Justice Nadeem Azhar Siddiqi: Both these appeals have been filed by the appellant and respondent challenging the Order-in-Appeal No.102/2016 dated 04.02.2016 passed by the Commissioner (Appeals) in Appeal NO. 78/2015 filed by the Appellant against the Order in Original No. 135/2015 dated 09.03.2015 passed by the Assistant Commissioner (Ms. Lubna Najmi) SRB, Karachi.
1. The appellant filed Appeal No. AT-18/2016 against the order-in-appeal No. 102/16 regarding levying of tax and imposition of default surcharge and respondent has filed separate Appeal No. At-23/2016 against the order-in-appeal No. 102/2016 regarding setting aside of penalties imposed by the Assessing Officer. Both the appeals having common facts and points of law involved were heard and are disposed of by this common order.
2. The facts of the case as mentioned in the Order-in-Original are that the appellant is engaged in providing or rendering banking services in Sindh which are covered under Tariff heading 9813.4000 of the 2" schedule of the Sindh Sales Tax on Service Act, 2.011 (herein after referred as the Act) which are chargeable to sales tax @ 16%.
3. It was alleged in the Order-in-Original that perusal of the record shows that the Appellant has not deposited the due amount of Sindh Sales Tax on its banking services for the tax period July 2011 and August 2011 and has also not submitted correct sales tax return for that period.
4. The appellant was served with a show-cause notice dated 18.11.2014 to explain as to why penalty under clause 2 & 3 of section 43 of the Act for contravention of section 8, 17 and 30 of the Act may not be imposed. Furthermore the appellant was also called upon to show cause as to why default surcharge under section 44 of the Act may not be imposed for not depositing the sales tax on banking services in time and manner as specified in the Act and the Rules or Notifications issued thereunder.
The appellant has replied the show-cause notice vide letter dated 15.12.2014. The defence of the appellant was that the Act was newly introduced and it took some time to understand the new law and the FBR has allowed the tax payers to deposit Sindh Sales Tax with FBR and declare the same in monthly tax return. The appellant further states that sindh sales tax on banking services provided or rendered in Sindh was deposited with FBR and returns were also filed with FBR.
5. The Assessing Officer has passed Order-in-Original n the sum of Rs.418,492/= along with default surcharge and penalties under clause (2) and (3) of section 43 of the Act. The said order of the Assessing Officer was challenged by appellant by way of filing appeal before the Commissioner (Appeals), who uphold the order-in-original for the principal amount and default surcharge and setaside the order-n-original for imposing penalties, hence these appeals.
6. Mr. Saud-ul-Hasan the learned advocate for the appellant states that the alleged default was of the initial stage of July and August, 2011, whereas the Sindh Sales Tax on Services Act was levied effective from 1 July, 2011. He submits that the appellant was charging Federal Excise Duty and after promulgation of the Act the FBR specifically instructed tax payers to deposit provincial sales tax with FBR. Mr. Saud also placed on record the Press Release in this regard available on the web site portal of SRB. He then submits that there is a MOU signed between the SRB and FBR for adjustment of tax wrongly deposited in their jurisdiction. He then submits that the appellant has already requested the FBR for refund of Sindh sales tax wrongly deposited with it vide letters dated 26.01.2015 and 04.01.2016 and placed on record the copies of two letters. He then submits that the department in certain cases instead of asking for payment of tax adjusted the same with FBR and cited the Order-in- Appeal No.26/2014 dated 21.02.2014 passed in Appeal No.19/2013 (Abbott Laboratories (Pakistan)
Limited. Mr. Saud further states that the default surcharge and penalties were imposed without first establishing willful default and malafide on the part of the appellant and without considering that the mens rea is lacking in this case. The learned Advocate for the appellant relied upon the reported case of DG Khan Cement versus Federation of Pakistan PTCL 2204 CL. 224 (SC.Pak.).
7. Mr. Naheed Ahmad the learned AC, SRB states that the appellant has omitted to deposit due tax on its taxable banking services provided in Sindh for the tax periods July and August, 2011 with SRB in contravention of the provisions of Sindh Sales Tax on Services Act, 2011 and also failed to e-file tax returns. He then submits that the deposit of Sindh Sales Tax with the FBR is not proper compliance of the provisions of the Act and the Rules made thereunder and the appellant is not only liable to deposit the tax with SRB but is also liable to pay default surcharge and penalties. He then submits that the SRB has nothing to do with the press release of FBR available on the web site portal of SRB and submits that inspite of getting sufficient opportunities the tax was not deposited with SRB, which reflect non-compliant attitude of the appellant. He then submits that penalty and default surcharge was rightly imposed by the Assessing Officer as the appellant was negligent in discharge of his statutory duties. He then submits that the Commissioner (Appeals) without any reason setaside the penalty imposed by the Assessing Officer. He distinguish the Abbott case by stating that in that case the Commissioner (Appeals) has held that payment to FBR was not legal but relief was granted on account of inadvertent payment.
