NADEEM AZHAR SIDDIQI, CHAIRMAN.---(1). This appeal has been filed by the appellant challenging the Order-in-Appeal No. 30/2016 dated 18th March, 2016 passed by the Commissioner (Appeals) in Appeal No. 215/ 2015 confirming the Order-in-Original No. 506 of 2015 (to the extent of sales tax and default-surcharge) passed by the Assistant Commissioner (Ms. Lubna Najmi), SRB.
1. In brief the facts of the case as stated in the Order-in-Original are that the respondent is engaged in providing/rendering taxable services of (1) Stock Brokers and Commodity Brokers (2)
Non-Banking Finance Companies and (3) Contractual Execution of Work or Furnishing Supplies chargeable to Sindh Sales Tax under tariff headings 9819.1000, 9813.8100 and 9809.1000 respectively of the Second Schedule of the Sindh Sales Tax on Services Act, 2011 (herein after referred to as the Act).
2. It has been alleged in the order-in-original that during scrutiny of Financial Statements for the years ended June, 2014, June, 2013 and June, 2012 revealed that the respondent have received the consideration against aforesaid taxable services to the tune of Rs. 75,613,499/- that involves SST amounting to Rs. 9,270,465/-.
3. A show-cause notice dated 26.02.2015 was issued to the respondent to explain as to why Sindh Sales Tax of Rs. 9,270,465/-pertaining to the tax periods July, 2011 to June, 2014 may not be assessed along with default surcharge and penalties. The respondent filed written replies dated 19.03.2015, 06.04.2015, 05.08.2015 refuting the allegations leveled against it.
4. Finally the Assessing Officer after hearing the order-in-original the operative part of which under:--04.05.2015 and the parties passed is reproduced as under:- Order-in-Original para 16.
"16. In view of the above discussion the Sindh Sales Tax amounting to Rs. 9,300,8631= is still outstanding against Messrs Optimus Capital Management (Pvt.) Limited. I, therefore, order M/s. Optimus Capital Management (Pvt.) Limited to deposit the principal amount of Rs. 9,300,8631= along with amount of default surcharge (to be calculated at the time of payment) under section 44 of the Act in Sindh Government Head of Account "B-02384". Taking in view that despite of giving ample opportunities for the payment of Sindh Sales Tax during the proceedings of the instant case, Messrs Optimus Capital Management (Pvt.) Limited failed to deposit the same. This attitude amounts to utter violation and disregards of the provisions of the said Act, which has been enacted in accordance with constitutional mandate under its Article 142(c) read with item No. 49 of Part I of the Federal Legislative List in Fourth Schedule to the Constitution. Such flouting of legal provisions should not go unpunished.
17. Aforementioned contravention of the law is liable to be penalized under Entries 3 and 6(d) of the Table under section 43 of the said Act that is also imposed to be recovered. It is pertinent to mention here that since sections 43(3) and 43(6d) covers the offences of non-payment of SST and intention (Knowingly/fraudulently), respectively, therefore, no adverse inference has been drawn toward sections 43(5), (8), (11), and (12) of the Act, 2011.
Head Amount (Rs.)
Penalties under section 43(3) 465,043/- Penalties under section 43(6d) 9,300,863/- Total 9,765,906/-"
4. The order-in-original (assessm ent order) was challenged by the r, appellant before the Commissioner (Appeals) who maintained the order ' to the extent of amount of tax and payment of default surcharge and allowed the appeal to the extent of penalties imposed. The operative part of the order-in-appeal is re-produced as under:-- Order-in-Appeal para 12 "12. It is required to be seen that in case of the penalty under Offence 4 No. 6(d) the legislature has used two elements to constitute the Offence against the penalty i.e. "knowingly and fraudulently". It is required to be seen that the order has nowhere has said or discussed the words "knowingly or fraudulently" nor has discussed the definition of the "tax fraud" as defined at clause (94) of section 2 to construe the acts or omissions of the Appellant to mean the tax fraud and to read them with Offence No. 6(d). To my humble view such a huge penalty would have been imposed if it was established that the act or omissions of the Appellant were in flagrant violation of law and there appeared a fraudulent intent on part of the Appellant. To my humble view the matter involved typical question of law and fact and the appellant was not clear in his mind as to whether tax accrues and that whether he is liable to pay or not. As a result of which the order-in-original appears <- to be alterable in its kind. It is also to be taken in mind that in case of sub-para (ii) of sub-para (a) of para 3 it is the Appellant who has surfaced his liability and has shown willingness to pay. Both, in the cases of penalty under Offences No.3 and the penalty under Offence No. 6(d) of Section 43 it was mandatory to establish that there existed mens rea and mala fides, which to my humble understanding does not exist, though the default was willful. Even the order in original does not discuss the presence of both these elements nor establishes them within reasonable belief and beyond doubt. In this regard relevant is the case of Messrs D.G. Khan Cement v. the Federation of Pakistan, decided by the Honorable Supreme Court of Pakistan, reported in 2004 SCMR 456 = 2004 PTD 1179.
