Mr. Agha Kafeel Barik: This appeal has 'been filed by the Appellant challenging the Order-in-Appeal No. 181/2016 dated 27 October , 2016 passed by the Commissioner (Appeals) confirming the Order--in--Original No. 685/2016 dated 1 1.07.2016 passed by the Assistant Commissioner , SRB, Karachi. The facts of the case briefly are as under .
2. The appellant is a private limited comp any rendering services of 'Program Producer and Production House' chargeable under Tariff Code "9832.000" of 2 Schedule. It was however registered with the SRB on 17.12.2015 as provider of advertisement services.
3. The Assistant Commissioner (Unit-21), SRB as a result of perusing record of some withholding agents found that the appellant had neither filed returns for the period From December, 2014 to February, 2016, nor paid tax on services rendered during this period. Thus on the basis of purchase value of Rs.189,868,961/- rendered by the appellant to four of its clients (namely Nestle Pakistan, Gul Ahmed Textile Mills, K.S. Sulemanji Esmailji & Sons and Ogilvy & Mather Pakistan Ltd.) during the period of 13 months, from December 2014 to December 2015, he issued a show cause notice on 11,03.2016 confronting the appellant his intention to charge Sindh Sales Tax at Rs.24,814,965/- on the said total value of purchases, beside charging penalty under section 43 and default surcharge under section 44 for not filing returns for the period from December 2014 to January 2016.
He also observed that the appellant had received taxable services from two parties namely Saqib Jahangir Malik and Emi Pakistan Ltd. on which tax @ 375,281 was withheld by the appellant but not deposited. Hence the Assistant Commissioner, SRB issued a show cause notice on 11.03.2016 for recovery of Rs.25,190,246/- along with default surcharge.
4. During the proceedings following the show cause notice it was revealed that most of the tax payable was in fact withheld and deposited by the service recipientsand ultimately tax amount ofth nd Rs.839,689/- remained unpaid which was finally deposited by the appellant immediately after order of Commissioner (Appeals) on 26.07.2016.
5. However, the Assistant Commissioner, SRB imposed penalty of Rs.1,026,000/- under section 43(2) for late filing of returns for the period from December 2014 to February 2016, beside also imposing penalty under section 43(11) at Rs.344,827/- and Rs.75,543/- under section, 43(3), and also default surcharge under section 44(1) on Rs.839,689/-.
6. On appeal the learned Commissioner (Appeals) set aside penalty of Rs.344,827/- under section 43(11) hence no appeallies on this issue.
7. Mr. Rao Nisar Ahmed, FCA attended on behalf of the appellant whereas Mr. Aamir Ali, Deputy Commissioner and Mr. Asad Raza Assistant Commissioner appeared for the SRB.
8. The main issue which arise from this appeal is as under: Whether penalty under section 43(2) is to be imposed at Rs.10,000/- with compounding affect i.e. 10,000 for every month during the period of default or Rs, 10,000/- only for one default irrespective of the length of the period of default or it is an amount of Rs.10,000/- only for one default.
9. Mr. Nisar Ahmed stated that the principal amount of tax of Rs.839,689/- was deposited on 26.07.2016 even before the date of order in appeal. He submits that the Assesing Officer passed order in original in respect of following: a. Sindh Sales Tax Rs.839,689/- paid on b. Penalty u/s 43(3) 26.07.2016 Rs.75,543/- c. Penalty u/s 43(11) Rs.344,827/- deleted by Com. d. Penalty u/s 43(2) (Appeals) Rs.1,206,000/- to be e. Default surcharge calculated at the time of f. Default surcharge on 671,177 payment Rs.43,424/- Total Rs.2,509,483/-
10. Mr. Rao Nisar further submits that the Commissioner (Appeals) in para 6 of the order in appeal dated 27.10.2016 deleted the penalty under section 43(11). He then submits that the recipient of service have withheld 100% of tax amount and had deposited the same with SRB and no loss has been caused to the public exchanger. He further submits that the recipients of service are withholding agents of Department and the appellant may not be penalized on account of error or omission on their part as the appellant was not at fault. He then submits that the default surcharge and penalty was imposed without any cause and justification and without establishing mens rea and deliberate wilful default on the part of the appellant. He relied upon the order of Tribunal in AT-95/2015 (AKD Securities Ltd.) and AT No.24/2016 (Awaz Television Network). He requested that penalty and default surcharge may be set aside. He submits that since no loss was caused to the public ex-changer the imposition of penalty tantamounts to harassment.
11. Mr. Rao in addition to his arguments dated 21.12.2016 states that by withholding 100% Sales tax the recipients have violated the withholding rules and instead of taking action against the withholding agents the appellant was penalized. On a question from the Tribunal Mr. Aamir Ali states that he is notaware whether any action was initiated against the recipients of service or not. Regarding penalty on account of late filing of returns he submits that department was also negligent as the notice was issued after 2 years. He then submits that aft the tax except Rs.839,689/- was deposited within time and that amount was also deposited during pendency of appeal before the Commissioner (Appeals). He then submits that show cause notice was issued in the sum of Rs.25,190,246/- out of which the tax liability was established only to the extent of Rs.839,689/- and the effect is that the tax liability is less than 5% of the amount mentioned in show cause notice. He then submits that mens rea is lacking in this case and the department has failed to establish malafide on the part of the appellant.
