Section 46 of the CGST Act, 2017, is a vital enforcement tool designed to compel timely GST return filing by registered taxpayers in India. It mandates that defaulters—those failing to file returns under Sections 39, 44, or 45—be issued a notice (via FORM GSTR-3A) requiring compliance within 15 days. Operationalized through Rule 68, this notice is part of a structured SOP involving automated reminders before and after due dates.
Non-compliance triggers a best judgment assessment under Section 62, resulting in additional tax liabilities, penalties, and interest. Persistent default may lead to ITC blockage, cancellation of registration, prosecution, or asset attachment. It also negatively impacts the taxpayer’s compliance rating, affecting refunds, audits, and business reputation. Thus, Section 46 acts as both a compliance nudge and a gateway to stricter enforcement for GST defaulters.
GST Section 46: Unraveling the Notice to Return Defaulters and its Ramifications
The Goods and Services Tax (GST) regime in India emphasizes timely compliance to ensure a smooth flow of input tax credit and efficient revenue collection. A crucial provision in this regard is Section 46 of the Central Goods and Services Tax (CGST) Act, 2017, which empowers the tax authorities to issue a notice to registered persons who fail to furnish their prescribed GST returns. This section came into force on July 1, 2017, aligning with the initial rollout of GST.
The Core of Section 46: A Reminder for Compliance
Section 46 states: “Where a registered person fails to furnish a return under section 39 or section 44 or section 45, a notice shall be issued requiring him to furnish such return within fifteen days in such form and manner as may be prescribed.”
This provision targets three primary types of returns:
- Section 39: This typically refers to the monthly/quarterly returns like GSTR-3B (summary of sales and purchases), GSTR-1 (outward supplies), GSTR-4 (for composition dealers), GSTR-5 (for non-resident taxpayers), GSTR-6 (for Input Service Distributors), GSTR-7 (for TDS deductors), and GSTR-8 (for TCS collectors).
- Section 44: This relates to the Annual Return, primarily GSTR-9.
- Section 45: This pertains to the Final Return, GSTR-10, filed upon cancellation of registration.
The purpose of Section 46 is to act as a formal reminder and provide an opportunity for the defaulting taxpayer to rectify their non-compliance before more stringent actions are initiated.
Relevant Rules and Forms: Rule 68 and FORM GSTR-3A
To operationalize Section 46, Rule 68 of the CGST Rules, 2017, specifies the manner of issuing such notices. The prescribed form for this notice is FORM GSTR-3A.
Upon receiving a GSTR-3A notice, the registered person is required to furnish the overdue return within fifteen days from the date of the notice. This 15-day period is critical for the taxpayer to avoid further escalation of the matter.
Procedure for Issuing the Notice (Standard Operating Procedure – SOP):
The Central Board of Indirect Taxes and Customs (CBIC) has laid down a Standard Operating Procedure (SOP) to ensure uniformity in addressing non-filers of returns. This typically involves:
- System-generated message before due date: Approximately three days before the due date for filing a return, a system-generated message is sent to all registered persons as a reminder.
- Message after due date: Immediately after the due date, another system-generated email/message is sent to defaulters, informing them that their return for the tax period has not been furnished. This message is sent to the authorized signatory as well as the proprietor/partner/director/Karta, etc.
- Issuance of FORM GSTR-3A: If the return is still not filed, five days after the due date, a notice in FORM GSTR-3A (under Section 46 read with Rule 68) is issued electronically to the defaulting registered person, requiring them to furnish the return.
- Best Judgment Assessment (Section 62): If the taxpayer still fails to file the return within 15 days of receiving the GSTR-3A notice, the proper officer may proceed to assess the tax liability of the said person to the best of their judgment, taking into account all available information. This assessment order is issued in FORM GST ASMT-13, and its summary is uploaded in FORM GST DRC-07.
Consequences of Non-Compliance and Penalties:
Ignoring a Section 46 notice (FORM GSTR-3A) can lead to significant financial implications and further legal action:
- Interest: Interest at the rate of 18% per annum is levied on the outstanding tax amount. This interest is calculated from the day after the due date of filing the return until the actual date of payment.
- Late Fees:
- For Annual Return (GSTR-9): The late fee is Rs. 200 per day (Rs. 100 under CGST + Rs. 100 under SGST), subject to a maximum of 0.25% of the taxpayer’s turnover in the state.
- For Other Returns (e.g., GSTR-3B, GSTR-1): The late fee is Rs. 200 per day (Rs. 100 under CGST + Rs. 100 under SGST), subject to a maximum of Rs. 5,000. No late fee is applicable for IGST.
- Best Judgment Assessment (Section 62): As mentioned, if the return is not filed within 15 days of the GSTR-3A notice, the proper officer can conduct a best judgment assessment. This means the officer will determine the tax liability based on the information available with them, which may include details from other returns, e-way bills, ITC claims by recipients, etc.
- In addition to the assessed tax, a penalty of Rs. 10,000 or 10% of the tax due, whichever is higher, will be applicable.
- Even if a best judgment assessment order is passed, the taxpayer can still file the pending return within 60 days (with an additional 60 days, totaling 120 days, by paying a daily late fee of Rs. 100 beyond the initial 60 days) of the order being issued. If the return is filed within this period, the assessment order is deemed to be withdrawn.