6. Mr. Tariq Ali the learned AC for appellant states that the Commissioner (Appeals) failed to consider that actus-reus of non-payment of tax is itself sufficient to conclude that mens rea exists and non-compliance of various provisions of the Act of 2011 itself provides sufficient evidence to impose penalties provided under law. He then submits that the Commissioner (Appeals) has wrongly set-aside the penalties without considering that despite sufficient opportunities the respondent failed to discharge its liabilities towards payment of tax: He then submits that reliance of the Commissioner (Appeals) on the reported case of DG Khan Cement 2004 SCM R 456 = 2004 PTD 1179 is misconstrued as the same relates to additional tax under Sales Tax Act, 1990 and do not relates to imposition of penalties under the Act of 2011.
7. Mr. Gohar Manzoor the learned representative of the respondent states that the order-in-appeal has been properly passed after considering the facts of the case. He submits that without presence of mens rea no one can be penalized. He then submits that there was a contest between the department and the respondent regarding the chargeability of tax and as soon as controversy was decided by Commissioner (Appeals) the appellant has immediately deposited the tax and default surcharge and has not further challenge the order-in-appeal. He then submits that the attitude of the appellant is of a compliant taxpayer as huge amount of taxes were paid to FED Authorities, Income Tax Authorities, Sales Tax Authorities and Sindh Revenue Board. He then submits that neither the presence of actus reus or mens rea has been alleged nor any findings have been recorded by the Assessing Officer in this regard. He then submits that to penalize any one the presence of both actus reus and mens rea are necessary, which are lacking in this case. He then submits that the Commissioner (Appeals) has rightly held that without establishing mens rea the penalties cannot be imposed. He further argued that the principles laid down in the case of DG Khan Cement are applicable to this case also and the learned AC has tried to distinguish the case on misconceived grounds.
8. We have heard the learned representative of the parties and perused the record made available before us and the written submissions of the respondent.
9. The respondent has deposited the sales tax determined by the appellant along with default surcharge and there is no dispute in this regard. The dispute remains in respect of penalties imposed by the Assessing Officer under serial Nos. 3 and 6(d) of section 43 of the Act, 2011. Serial No. 3 of section 43 deals with the penalty for failing to deposit the tax with in time or manner laid down under the Act and serial No. 6(d) of section 43 deals with the penalty for knowingly or fraudulently fails to pay, recover or deposit the actual amount of tax, or claims inadmissible tax credit or adjustment or deduction or refund. In this case Assessing Officer imposed penalty for non-payment of tax under two provisions of section 43 of the Act of 2011 relating to nonpayment of tax. Both the provisions cater two different situations and cannot be invoked simultaneously. If a taxpayer fails to deposit the tax amount due or any part thereof in the manner laid down under the Act or Rules made thereunder, subject to presence of mens rea penalty can be imposed under Serial No. 3 of Section 43 of the Act. If the same offence is committed knowingly or, fraudulently, subject to presence of mens rea penalty can be imposed under Serial No. 6(d) of Section 43 of the Act. Word "knowingly" means with knowledge which, signifies knowledge of facts on which the non- payment of tax take place. The word "fraudulently" means an intention to deceive or defraud, which signifies that a person does an act with intention to defraud. The respondent was penalized twice for committing same offence of non-payment of tax. From the contents of section 43 6(d) it is clear that the provisions can only be invoked if the offences mention in the provision has been committed knowingly or fraudulently and not otherwise. The learned Commissioner (Appeals) has rightly held that "It is required to be seen that the order has nowhere has said or discussed the words "knowingly or fraudulently" nor has discussed the definition of the "tax fraud" as defined at clause (94) of section 2 to construe the acts or omissions of the Appellant to mean the tax fraud and to read them with Offence No. 6(d). To my humble view such a huge penalty would have been imposed if it was established that the act or omissions of the Appellant were in flagrant violation of law and there appeared a fraudulent intent on part of the Appellant". The imposition of penalties without establishing mens rea and mala fides on the part of the taxpayer is illegal and cannot be sustained. For imposing penalty under serial No. 6(d) of S-43 of the Act the department has to establish beyond shadow of doubt that the non-payment of tax was knowingly or fraudulently. The department has to prove the same by producing evidence and mere assertion is not sufficient in this regard. Liability to pay 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 knowingly or fraudulently with mala fide intention not to pay or evade the tax. The penalty could only be imposed when the department establishes a case indicating dishonest motives of a taxpayer. In this case the department totally failed to establish the necessary ingredients of imposing penalties under the above two provisions.
10. Mere non-deposit of tax or failure 10 pay tax without element of intentional willfulness and mala fide cannot entail penalty. In the reported case of Pakistan through Secretary Ministry of Finance and others v. Hard castle 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 v. Habib Bank Limited 2007 PTD 901 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 under section 111 is the existence of mens rea and therefore, it is necessary for the department to establish mens rea before levying penalty under section 111". Both the above referred case law fully applied to the facts of this case. In this case also the mens rea is missing.
11. In view of the above discussion the Order of Commissioner (Appeals) is upheld and the appeal is dismissed.