12. Mr. Aamir Ali, D.C. admitted that the principal amount of tax involved amounting to Rs.1,214,870/- was paid. As regard the penalties under Serial No.2 of Section 43 the fact is clear that tax payer has filed the return almost after4 lapse of on year and is liable to be penalized. As regard to penalty under Serial No.3 of Section 43 has been imposed for the reason that the principal amount to the extent Rs.1,214,870/- was paid after due date. He then submits that default surcharge is recoverable under section 44(1) of the Act as the principal amount was paid after due date. The superior courts have held that the filing of returns are mandatory and non-filing is an offence and can be penalized.
13. In rebuttal Mr. Nisar Ahmed states that the penalty under section 43(2) was imposed on the basis of compounding which is illegal. He then submits that the show cause notice was received on 12.03.2016 and immediately on 31.03.2016 the returns were filed.
14. After going through the argument from both sides we have following observations to make: a) There is large variation between SST intended to be imposed as per show cause notice dated 11.03.2016 at Rs.25,190,246/- and final assessment through which total Sales tax with penalty and surcharge was worked out at Rs.25,09,483/- as per order in original dated 11.07.2016. The ratio comes to 1 to 100. And if we take the principal amount of tax as per order in original which is only Rs.839,689/- then the ratio is barely 0.3 to 100 or 0.3%. This is for apparent reason that Assistant Commissioner SRB did not bother to analyze the financial statement of the appellant which is a limited company . Instead, he taxed total amount in hands of the appellant. The show cause notice was issued without homework and without verifying the payments from the recipients of services who had withheld 100% tax and also deposited the same. b) It is also noted that one of the clients of the appellant M/s K.S. Suleman Esmailji & Sons had withheld and paid Rs.209,922/- being 20% of their liability and balance of Rs.839,689/- being 80% was to be paid by the appellant and was not paid till passing of order in original. This amount was however paid subsequent to passing of order in original.
The Assistant Commissioner is justified to treat the appellant in default on this count. c) Similarly , it is noted that two parties name ly Saqib Jahangir and Emi Pakistan provided services to the appellant and here the appellant being recipient / withholding agent had to withhold and deposit tax of Rs.375,281/- which was not paid in time but in April & May 2016. Another amount of Rs.295,896/-, 80% of Sales tax being remaining balance of the tax on value of services provided to K.S. Suleman Esmailji was paid late (03.05.2016) by the appellant. The A.C. has clubbed all these amounts of Sales tax, not being paid till finalizing of order (Rs.839,689/-) and those paid late (Rs.375,281/- and Rs.295,896/-) and has justifiably charged penalty @ 5% amounting to Rs.75,543/- under section 43(3). d) Arguments of the learned A.R. on the issue of penalty of Rs.1,206,000/- under section 43(2) that it was result of wrong impression on the part of the Appe llant that after withholding and deposit of tax no return was to be filed is not acceptable. e) Besides, the learned counsel took the plea that the quantum of penalty imposed by the A.C. was not only harsh but unjustified and based on lack of proper interpretation of the penal provision. He argued that section 43(2) provided Rs.10,000/- only one time for an offence whereas the A.C. had compounded the penalty with every month for the whole period of default of non-filing of returns for 13 months, December 2014 to February 2016. It is noted that in this case the default of non-filing of monthly returns pertains to 13 returns for the months of December 2014 to February 2016. Penalty @ Rs.10,000/- for each not filed returns works out to Rs.130,000/- in aggregate.
However, the Assistant Commissioner multiplied the number of returns with the number of months for which it continued and imposed penalty of Rs.1,206,000/- which is too harsh and excessive. The intention of legislation in the enactment of penal provision is always deterrent and corrective in nature.
Here also the phrase per Month appears to be related to a return of sales tax which is to be filed every month.
It is now well settled principle of law that if there appears any ambiguity in any provision of law the same has to be resolved in favor of tax payer as held in M/s Mehran Associates Versus Commissioner Income Tax, Karachi 1993 SCMR page 274. It was also held by Sindh High Court in M/s Citi Bank versus Commissioner Inland revenue that if two reasonable interpretations are possible, the one favoring the tax payer will be adopted. Multiplying the amount of penalty with number of months will be illogical and against the spirit of law.
14. In view of the above observations we conclude as under: a) Penalty of Rs.75,543/- under section 43(3) for late payment / deposit of Sales tax as discussed above is justified and is upheld. b) Default surcharge of Rs.43,424/- is rightly calculated on the amounts paid late and is not largely contested by the learned A.R, hence confirmed. c) As regards penalty of Rs.1,206,000/- in view of our above observation we reduce it to Rs.130,000 only .
15. The impugned or r is modified and appeal is allowed to that extent.
(Justice Nadeem Azhar Siddiqi)
CHAIRMAN (Agha Kafeel Barik)
TECHNICAL MEMBER Karachi Dated :26.01.2017 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.