- Blocking of Input Tax Credit (ITC): Continuous non-compliance, especially non-filing of GSTR-1 by the supplier, can lead to issues for recipients in claiming Input Tax Credit, impacting the entire supply chain.
- Cancellation of Registration: Persistent failure to file returns can lead to the cancellation of GST registration. For regular dealers, non-filing for a continuous six-month period can trigger cancellation. For composition dealers, this period is three consecutive quarters.
- Initiation of Prosecution: In severe cases of persistent default and tax evasion, the department may initiate prosecution proceedings against the defaulting taxpayer, which can lead to imprisonment and fines.
- Recovery Actions: The GST department has powers to recover outstanding tax dues, including freezing bank accounts and attaching movable/immovable property.
Impact on GST Compliance Rating:
While a formal “GST Compliance Rating” system is yet to be fully implemented and notified, the concept aims to categorize taxpayers based on their compliance levels. Non-filing of returns and receiving notices under Section 46 would undoubtedly negatively impact a taxpayer’s compliance score. A lower compliance rating could lead to:
- Delayed Refunds: Provisional refunds may be linked to compliance ratings, meaning lower-rated taxpayers could face delays.
- Increased Scrutiny/Audits: Businesses with poor compliance records are more likely to be selected for audits and scrutiny by tax authorities.
- Impact on Business Relationships: In a transparent system, buyers might prefer to deal with highly compliant suppliers to ensure smooth ITC flow. A poor compliance rating could make a business less attractive to potential clients.
Conclusion:
Section 46 of the CGST Act, along with Rule 68 and FORM GSTR-3A, serves as a critical mechanism to ensure GST compliance. While it provides a window of opportunity for defaulters to regularize their filings, ignoring such notices can lead to escalating penalties, interest, best judgment assessments, and potential legal repercussions.
Timely and accurate filing of GST returns is not just a statutory obligation but also crucial for maintaining a healthy business and avoiding unnecessary financial and legal burdens. Taxpayers are strongly advised to respond promptly to GSTR-3A notices and ensure consistent adherence to GST return filing deadlines.
FAQs on Section 46 under CGST Act
What is GST Section 46 under the CGST Act?
GST Section 46 empowers tax authorities to issue notices to registered taxpayers who fail to file returns under Sections 39, 44, or 45, requiring them to comply within 15 days.
Which returns are covered under Section 46?
Section 46 applies to GSTR-3B, GSTR-1, GSTR-4, GSTR-5, GSTR-6, GSTR-7, GSTR-8 (Section 39), GSTR-9 (Section 44), and GSTR-10 (Section 45).
What is FORM GSTR-3A?
FORM GSTR-3A is the official notice issued to return defaulters under Section 46, directing them to file their pending returns within 15 days.
What happens if a taxpayer doesn’t respond to a GSTR-3A notice?
If the return is not filed within 15 days of the notice, authorities may initiate best judgment assessment under Section 62, determining tax liability based on available information.
What is a best judgment assessment under Section 62?
It is an assessment made by the tax officer using the best available data when a taxpayer fails to file returns even after receiving a GSTR-3A notice.
Can a taxpayer file a return after a best judgment assessment?
Yes, the taxpayer can still file the pending return within 60 days of the assessment order (extendable by another 60 days with daily late fees), and the assessment will be deemed withdrawn.
What penalties are imposed for not filing returns under Section 46?
Penalties include late fees (Rs. 200/day), interest at 18% per annum on tax dues, and an additional penalty of Rs. 10,000 or 10% of the tax due (whichever is higher) in case of best judgment assessment.
How is interest calculated on delayed GST returns?
Interest is charged at 18% per annum from the day after the due date until the date of actual payment.
Is there any notification before issuing FORM GSTR-3A?
Yes, system-generated messages are sent before and after the due date, reminding taxpayers to file returns. FORM GSTR-3A is issued only if the return remains unfiled five days after the due date.
What is Rule 68 under CGST Rules?
Rule 68 specifies the procedure for issuing notices to non-filers under Section 46, using FORM GSTR-3A.
Can repeated non-compliance lead to GST registration cancellation?
Yes, non-filing of returns for six consecutive months (for regular dealers) or three quarters (for composition dealers) can lead to cancellation of GST registration.
How does Section 46 impact Input Tax Credit (ITC)?
Non-filing of GSTR-1 by suppliers can block ITC claims for recipients, disrupting the supply chain and increasing compliance risks.
Can non-compliance lead to prosecution?
Yes, persistent default and intentional evasion may result in prosecution, involving fines and even imprisonment in serious cases.
What recovery actions can the department take for non-compliance?
Authorities can freeze bank accounts, attach property, and initiate legal proceedings to recover outstanding tax dues.
How does Section 46 affect a taxpayer’s GST compliance rating?
Though not yet fully implemented, poor compliance, including receipt of GSTR-3A notices, can lower the compliance rating, leading to delays in refunds and greater audit scrutiny.
What is the significance of GST compliance rating for businesses?
A low compliance rating may affect a business’s reputation, delay refunds, and discourage other businesses from engaging due to blocked ITC.
How can businesses avoid Section 46 notices?
Timely and accurate filing of all applicable GST returns ensures compliance and avoids notices, penalties, and enforcement actions.
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