' ALI SAIN DINO METLO, J.---The petitioner, a private limited company engaged in the manufacture and supply of pharmaceutical products exempt from the levy of sales tax, has called in question the demand notice, dated 24-1-2000 issued by the Cost Accountant of the Collectorate of Sales Tax (West) Karachi calling upon it to pay allegedly short paid sales tax amounting to Rs,5,683,106 along with the additional tax.
2. Briefly, the undisputed facts are that by the Finance Act, 1996, 5% sales tax was levied on the import of raw materials for the manufacture of pharmaceutical products. However, the finished products remained exempt, due to which the petitioner and other manufacturers of pharmaceutical products were not able to pass on the burden, particularly when the prices of their products were also controlled by. The Federal Government through the Ministry of Health. Under the law, they could not increase the maximum retail price (MRP) without permission of the Ministry.
Faced with such a situation, Pakistan Pharmaceutical Manufacturers' Association made several representations, including one, dated 20-1-1997, to the Secretary of the Ministry either to withdraw the levy or allow them to pass on the burden. Eventually, by a letter, dated 16-2-1997, the Dy.
Director General (E & M) of the Ministry of Health informed the association that the government had decided to allow the pharmaceutical manufacturers to pass on the burden to the consumers by charging sales tax not exceeding 4% of the MRP and directed for showing it separately on the drug pack along with the MRP. A copy of the letter was simultaneously endorsed and sent to the Member Sales Tax, Central Board of Revenue. After complying with the requirements of the letter, the petitioner started charging the out-put tax at the rate of 4% regularly intimating the sales tax authorities by filing monthly returns during the relevant period i,e, from February to June, 1997.
3. On audit, it was found that the petitioner had collected an amount of Rs,5.68 million as out-put tax on its supplies made during the period from 16-2-1997 to 12-6-1997 as against Rs,7.71 million paid by it as in-put tax on the import of raw material during the said period.
4. Notwithstanding the fact that the petitioner was not permitted to pass on the entire burden of the in-put tax and had to bear a considerable portion of the burden itself, the respondents, by way of the aforesaid demand notice, directed it to pay the amount of Rs,5.68 million along' with the additional tax to the government for the reason that the amount was recovered as sales tax which could be imposed only by an Act of the Parliament.
5. While conceding that sales tax cannot be levied and charged except by an Act of the Parliament and that the letter of the Ministry of Health cannot be equated to an Act, learned counsel for the petitioner firstly urged to treat the amount as an increase in the MRP but after making some arguments on that line, he frankly admitted the petitioner's liability to pay the amount so collected to the Federal Government in view of the clear provisions of section 3B of the Sales Tax Act, 1990.
Nevertheless, he strenuously argued for the waiver of the additional tax. Here it may be mentioned that the principal amount (Rs,5,683,106) along with 25% of the additional tax amounting to Rs,5,183,601 was deposited by the petitioner in January, 2000 under an amnesty scheme.
6. Mr. Raja Muhammad Iqbal, learned counsel for the respondent No,3, opposed the waiver of additional tax on the ground that its payment was mandatory under section 34 ibid:
7. Notwithstanding the ostensible mandatory form of the language of section 34 ibid, the Hon'ble Supreme Court, in the case of D.G. Khan Cement Company Ltd. v. Federation of Pakistan (2004 SCM R 456), was pleased to hold that the imposition of additional tax was discretionary depending upon the facts and circumstances of every case and its recovery would not be justified when the evasion or non-payment of tax was not mala fide or wilful. In the present case, as mentioned above, the Federal Government itself, through a responsible officer of the Ministry of Health controlling the prices of pharmaceutical products marketed by the petitioner, allowed the petitioner to pass on the burden, that too partially, by charging the out-put tax not exceeding 4% of the MRP. Nevertheless, when the government, quite contrary to its previous action, asked the petitioner to pay the 'amount, the same was readily deposited by it. Not only the petitioner was not allowed to increase the MRP of its products so as to pass on the other burden of the in-put tax levied on the raw materials whatever amount, which was admittedly less than the in-put tax, it was allowed to charge, in the shape of out-put tax, was also recovered from it, which on demand was deposited without any undue delay. In such circumstances, it would be harsh, unfair and unjust to impose additional tax upon the petitioner. It was for these reasons that on 2-2-2006 by a short order, we had allowed the petitioner only to the extent of holding the petitioner not liable for the payment of additional tax under section 34 of the Sales Tax Act, 1990.