Justice Nadeem Azhar Siddiqi: This appeal has been filed by the appellant challenging the Order in Appeal No.11/2015 dated 14.01.2015 passed by the Commissioner (Appeals) in Appeal No. 200/2014 confirming the Order-in- Original No. 545/2014 dated 21.10.2014 passed by the Assistant Commissioner (Mr. Kaleemullah Siddiqui), SRB, Karachi.
1. In short, the facts of the case are that the Appellant possess Customs Agent License No. 2569 and registered with SRB in the category of Customs Agents falling under Tariff heading No. 9805.4000 which was taxable at the rate of 16% in the relevant tax periods.
2. It has been alleged in the order-in-original that data retrieved from Model Custom Collectorate
(MCC) Karachi shows that the appellant has processed 196 GD's through Custom House Karachi, during September-2011 to March-2013 and did not pay due tax amounts to SRB. It was further alleged that the appellant has not filed their returns for the tax periods September-2011 to April-2014. Thus the appellant contravened section 2(94), 3, 8, 9, 17, 27, and 30 of Sindh Sales Tax on Services Act, 2011 (hereinafter referred to as the Act) and Rule 37 of Rules -2011 (hereinafter referred to as the Rule).
3. The appellant was called upon on 11.06.2014 to show cause why assessment under section 23(1) and 47(1A) read with section 5 and 6(1) of Act-2011 should not be made for processing 196 GD's as Customs Agent. The appellant was also called upon to show cause as to why default surcharge under section 44 and penalties mentioned against serial Sr. No.02, 03, 6(c), 6(d) 12 and 13 of table in section 43 of the Act-2011, should not be imposed against them for contravention of aforesaid provisions of the Act-2011 and the Rules-2011.
4. The appellant neither appeared before the Assessing Officer nor filed any written defence.
5. The assessment order was passed and the tax was determined in the sum of Rs.78,400/= along with default surcharge. The Assessing Officer also imposed penalties under section 43 (2) in the sum of Rs.170,000/=, under section 43 (3) in the sum of Rs.10,000/= under section 43 (6c) in the sum of Rs.78,400/= and under section 43 (12) in the sum of Rs.10,000/=. In all penalty imposed was Rs.2,68,400/=.
6. The Appellant challenged the Order-in-Original by way of filing appeal before the Commissioner (Appeals) who dismissed the appeal; hence the appellant has challenged the order-in-appeal before this Tribunal.
7. Mr. M. Abbas Advocate filed letter of appellant addressed to Bank Al Falah along with Bank statement to the effect that a sum of Rs.130,700/- was recovered by SRB on account of tax and default surcharge. He then submits that the tax for the periods from July, 2011 to April, 2014 was deposited with FBR and he produced CPRs in this regard and submits that in view of MOU signed between the SRB and FBR the SRB can claim that amount from FBR and the appellant cannot be compelled to pay same tax twice.
8. Mr. Saindad files report and submits that the appellant was voluntarily registered on 18.06.2013.
The report further states that after recovery of Rs.130,700/- from the attachment of Bank account the balance to be recovered is Rs.243,561/-. Mr. Saindad states that despite voluntarily registration neither tax was paid as prescribed nor returns were filed and the penalties were rightly imposed.
9. Mr. Muhammad Abbas Advocate placed on record the month wise statement of providing services.
Mr. Abbas states that since the office of the appellant is situated at Lahore and earlier the appellant used to deposit tax with FBR the appellant continue to deposit the tax with FBR inadvertently and not intentionally. He then submits that the department has already recovered a sum of Rs.130,700/- by way of attachment of Bank Account against tax amount of Rs.78,400/-, Rs.27,460/= on account of default surcharge and Rs.24,839/= on account of penalties. He then submits that various types of penalties were imposed without establishing mens rea and mala fides on the part of the appellant. He then submits that without establishing and proving mens rea the penalties cannot be imposed and request that since the tax was already deposited with FBR the same may be collected and transferred from FBR and the amount recovered by SRB through attachment of bank account may be refunded to the appellant in view of MOU signed between the FBR and SRB. He then submits that as per Section 30 (1) of the Act every registered person is liable to file returns. He then submits that penalty for not filing returns prior to voluntarily registration cannot be imposed as unless ID, Pin code and Password is supplied to the appellant no e-returns can be filed.
10. Mr. Saindad states that even after voluntarily registration on 18.06.2013 the appellant neither paid sales tax nor filed e-returns and has intentionally and deliberately violated the provisions of law and penalties were rightly imposed. He then submits that the deposit of Sindh Sales Tax before with FBR cannot be treated as valid or legal tender and the appellant is rightly held liable to deposit Sindh Sales Tax with Government of Sindh.
11. In this case the entire tax amount of Rs.78,400/= determined by the Assessing Officer,Rs.27,460/= on account of part payment of default surcharge and Rs.24,839/= on account of penalties were recovered by SRB by way of attachment of bank account of the appellant. Now the question requires determination of remaining payment of default surcharge and penalties
12. In this case it is an admitted position that the appellant has provided service within Sindh Province by getting clearance of 196 GDs from Customs House, Karachi and did not deposit the sales tax with SRB. The plea of the appellant was that it continued to deposit tax with FBR due to inadvertence without any intention of willfulness and produced CPRs in support of his contention.
