, the proper officer cannot resort to best judgement assessment.

To reiterate, without an express statutory provision empowering the proper or assessing officer to resort to best judgement assessment, the authority would not have the jurisdiction to do so.

The orders impugned in these writ petitions were quashed.

Yet the Court did not let taxpayers off the hook and observed:

The matter cannot rest there. As rightly pointed out by the learned standing counsel for the respondent, as per the provisions set out in Chapter VIII of the Act, the assessee is obliged to maintain the accounts and retain them for six years. Having taken the stand that the foundational materials are not available and the proper officer cannot make best judgement assessment, they probably risk being prosecuted.

There is a fable attributed to Aesop. The Birds and the Beasts declared war against each other. Many animals took sides and some even died. However, the Bat family had not joined either side. When they saw the birds winning, they claimed that they were birds. But when the tide of battle turned, they immediately sided with the Beasts. "Are we not mammals?", they asked. The assessees cannot behave likewise. They must face the ball with a straight bat. They cannot indulge in cross-batting (pun intended). They cannot take one stand now and a contra stand in future.

May your assessments be statutory, not supernatural.