1. ORDER: MR. JUSTICE NADEEM AZHAR SIDDIQI. This appeal has been filed by the appellant challenging the Order-in Appeal No, 128/2016 dated 18.08.2016 passed by the Commissioner (Appeals) in Appeal No, 192/2014 confirming the Order-in-Original No, 657/2014 dated 18th November, 2014 passed by the Assistant Commissioner (Mr. Muhammad Shoaib Iqbal), SRB, Karachi.
1. In short, the facts of the case are that the Appellant is registered with SRB and is engaged in providing or rendering Event Management Service (Tariff heading No, 9826.0000) of the Second Schedule of the Sindh Sales Tax on Services Act, 2011 (hereinafter referred to the Act of 2011).
2. It was alleged in the order-in-original that the scrutiny of the sales tax profile revealed that appellant has provided event management services to Standard Chartered Bank but have failed to pay short paid amount of Rs, 1,220,944/= to SRB for the periods September, 2013 to February, 2014.
3. It was further alleged that the appellant has also failed to file monthly sales tax returns for the periods March-April, 2014, July, 2014 and August, 2014.
4. A show-cause notice dated 29.09.2014 was served upon the appellant, for assessment of tax and payment of default surcharge and penalty. The appellant neither appeared before the Assessing Officer nor filed any written reply.
5. The Assessing Officer in the order-in-original states that the appellant provided event management services to M/s Standard Chartered Bank involving sales tax of Rs, 2,379,6991= but they have only charged sales tax on their commission/service fee and failed to charge, collect and pay sales tax on value of taxable service, hence short paid an amount of Rs, 1,220,944/= to SRB.
6. The Assistant Commissioner passed assessment order (order-in-original) levying sales tax of Rs,1,220,944/= for short paid amount of sales tax alongwith default surcharge and imposed penalty of Rs, 61,047/=. The Assistant Commissioner also imposed penalty of Rs, 10,000/= per month per tax period or a fraction thereof for the periods March-April, 2014, July, 2014 and August, 2014.
7. The Appellant challenged the Order-in-Original by way of filing appeal before the Commissioner (Appeals) who dismissed the Appeal, for non-prosecution vide Order dated 18.08.2016, which order the appellant has challenged before this Tribunal.
8. Mr. Javed Iqbal states that he adopts the same submissions as made by him in connected Appeal No, 71/2016. He states that in order-in-original No, 657/2014 the Ac assessed an amount of Rs, 1,220,994/=, which amount was already deposited with SRB and the appellant placed on record the Photocopies of CPRS and certificate from the Bank. He then submits that since tax has been deposited the only issue to be decided is relating to default surcharge and penalty. He then submits that the delay in payment was caused for the reason that the sales tax has been charged and deposited on the component of service but on the advice of Commissioner (Appeals) the revised invoice was issued and tax was charged on gross amount including the cost of goods. He then submits that the party who was liable to pay tax was delaying the matter and after serious efforts by the appellant the tax was paid to the appellant which was deposited with SRB. He then submits that the delay was without any malafides and intention not to pay tax as there was a contest/dispute between the parties whether the tax was to be charged on the gross amount or on the component of services provided or rendered. He then submits that the allegation is short payment, which was sufficiently explained. He then submits that in absence of intention not to pay the tax the appellant cannot be penalized by way of payment of default surcharge and penalty.
9. Mr. Sanjay Kumar stats that the appellant has willfully and deliberately failed to discharge its statutory obligations and had deposited the tax much offer the due date and is liable to pay default surcharge and penalties. Mr. Sanjay offer checking the record has confined that the appellant has deposited the tax as assessed by the Assessing Officer. He then submits that since the non-payment of tax was deliberate and willful the default surcharge and penalty cannot be waived.
10. I have heard the learned representatives of the parties perused the record made available before us.
11. The appellant has deposited the due tax immediately after the order-in-appeal. Now the dispute remains in respect of default surcharge and penalty. The allegation against the appellant is not non-payment of tax but short payment of tax. The contention of the appellant is that it is liable to pay tax on the service component only and not on the gross amount which includes goods also.
12. The Assessing Officer in the order-in-original states that the appellant has failed to charge sales tax on value of taxable service instead have only charged sales tax on their commission/service fee. The appellant has contested this point upto the level of the Commissioner (Appeals).
13. Apparently there is some force in the arguments. However, since none of the parties have properly argued this point I leave this point to be decided in some other appropriate proceedings.
14. Liability to pay default surcharge and penalty is not a necessary consequence or corollary of every non-payment of tax within stipulated period but is subject to prove that the non- payment of tax was with malafide intention not to pay or evade the tax. The penalty could only be imposed when the department establishes mens rea and a case indicating dishonest motives of a taxpayer. In this case the department totally failed to establish the necessary ingredients of imposing default surcharge and penalties.
15. The word "default" necessarily imports of an element of negligence or fault and means something more than mere noncompliance of statutory provisions. To establish default the department must show that the non-compliance of statutory provisions has been due to some avoidable cause.
16. Mere non-deposit of tax without element of mensrea, wilfulness and malafide cannot entail default surcharge and penalty.
17. Mere non-deposit of tax or failure to pay tax without element of intentional willfulness and malafide cannot entail penalty and default surcharge. In the reported case of Pakistan through Secretary Ministry of Finance and others versus Hardcastle Waud (Pakistan) Limited (PLD 1967 SC 1) in his separate note Mr. Justice (as he then was) Hamoodur Rahman has held that "Even in the case of a statutory offence the presumption is that mens rea is an essential ingredient unless the statute creating the offence by express terms or by necessary implication rules it out". In the reported case of Commissioner of Income Tax versus Habib Bank Limited [(2007) 95 Tax 336 (H C. Kar.)} a learned DB of Sindh High Court has held that "the penal provisions under the Income Tax Act are quasi criminal in nature and mandatory condition required for the levy of penalty u/s 111 is the existence of mens rea and therefore, it is necessary for the department to establish mens rea before levying penalty u/s 111". Both the above referred case law fully applied to the facts of this case. In this case also the mens rea is missing.
14. In view of the above discussion the order-in-original and order-in-appeal are set aside to the extent of imposing penalty and default surcharge.