1. This appeal preferred by registered person is directed against the Order-in-Appeal No.265 of 2006 passed by the Collector (Appeals), Multan on 26-4-2006 whereby he has partially modified the Order-inOriginal No.783 of 2004 dated 13-10-2004.
2. Facts of the case in brief are that audit for the tax periods 2002-2003 was carried out and following discrepancies were observed:
(i) That the appellants have supplied 1500 bales of cotton lint involving output tax Rs.21,16,396 15% to 5 different defaulting units during the months of 10/2002, 01/2003 to 03/2003, which amount is recoverable form them along with IA additional tax.
(ii) That the appellants have also supplied wastage valuing Rs.24,723 without payment of Sales Tax amounting to Rs.4,450 the same is recoverable form them along with additional tax.
3. On the basis of these allegations the appellants, were charged for violation of sections 2(46), 3, 6, 23 and 26 of the Sales Tax Act, 1990 read with Rule 5(5) of S.R.O. 1271(1)/96 dated 10-11-1996 and were called upon to show cause as to why Sales Tax of Rs.21,20,846 should not be recovered along with additional tax under section 34 and why the penal action may not be taken under section 33 for violation of the aforementioned provision of law. The reply furnished by the registered person was found un-satisfactory and the Adjudication Officer passed the order in original in the following manner:--
(i) The appellants were ordered to deposit Rs.1,54,224 along with additional tax and penalty equivalent to 30% of the amount of tax involved in invoice. No.8 dated 22-2-2003 issued to Messrs Hassan Spinning Mills, Faisalabad.
(ii) The appellants were order to deposit 5,56,862 along with additional tax and penalty equivalent to 30% of the amount of tax involved in invoices Nos.40, 41 and 42 dated 25-1-2003, 28-1-2003 and 4-2-2003 issued to Messrs Hassan Spinning Mills, Faisalabad.
4. (i.e) The appellants were order to deposit Rs.8,81,176 along with additional tax and penalty equivalent to 30% of the amount of tax Involved in invoices Nos.46, 47, 48, 49, 50 and 51 dated 5-3- 2003, 8-3-2003 1-3-2003 12-3-2003 15-3-2003 and 18-3-2003 issued Messrs Khokhar Textile Mills, D.G Khan.
5. Being dissatisfied with this treatment an appeal was preferred before the Collector (Appeals) contending that the supply of cotton lint was made to the units in the years 2002-2003 whereas these were declared blacklisted in 2004 and further the principal amount of tax on supplies has already been paid by the buyers. However, Collector (Appeals) did not agree with the contention and held that according to provisions of Rule 6 of S.R.O. 1271(1)/96 dated 10-11-1996 the ginners were required not to deliver the cotton lint to blacklisted spinners unless they had paid the Sales Tax outstanding against them. However, he directed to exclude the amount of principal tax and additional tax, if any, already paid by the spinners or appellants form the adjudged and recoverable amounts of tax along with additional tax and penalty. The registered person still being dis-satisfied has come up in further appeal before us.
6. The learned AR has vehemently challenged the action of the Adjudication Officer as well as the Collector (Appeals) as unjustified. It was contented that according to proviso to section 21(4) the Collector is authorized to blacklist the units or suspend their registration subject to adherence to the procedure laid down for the purpose. He argued that this provision was added i.e.f. 1-7-2003 whereas Messrs Hussan Spinning Mills, Farooq Habib Textile and Khokhar Textile were blacklisted on 28-10-2002, 30-9-2002 and 13-11-2002 respectively. In support of this contention reliance has been placed on the case-law reported as 2008 PTD 416 whereby it was held as under:-- "...Provision to S.2(4) of the Sales Tax Act, 1990 under which the collector was authorized to blacklisted the units or suspend their registration, subject to adherence to the procedure as laid down for the purpose, was added to the Sales Tax Act, 1990 i.e.f. 1-7-2003... Department's action to include complainant's name in the list of suspect units prior to that amendment was without jurisdiction..."
