Provisional Assessment

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Provisional Assessment (Section 58)

When to pay tax on provisional basis

As a taxpayer has to pay tax on self-assessment basis, a request for paying tax on provisional basis has to come from the taxpayer which will then have to be permitted by the proper officer. In other words, no tax officer can suo-moto order payment of tax on provisional basis.

Cases where assessee may apply to assess his tax provisionally:

  1. Where year end trade discount is to be given by supplier
  2. Where goods are supplied on approval basis
  3. Where value to be determined by customer after use of goods
  4. Where tax rates are not confirmed at the time of supply

This is governed by section 58 of MGL. Tax can be paid on a provisional basis only after the proper officer has permitted it through an order passed by him. For this purpose, the taxable person has to make a written request to the proper officer, giving reasons for payment of tax on a provisional basis.

Such a request can be made by the taxable person only in such cases where he is unable to determine:

  1. The value of goods or services to be supplied by him, or
  2. Determine the tax rate applicable to the goods or services to be supplied by him.

In such cases the taxable person has to execute a bond in the prescribed form, and with such surety or security as the proper officer may deem fit. The relevant provision are reproduced below:
(1) Where the taxable person is unable to determine the value of goods and/or services or determine the rate of tax applicable thereto, he may request the proper officer in writing giving reasons for payment of tax on a provisional basis and the proper officer may pass an order allowing payment of tax on provisional basis at such rate or on such value as may be specified by him.
(2) The payment of tax on provisional basis may be allowed, if the taxable person executes a bond in such form as may be prescribed in this behalf, and with such surety or security as the proper officer may deem fit, binding the taxable person for payment of the difference between the amount of tax as may be finally assessed and the amount of tax provisionally assessed.

Final assessment:

(3) The proper officer shall, within a period not exceeding six months from the date of the communication of the order issued under sub-section (1), pass the final assessment order after taking into account such information as may be required for finalizing the assessment:
PROVIDED that the period specified in this sub-section may, on sufficient cause being shown and for reasons to be recorded in writing, be extended by the Joint/Additional Commissioner for a further period not exceeding six months and by the Commissioner for such further period as he may deem fit.

Case 1: Tax liability as per the final assessment is higher than in provisional assessment

(4) The taxable person shall be liable to pay interest on any tax payable on the supply under provisional assessment but not paid on the due date specified under sub-section (7) of section 34 or the rules made thereunder at the rate specified under sub-section (1) of section 45, from the first day after the due date of payment of tax in respect of the said goods and/or services till the date of actual payment, whether such amount is paid before or after the issue of order for final assessment.

Case 2: Tax liability as per the final assessment is lower than in provisional assessment

(5) Where the taxable person is entitled to a refund consequent to the order for final assessment under sub-section (3), subject to sub-section (8) of section 48, interest shall be paid on such refund as provided in section 50.

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