Justice Nadeem Azhar Siddiqi: This appeal has been filed by the appellant challenging the Order-in-Appeal No.121/2016 dated 18th August, passed by the Commissioner (Appeals) in appeal No.125/2016 varying the order in Original No.222 of 2015 passed by the Assistant Commissioner (Mr. Muhammad Yousuf Bukhari), SRB.
01. In brief the facts of the case as stated in the Order-in-Original are that the appellant is registered with SRB under service category of "Advertisement Services" chargeable to Sindh Sales Tax @ 16% under section 8 of the Sindh Sales Tax on Services Act, 2011 (herein after referred to as the Act) w.e.f. 01.07.2011.
2. It has been alleged in the order-in-original that during scrutiny of tax profile of the appellant revealed that it had continuously filed Null returns for the Tax periods July, 2011 upto June, 2013. It was further alleged that the appellant declared services amounting to Rs.273,801,978/= and Rs.387,949,292/= in the Income Tax returns for the same period i.e. July-2011 to June-2012 and July-2012 to June-2013 which resulted in non-declaration and non-payment of Sinclh sales tax of Rs.43,808,316/= and Rs.62,071,886/=. It was also alleged that sales tax amounting to Rs.22,663,091/= were withheld and deposited by the SRB registered persons against the appellant during the tax periods July-2013 to June- 2014. Whereas, the appellant has declared output tax of Rs.3,473,457/= during the tax periods under reference.
3. A show-cause notice dated 20.11.2015 was issued to appellant to explain as to why Sindh Sales Tax of Rs.43,808,316/= and Rs.62,071,886/= for the tax periods from July-2011 to June-2012 and July-2012 to June-2013 respectively, may not be assessed and further to explain as to why the short-declared/un-declared Sindh sales tax of Rs.19,189,634/= (22,663,0911= - Rs.3,473,457/=) for the tax periods July-2013 to June-2014 may not be assessed and recovered along with default surcharge and penalties.
4. The appellant before the Assessing Officer submitted that the appellant is engaged in providing Advertising Agency Services which are liable to Sindh Sales Tax w.e.f.
01.07.2013, therefore, the revenue generated from providing services during July-2011 upto June-2013 were not taxable, therefore, the appellant did not declare the same in their sales tax returns. It was further submitted that the service recipients of advertisement services are liable for payment of tax as per Sindh Sales Tax special Procedure (Withholding) Rules, 2011 (hereinafter referred to as the withholding Rules) and the tax was withheld by service recipients for the tax periods July-2013 to June-2014. The appellant under cover of its letter dated 06.04.2015 pro 3ed copies of monthly sales tax returns along with proof of payment of rs. 27,663,284/=.
5. The Assessing Officer passed the order-in-original only in respect of payment of default surcharge. Para 14 of the Order-in-Original is read as under: "14. Since, the aforesaid Sindh Sales Tax has not been deposited within the specified due date, therefore, I order the registered person to deposit the default surcharge of Rs.3,739,578/= as required in terms of section 44 of the Act, 2011, with respect to late payment of Sindh sales tax of tax periods invoked in the show-cause notice i.e. July, 2013 upto June, 2014."
6. The appellant challenged the order-in-original by way of filing of appeal before the Commissioner (Appeals) who varied para 14 of order-in original as under: "Accordingly the appellant may himself apply to the Board under section 45 of the Act, 2011 or the Respondent may take the Matter with the Board within two (2) months of the receipt of this order and the appellant may seek abeyance of recovery from the Board. And during that period of these two (2) months the recovery shall not be affected. Order accordingly."
7. The appellant challenged the order-in-appeal before this forum.
8. Mr. Saeed Bux the learned representative of appellant placed on record copy of letter addressed to Learned Chairman of SRB for waiver of default surcharge. Mr. Saeed Bux further states that total tax amount was already deposited amounting to Rs.55,572,649/- against the show cause amount of Rs.27,663,284/-. He submits that even the appellant paid the amount which was not covered under the show cause notice. Mr. Saeed Bux further states that in view of an understanding with the then Assessing Officer that in case full payment of tax under the show cause notice and the tax due beyond the show cause notice period is paid before the passing the order in original the default surcharge and penalty will not be imposed. He then submits that Assessing officer did not imposed penalty but imposed default surcharge in breach of under standing between the appellant and SRB. Mr. Saeed Bux further argued that at the one hand the Assessing Officer in para 13 of the order-in-original state that "I do not found and deliberate intention of the appellant in delayed submission/deposit of tax. Therefore, penalty with respect to Serial No. 2, 6(d), 11, 12 and 13 of the Table under section 43 of the Act, 2011 is not imposed upon the appellant as the guilty mind of the appellant is not established in this regard" and on the other hand imposed default surcharge without first establishing mens rea and willful default on the part of appellant. Mr. Saeed Bux placed on record the reported judgment of Supreme Court in the case of D.G. Khan Cement 90, Tax I, 2004 PTCL 224.
9. Mr. Aamir All DC, SRB states that from the position of AC to Commissioner, SRB no one is authorized to waive default surcharge. He submits that no written evidence is available on record to show any understanding between the parties. He then submits that para 14 of order in original is clear that the default surcharge imposed for valid reasons. He then submits that the appellant has filed appeal after one year from the date of order-in-original and Commissioner (Appeals) has wrongly condoned the delay in filing of appeal. He criticized the order-in-appeal and submits that the Commissioner (Appeals) has wrongly varied the order-in-original.
10. In rebuttal Mr. Saeed states that the appeal was filed as the Bank Account was attached on 28.03.2016 and thereafter appeal was filed on 16.04.201. He submits that the Commissioner (Appeals) for valid reasons exercised discretion in favor of the appellant and condoned the delay in filing of appeal and the said exercise of discretion cannot be challenged without cogent reasons.