7. The next contention of the learned AR was that mere inclusion of a unit in a list of suspicious units or declaring as a suspected unit would not render same fake unless it was declared as a blacklisted unit after due process of law as provided under section 21. Consequences of blacklisting a person are of great magnitude and warrant that before taking such action there should be a fair and proper trial through impartial Court or Tribunal by providing such person reasonable opportunity to defend the allegations made against him. Since the provision of law dealing with blacklisting was not available at the time of blacklisting of Messrs Hassan Spinning Mills Limited, Farooq Habib Textile and Khokhar Mills the required procedure was not followed, the action of the Adjudication Officer was not sustainable. In this connection the AR has relied upon the following case-law:
(i) 2010 PTD 1112
(ii) 2006 PLD 84 (H.C)
8. (i.e) 2005 PTD 2442 (H.C)
9. "...Mere inclusion of a unit in a list of suspicious units or declaring as a suspected unit would not render same fake unless it was declared as a blacklisted unit after due process of law a provided under section 21 of the Sales Tax Act, 1990... Charge of suspected unit against the registered taxpayer was held to be illegal, unlawful and premature and no recovery stood against such registered taxpayer..." ...Petitioner company was not heard before passing the order of blacklisting it---Validity--- Consequences to follow such order were obvious and drastic, blacklisting of a firm or company resulted in deprivation of its business activity and amounted' to the commercial killing of company having multiple implications including the infringement of Fundamental Right No.18 of the Constitution---action of blacklisting having been taken without hearing the company/petitioner, the same was not sustainable in law.,."
10. "... Power under section 21, Sales Tax Act, 1990 was vested in a senior officer of the Department and could not be abdicated to the opinion of an audit report...."
11. The AR further contended that according to Rule 6(5) of Special Procedure for Ginning Industry Rules, 1996, the order passed by the Collector directing ginners not to deliver or supply ginned goods to defaulter spinning units must be supplied to the ginners. The ginner is liable only if supply is made after the date of receipt of such order of Collector, that is, the knowledge of the same. If a ginning unit after receipt of such order makes delivery or supply of ginned cotton to such spinning units or exporters without prior payment of the amount of sales tax involved, besides any other action which may be taken against him, such ginner shall be liable to pay sales tax, additional tax, and penalty thereof. The AR contended that the respondents have not supplied such order to the appellant and the appellant, therefore, was not aware of blacklisting at the time of making supplies to Messrs Hassan Spinning Mills Limited, Farooq Habib Textile and Khokhar Mills. It has been held by superior courts that service must be made through personal service. The appellant was not personally served and their service through substituted means was defective. Notice by substituted service could not be ordered unless court/authority came to the conclusion that party was avoiding service of notice or personal service was not reasonably practicable upon all defendants.
12. On this issue the AR has relied upon the following case-law:--
(i) 2006 CLD 836 (H.C)
(ii) 2000 CLC 530 (H.C)
13. 2006 CLD 836 the Honourable High Court held as under:-- ... Defendants were not personally served and their services through substituted means was defective---Ex parte decree was incorrectly passed without proper service of defendants/heirs of deceased loanee and they were illegally non-suited by dismissal of their application for setting aside ex parte decree---Banking Court had passed ex parte decree incorrectly without proper service of defendants/heirs of deceased loanee and they were non-suited by dismissal of their application---Ex parte decree passed by Banking Court was set aside and the case was remanded to Banking Court for decision of suit in accordance with law---Appeal was allowed in circumstances."
14. 2000 CLC 530 the Court held as under:- "... Notice of a proceedings was a basic right of party and notice by substituted service could not be ordered unless Court came to the conclusion that party was avoiding service of notice or personal service was not reasonably practicable upon all defendants---Mere issue of notice several times upon the defendants party without any report of bailiff, that it was not reasonably practicable for him to serve such notice, would not lay foundation for publication of notice...."
15. The Court has further held in the case reported as 2006 YLR 526 and 1993 MLD 657 that while ordering service through publication in newspaper, it should have been satisfied that defendant is avoiding his service. The newspaper may have little circulation and nobody knows about it in the suit village. The dispatch of such newspaper to defendant through post must be proved.
16. The AR further contended that the Government has waived of whole of the amount of default surcharge/additional tax and penalties vide S.R.O. 463(1)/2007 dated 9-6-2007 as amended vide S.R.O. 999(I)/2007 dated 29-9-2007 payable by a person provided the principal amount was paid by 30-6-2007 or had already been paid at the time of issuance of such notification. Since Messrs Hassan Spinning Mills Limited, Farooq Habib Textile and Khokhar Textile Mills have paid the original/principaI amount of sales tax, there is no reason in imposing additional tax or penalty on the appellant. The reliance in this regard was placed on the judgment of the Tribunal reported as 2009 PTD 330 whereby it was held:- "... Appellate Tribunal observed that government had waived of whole of the amount of default surcharge (additional tax) and - penalties vide S.R.O. 463(I)/2007 dated 9-6-2007 as amended vide S.R.O. 999(1)/2007 dated 29-9-2007 payable by a person provided the principal amount was paid by 30-6-2007 or had already been paid at the time of issuance of such notification---In the present case, entire principal amount had been paid by 11-2-2000 and, as such, the demand of additional tax and penalty stood remitted in terms of such notification---Appeal was accepted by the Appellate Tribunal and order was set aside..."