I have heard the learned representatives of the parties and perused the record made available before me.
8. It is not disputed that the appellant is a banking company and is required to charge and deposit Sindh Sales Tax on its banking services provided or rendered by it within Sindh. The appellant deposited the Sindh sales tax for the initial period of July and August, 2011 with FBR instead of SRB and also files e-returns with FBR. According to appellant the payment was made on the instructions of FBR and the SRB can adjust the same as done in the case of Abbott Laboratories. I have perused the show-cause notice dated 18 November, 2014 and found that the appellant was not show-cause for passing assessment order under section 23 of the Act. In the show-cause notice neither the tax amount wasst th mentioned nor the appellant was asked to deposit the principal tax amount. The said show-cause notice was only issued for imposing penalties under clause (2) and (3) of section 43 of the Act and imposing default surcharge under section 44 of the Act. The assessing officer cannot pass an order under sub- section (1) of section 23 unless he gives notice under sub-section (2) of section 23 to the person in default.
In this case assessment order under sub-section (1) of section 23 was passed without serving a show- cause notice and cannot be sustained in law. The Commissioner (Appeals) also fell in error in ignoring that the assessment order was passed without service of show-cause notice upon the appellant and the said order-in-original and order-in-a appeal cannot be sustained.
9. As far as the plea of the appellant that the tax was deposited with FBR under its instruction and can be adjusted under a MOU entered into between SRB and FBR is concerned, the Commissioner (Appeals) in the similar case treating the amount deposited with FBR inadvertently and incorrectly held that amount may not be recovered and directed the AC to write to the taxpayer with the direction to approach FBR and PARL for the transfer of amount to SRB. The facts of Abbott case was that the Abbott inadvertently deposited Sindh Sales Tax on Franchise Services for the quarter ended September, 2011 with FBR. The facts of the Abbott case and this case are similar. The payment made by appellant to FBR for the initial period of July and August, 2011 may also be treated as inadvertent and incorrect payment and relief in the line of Abbott case should have been allowed to the appellant.
The Commissioner (Appeals) has decided the Abbott case on 21.03.2014, whereas the order-in- - original in this case was passed on 09.03.2015. The order of Commissioner (Appeals) is binding upon the Assessing Officer/Assistant Commissioner and the Assessing Officer should allow the same relief to the appellant without any discrimination.
10. As far as the default surcharge and penalties are concerned the same can only be imposed if non- payment of tax on the part of appellant is proved as malafide, willful and having an element of mens rea, which is lacking in this case. Apparently as claimed by the appellant the tax was inadvertently deposited in the account of FBR. In this case it can be said that the appellant has discharged its liability by depositing the 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 erroneous, but bonafide, deposit could not be treated as defaulter. The word "default" necessarily imports of an element of negligence or fault and means something more than mere non-compliance of statutory provisions. To establish default the Department must establish that the non-c ompliance of statutory provisions has been due to some avoidable cause. Mere non-deposit of tax without element of willfulness, malafide and mens rea cannot entail default surcharge and penalty. In this case since the appellant has not committed any default in payment of Sindh sales tax the penalties and default surcharge cannot be imposed. The Commissioner (Appeals) for cogent reason has rightly setaside the penalties imposed by the Assessing Officer.
11. In view of the above discussion the Appeal No. 18/2016 is allowed and Appeal No. 23/2016 id dismissed. The appellant is directed to pursue FBR for transfer of principal tax amount of Rs.418,492/= from FBR to SRB under intimation to SRB or the SRB may claim adjustment from FBR.
12. Both the appeals are disposed of in the above terms. Copy of the order be supplied to the parties.
Karachi. (Justice Nadeem Azhar Siddiqi)
Dated: 27.03.2017 CHAIRMAN Copies supplied to:-
1. The Appellant through Authorized Representative.
2. The Assistant Commissioner, SRB, Karachi.
Copy for information to:-