We have heard the learned representative of the parties and perused the record made available before us.
11. First we will take up the argument of learned DC that appeal before Commissioner (Appeals) was time bared and the Commissioner (Appeals) wrongly condoned the delay. We have perused the order-in appeal. Sub-section (5) of section 57 of the Act empowered the Commissioner (Appeals) to admit the appeal after expiration of prescribed time if the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from lodging the appeal within that period. The learned Commissioner (Appeals) has exercised discretion/jurisdiction vested in him properly and for valid reasons and we do not found any reason to interfere with. This ground was also taken in connected Appeal No. 63/2016 filed by the Assistant Commissioner against the Appellant and detail reasons were recorded n that appeal.
12. The other argument of learned DC is that from the Assistant Commissioner to Commissioner, SRB no one is authorized to waive default surcharge. It is true that only the Board of SRB is empowered to exempt from payment of penalty and default surcharge. However before imposing the default surcharge the Assessing Officer and the Commissioner (Appeals) should keep in mind the various Judgments of the Superior Courts which are binding upon them in view of Articles 189 and 201 of the Constitution of Pakistan. This case is not the waiver/exemption of default surcharge, but whether in the circumstance of the case default surcharge can be imposed or not. We are of the view that once the Commissioner (Appeals) in para 5 of the order-in-appeal held that "It is an admitted fact that the promise was made and under which the appellant performed his part and made payments beyond the scope of SCN. And that fact was also recorded in the 010 at para 12" the Commissioner (Appeals) in all fairness should instead of directing the parties to move to the Board grant the relief by holding that the appellant is not a willful defaulter and in absence of mensrea the default surcharge cannot be imposed.
13. The dispute is in respect of imposition of default surcharge by the Assessing Officer. The show cause notice was issued for huge amount for the tax periods July-2011 to June-2012 and July-2012 to June-2013 not involving payment of sales tax. The show-cause notice was issued alleging that the appellant is registered with SRB under service category of "Advertisement Services" without mentioning the specific Tariff Heading. Same is the position with the order-in-original, wherein no tariff heading was mentioned. Furthermore the tax was claimed only on the basis of Income Tax returns and no independent assessment has been made to determine the value of service and quantum of tax.
During the assessment proceedings the appellant deposited Rs.27,663,284/= for tax periods July 2013 to June-2014 and Rs. 27,909,365/= for the tax periods July-2014 to January 2015 (period beyond the show-cause notice) which reflects the complaint attitude of the appellant.
14. The payment of default surcharge is in the nature of penalty for delayed deposit of tax and quasi criminal in nature. It is the duty of the Department to first establish willful default on the part of the appellant and then to imposed default surcharge. Furthermore for imposing default surcharge existence of mens rea is necessary. It is now well settled that punitive action cannot be taken unless it is established that the non payment of tax was willful and malafide. Even in the case of statutory offence the presumption is that mensrea is an essential ingredient (PLD 1967 SC 1 Pakistan versus Hard Castle Waud). Once the Assessing Officer had concluded that "I do not found and deliberate intention of the appellant in delayed submission/deposit of tax. Therefore, penalty with respect to Serial No. 2, 6(d), 11, 12 and 13 of the Table under section 43 of the Act, 2011 is not imposed upon the appellant as the guilty mind of the appellant is not established in this regard" the imposition of default surcharge was without justification. The department has failed to establish mensrea on the part of the appellant. The appellant has cited the reported judgment in the case of D.G. Khan Cement supra. In the reported case of the facts were that the sales tax in full has been deposited by the tax payer but the same having not been paid within tax period, the question before the Honorable Supreme Court was whether the tax payer was liable to pay additional tax by way of penalty under section 34 of the Act of 1990. In para 28 of the judgment the Honorable Supreme Court has held that "Each and every case has to be decided on its own merits as to whether the evasion or non-payment of tax was willful or malafide, decision of which would depend upon the question of recovery of additional tax. In the facts and circumstances of the case, we find that non-payment of the sales tax within tax period was neither willful nor it could be construed to be malafide evasion or payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law". In this case there is no independent exercise whether the non-deposit of tax was willful or malafide.
15. Keeping in view the facts and circumstances of the case we consider that this is a fit case for taking a lenient view. In the reported case of Collector Customs versus Nizam Impex PTCL 2014 CL 426 a learned DB of Sindh High Court has held that if the party did not act malafidely with intention to evade the tax, the imposition of penalty or additional tax and surcharge was not justified and the Tribunal has discretion to waive/remit additional tax and penalties. In this case we do not found any malafide on the part of the appellant for imposing d fault surcharge.
16. In view of the above, the appeal is allowed. The default surcharge imposed is setaside.
17. We have noticed from the order-in-appeal that the department has recovered an amount of Rs.2,152,128/= on 4th April, 2016 by way of attachment of bank amount of the appellant. If the said amount is recovered on account of default surcharge in this case the same be refunded to the appellant within fifteen days from the date of receipt of this order or be adjusted in the future tax liability of the appellant if any.
18. The appeal is disposed of Copy of the order may be provided to the authorized representatives of the parties.
Agha Kafeel Barik)
Member T echnical (Justice nadeem Azhar Siddiqi)
CHAIRMAN Karachi Dated 21.03.2017 Copies supplied to:- 1) The Appellant through authorized representative.
2) The Assistant Commissioner SRB, Karachi.
Copy for information to: 3) The Commissioner (Appeals), SRB, Karachi.
4) Office copy 5) Guard file.