17. The AR further pleaded that since the F.B.R. Has itself condoned the late payment of sales tax by the blacklisted unit, the registered supplier cannot be made liable for additional tax and penalty as held by the Tribunal in the case reported as 2008 PTD 1864. In this case it was held as under:-- "Additional tax and penalties---Supplies to blacklisted units---Late payment of tax by the blacklisted units---Levy of additional tax and penalty upon the appellant/registered person--- Validity-Admittedly blacklisted unit had made the payment although it was deposited late---Levy of penalty upon the buyer i.e. Appellant was totally unjustified particularly when the Central Board of Revenue itself had condoned the late payment of sales tax---Finding that appellant had deliberately and knowingly supplied the goods to blacklisted unit was not supported by any type of evidence and thus was not sustainable-Orders passed by both the forums below suffering from legal infirmity we set aside and appeal was accepted by the Appellate Tribunal holding that appellant was not liable to make payment of additional tax and penalty".
18. It was next contended that there was no justification to impose any additional tax and penalty when there was no wilful default or mala fide on behalf of the appellants. Each and every case was to be decided on its merits as to whether evasion/non-payment of tax was wilful of mala fide, decision of which would depend upon the question of recovery of additional tax. The respondents have failed to prove wilful default or mala fides on the part of the appellant. To support this contention the reliance has been placed on the following case-law:
(i) 2006 SCMR 626 S.C.
(ii) 2008 PTD 2025 H. C.
19. (i.e) 2009 PTD 2074 (Trib) In the first case it was held that:-- "Additional sales tax and penalty, imposition of---Principals--Manufacturer or producer of goods in appropriate case of default in payment of sales tax, can be burdened with additional sales tax under section 34 of Sales Tax Act, 1990, as well as penalty under section 33 of the Act, which does not necessarily follow that in every case such levy was automatic, requiring of determination at all." ..Imposition of additional tax under section 34 was not mandatory and there was discretion left with the authorities to allow any concession---Each and every case had to be decided on its on merits as to whether the evasion of payment of tax was wilful or mala fide, decision of which would have impact on the question of recovery of additional tax---Where the nonpayment of sales tax within tax period was neither wilful nor it could be construed to be mala fide evasion of payment duty, recovery of additional tax as a penalty or otherwise was not justified in law..."
20. The AR further stated that beneficial amendments have been made in section 34 of the Sales Tax Act, 1990 where calculation of additional tax had been allowed @ 1 % of the tax due per month or any part thereof instead of higher rate applicable at the time of default committed by the registered person, therefore, even the additional tax and penalties imposed were not justified as held in the reported judgments 2009 PTD (Trib.) 876 and 2006 PTD (Trib.) (sic).
21. The learned DR, on the other hand, supported the orders of the authorities below for the reasons stated there in and prayed for the dismissal of appeal.
22. We have heard the arguments and considered the contentions of the parties as well as the case- law relied upon before us. The contentions put fourth at the bar carry considerable force. It has been observed that the appellants was charged without adherence to the procedure laid down by law and the Collector (Appeals) has confirmed the action of Adjudication Officer without appreciating the facts of the case as well as the contentions raised before him. The contention of the appellants that proviso to section 21(4) which authorized the Collector to blacklist the units or suspend their registration was added i.e.I. 1-7-2003, therefore, it can not be applied retrospectively is correct. The order regarding blacklisting of the alleged parties was also not in the knowledge of the appellants at the time of making supply nor the said order was served on the appellants before making supplies. The contention of the appellants that the alleged units on the basis of which they were charged have paid the principal amount of Sales Tax, therefore there was no justification of imposition of additional tax or penalties is also legally correct as the respondents have failed to prove wilful default on the part of appellant.
23. Considering this position in view, we are of the opinion that the action of the Adjudication Officer was not sustainable and the Collector (Appeal) has erred in law to maintain the same. In these circumstances the show-cause notice as well as the order in original is set aside and impugned order is annulled meaning thereby that the tax demand created is deleted.
24. Resultantly the appeal is accept. .