Justice Nadeem Azhar Siddiqi: This appeal has been filed by the Appellant challenging the Order-in- Appeal No. 129/2014 dated 26.12.2014 passed by the commissioner (Appeals) in Appeal No.25/2014 confirming the Order-in-Original No. 93/2014 dated 24.03.2014 passed by the Assistant Commissioner (Ms, Rafia Urooj, SRB, Karachi.
1. In short the facts of the case a stated in the order-in-original are that appellant have received taxable services of advertisement falling under tariff heading No. 98.02 and other taxable services of Second Schedule of the Sindh Sales Tax on Services Act, 2011 from SRB registered service providers and liable to withhold sales tax as per Sindh Sales Tax Special Procedure (Withholding) Rules, 2011 (herein after referred to as the Withholding Rules).
2. The allegations against the appellant are that scrutiny of the Annexure-C of the tax returns filed by SRB registered service providers for the tax periods of November, 2011, March, 2012 to August, 2012, October, 2012 to December, 2012, February, 2013 to August, 2013 revealed that the appellant has withheld Sindh Sales Tax amounting 17,651,485/= on advertisement services and Rs.72,187/= on other taxable services totaling an amount of Rs.17,723,672/=, but have neither deposited the tax with SRB nor submitted the withholding statements.
3. The appellant was served with show-cause notice dated 09.10,2013 to show-cause as to why penal action should not be taken against it for contravention/violation of various provisions of the. Sindh Sales Tax Act, 2011.
4. The appellant filed written reply dated 15.01.2014 stating therein that the appellant has not withheld any amount on account Sindh sales tax. It was further stated that sales tax on advertisement on TV and Radio is complex and complicated matter. It requires consensus between the provinces. In its absence compliance is not only difficult but almost impossible.
5. The Assessing officer passed-order-in-original for payment of sales tax of Rs.17,723,672/= along with default surcharge (to be calculated at the time of payment). The Assessing Officer imposed penalty of R5,2,810,262/= under clause 3, 11, 13 , and 15 of section 43 of the Act.
6. The Respondent challenged the Order-in-Original by way of filing of Appeal before the Commissioner (Appeals) who dismissed the Appeal, upholding the order-in-original, hence this appeal.
7. Mr. Tariq Najeeb Chaudary submits that the order-in-original was passed in the sum of Rs.17,723,672/- without considering that the appellant is a non resident person and is not come within the definition of withholding agent as provided in the Special Withholding Rules, 2011. He then submits that pursuant to an arrangement agreed between the appellant and the officials of SRB the appellant has deposited an amount of Rs.12,092,615/- with SRB and the balance amount of Rs.5,631,057/- was deposited with FBR and the appellant filed application for transfer of that amount form FBR to SRB. Mr. Tariq Chaudary also challenged the imposition of penalty and default surcharge on the ground that the department has failed to establish willfulness and mensrea on the part of the appellant. He then submits that there is a serious contest between the parties with regard to the liability of the appellant to withhold and deposit sales tax with SRB, Mr. Tariq placed reliance on the following judgments.
1. D.G. Khan Cement PTCL 2004 CL 224 (SC)
2. Resource Marketing PTCL 2017 CL 613 (SRB Trib.)
3. Optimus Capital PTCL 2017 CL 619 (SRB Trib.)
4. Nestle Milk PTCL 2001 CL 627 (Customs & Excise Trib.)
8. Mr. Sajid Ali, AC confirms that the principal amount of tax was paid to FBR well as to SRB and submits that he had already filed a statement dated 20.04.2017 regarding deposit of principal amount of tax. Mr. Sajid Ali further states that the amount deposited with FBR will be adjusted.
9. Mr. Sajid states that the appellant cannot escape the liability of penalty and default surcharge as the amount of tax was withheld but not deposited with SRB and the act of non-depositing the withheld tax is sufficient to establish willfulness and mens-rea. He then submits that default surcharge can only be waived by 5RB Board and the application made by the appellant is pending before the Board.
10. In rebuttal Mr. Tariq Chaudary placed on record copy of application filed before SRB Board on 01.10.2016 and submits that despite lapse of considerable time the Board fails to consider the application and request that the controversy be decided by the Tribunal.
11. we have heard the learned representatives of the parties and perused the record made available before us.
12. The appellant has already deposited a sum of Rs.12,092,615/= with SRB confirmed by the learned AC. The appellant has also deposited a sum of R5.5,631,057/= with FBR and applied to FBR for transfer of amount to SRB and the learned AC states the amount deposited with FBR can be recovered by SRB through adjustment. In view of payment of principal amount of tax the dispute remains for payment of default surcharge and penalties.
13. As far as the default surcharge and penalties are concerned there was a serious contest between the parties. The appellant claimed that it is a non resident and cannot act as withholding agent and the responsibility is upon the resident service recipients to recover and deposit the tax. Since the appellant has deposited the tax no deliberation is required.
14. The default surcharge and penalty can only be imposed if non-payment tax of on the part of appellant is proved as malafide, willful and having an element of mens rea, which is lacking in this case. To establish default/non payment of tax the Department must establish that the non-compliance of statutory provisions has been due to some avoidable cause. Mere non-Deposit of tax without element of willfulness, malafide and mensrea cannot entail default surcharge and penalty. 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". The principle laid down in the reported case is fully applicable to this case. In the reported case of Collector Customs versus Nizam impex (PTCL 2014 CL 426 (SHC)) 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 and additional tax and surcharge is not justified. In such circumstances the Tribunal has discretion to waive/remit additional tax and penalty". In this case there is no independent determination at all in this regard and it was taken for granted by the forums below that the liability to pay default surcharge and penalty is a necessary consequence or corollary of non-payment of sales tax within stipulated period. In view of the above we are satisfied that the default surcharge and penalty was imposed without any lust cause.
15. In view of the above we are satisfied that the order-in-original and order-in-appeal have been lawfully passed and are maintained except imposing default surcharge and penalties. The appeal is partly allowed to the extent of imposing default Surcharge and penalties.
16. The appeal is disposed of. The copy of this order may be supplied to the learned representatives of the parties.
(Agha Kafeel Barik)
TECHNICAL MEMBER (Justice Nadeem Azhar Siddiqi)
CHAIRMAN Karachi Dated:15:08:2017 Copies supplied for compliance:-
1. The Appellant through authorized Representative.
2. The Assistant Commissioner (Unit-), SRB, Karachi.
Copy for information to:-
3. The Commissioner (Appeals), SRB, Karachi
4. Office Copy.
5. Guard File.