Since the appellant has provided services from/in Sindh the tax liability of Rs.78,400/= was rightly determined.;
13. The default surcharge and penalties in this case cannot be imposed as the appellant has inadvertently deposited the tax with FBR and cannot be considered to be a willful defaulter. The liability to pay default surcharge and penalty is not a necessary consequence or corollary of every statutory default but is subject to prove that the default was committed with malafide intention not to comply the statutory provisions of law. In this case it can be said that the appellant has discharged its liability_ by inadvertently depositing the tax amount with FBR. The deposit of tax with FBR is apparently without carrying any patent contumaciousness and obvious willfulness to disregard statutory provisions. Once it was found that the tax payer having been out of pocket to the extent of such errarieous, but bonafide, deposit could not be treated as willful defaulter. The word "default" necessarily imports an element of negligence or fault and means something more than mere non- compliance of statutory provisions. To establish default the Department must show that the non- compliance of statutory provisions has been due to some avoidable cause or circumstances. Mere delay in deposit of tax amount without element of willfulness, malafides and mens rea cannot entail penal clauses of default surcharge. Furthermore there is a MOU signed between FBR and SRB for adjustment of tax wrongly deposited. The SRB can claim amount involved in this case from FBR.
Since the tax was deposited with FBR imposing of penalty of Rs.10,000/= under serial No.3 of Section 43 is not proper.
14. As far as other penalties imposed in this case are concerned it appears that several penalties were imposed without considering the nature of offence and the presence of mens rea. Penalty under 43(2) can be imposed if returns were not filed after registration. The penalty under section 43
(3) can be imposed for failing to deposit the amount of tax in the time and manner laid down in the Act. The penalty under section 43 (6c) can be imposed for knowingly or fraudulently makes a false statement, false declaration, false representation, false personification, or gives any false information.
The penalty under section 43 (12) can be imposed where any person contravenes the provision of the Act or Rules for which no penalty, has specifically, been provided under section 43 of the Act.
15. The Assessing Officer has wrongly imposed penalty for non-filing of returns from July-2011 to April-2014 without considering that the appellant was registered on 18.06.2013. Section 30 (1) of the Act provides for filing of returns by registered person. The appellant is liable to file returns after registration. The penalty under section 43 (2) for non-filing of returns for the periods from July- 2011 to May-2013 (the period before registration) was wrongly imposed and setaside.
16. From the contents of section 43 6(c) it is clear that the provisions can only be invoked if the offences mention in the provision has been committed knowingly or fraudulently (subject to establishing mens rea) and not otherwise. The 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 appellant was penalized without establishing the main ingredients of the provisions which are "knowingly or fraudulently". The penalty imposed under serial No. 6 of section 43 of the Act is setaside.
17. The penalty under section 43 (12) can be imposed where any person contravenes the provision of the Act or Rules for which no penalty, has specifically, been provided under section 43 of the Act. It was not mentioned in the order-in-original what offence has been committed for which no penalty was provided. The Commissioner (Appeals) without proper application of mind mechanically confirmed the several penalties imposed in the order-in-original. The penalty under section 43 (12) is setaside.
18. The Commissioner (Appeals) exercised quasi-judicial functions and has to functions independently and that independence should be apparent at the face of the orders/decisions which are lacking. I failed to understand why the Commissioner (Appeals) and the concerned Commissioners failed to take notice of the orders/decisions of the Assessing Officers by which excessive penalties were imposed without establishing the same.
19. Before imposing penalty the department has to establish non compliance of statutory provisions, willfulness and mens rea which is lacking in this case. Mere non-payment without element of mens rea is not enough to imposed penalty.
20. In the reported case of D.G.Khan Cement 2004 SCMR 456 (2004 PTD 1179) 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 the reported case of Pakistan through Secretary Ministry of Finance and others versus 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". Same is the position in this case the appellant inadvertently deposited the tax with FBR and cannot be treated as willful defaulter. The department has failed to establish mens rea, malafides and willfulness on the part of appellant, which is a necessary element for imposing penalty and default surcharge.
21. In this case the department has already recovered entire tax amount of Rs.78,400/= determined by the Assessing Officer, Rs.27,460/= on account of part payment of default surcharge and Rs.24,839/=on account of penalty by way of attachment of bank account of the appellant. The default surcharge and penalties already recovered are sufficient to penalize the appellant and the appellant is not required to pay any more amounts in this regard.
22. In view of above, I am satisfied that the (order-in-Original and Order-in -Appeal to the extent of imposing penalty under serial No. 2, 6 and 12 of section 43 are not proper and accordingly setaside.
23. The appeal is disposed of in the above terms.
Karachi (Justice Nadeem Azhar Siddiqi)
Dated: 30.01.2017 CHAIRMAN Copies supplied to:-
1. The Appellant through Authorized Representative.
2. The Deputy Commissioner, SRB, Karachi.
Copy for information to:- 3) The Commissioner (Appeals), SRB, (Karachi.
4) Office Copy 5) Guard File.