CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).---Titled appeal has been filed under section 46 of the Sales Tax Act, 1990 at instance of the assessee calling in question the impugned Order-in- Appeal No, 801/2014 dated 10-11-2014 passed by the learned CIR (Appeals), Faisalabad.
2. Succinctly stated relevant facts for disposal of the instant case are that during scrutiny of sales tax record for the financial year commencing from 1st July-2011 ending on 30th June-2012, it was observed that the assessee has adjusted input tax in excess to ninety percent of output tax in terms of section 8B(1) of the Act read with S.R.O. 647(1)/2007 dated 27-06-07. Based on the said omission/ irregularities, adjudication proceedings were initiated by the taxation officer by way of issuance of show-cause notice dated 10-09-2014 section 11(3) of the Sales Tax Act, 1990.
Resultantly, adjudication proceedings were culminated in passing of an order dated 30-09-2014 which was challenged before the learned CIR(A) who on one hand, vacated whole principal amount of sales tax but on the other hand, has upheld liability on account of penalty and default surcharge. The assessee being discontented with treatment met out by the CIR(A) has come up before this Tribunal by arguing that imposition of default surcharge and penalty is highly unjustified unwarranted and illegal, particularly, when the whole demand of sales tax has already been vacated by the CIR(A). Learned counsel assailed that default surcharge and penalty could not be levied in the absence of mens rea on the part of assessee. Conversely, when the learned DR confronted with the tax situation cited supra, in counter arguments, he has assailed the case on similar grounds and charges as leveled earlier in impugned show-cause notice as well as adjudged in consequent orders and nothing newel, except to reiterate earlier set of contentions, has been put forth by him and fully supported the orders passed by both the, authorities below simply re-endorsing the basis evolved therein.
3. We have heard arguments of both the rival parties and also carefully examined the relevant provisions of law as well as the case laws cited at the bar.
4 After going through the case record and relevant provisions of law, we are of the firm opinion that that the impugned appellate order upholding penalty and default surcharge upon the assessee is illegal and unjustified as the learned CIR(A) has himself held that there is no dispute regarding the genuineness of input tax and vacated whole demand of principal amount of sales tax whereas adjudged recovery of penalty of five percent of the amount of tax involved under section 33(5) of Act. To resolve the controversy, a perusal of section 33(5) of the Act is of paramount consideration which for convenience of reference is reproduced herein below:-- Any person who fails to deposit the amount of tax due or any part thereof in the time or manner laid down under this Act or rules or orders made thereunder.Such person shall pay a penalty of ten thousand rupees or five percent of the amount of the tax involved, whichever is higher.
5. On plain reading of above provisions of law, it becomes vivid that the assessee becomes liable to pay penalty under section 33(5) of the Act, when he fails to deposit the amount of due tax or any part thereof but in the instant case, the learned CIR(A) has himself vacated whole amount of sales tax and nothing left payable by the assessee therefore, imposition of penalty is utter violation of provisions of section 33(5) of the Act.
6. It is not of least importance to say that mere insertion of the section or the rule contravened, in the show-cause notice would not be sufficient compliance with the spirit of the law. In addition, the show-cause notice must also disclose willful default and any mala fide on the part of assessee to defraud the government. Where the assessee did not act malafidely with the intention to evade the tax, the imposition of penalty and default surcharge is not justified. In the instant case, neither any charge of willful default nor charge to defraud the government has been leveled against the assessee and there is plenty of law available that in the absence of any allegation in respect of the deliberate or willful default, imposition of default surcharge and penalty are not only unjustified but also harp and illegal. The ratio settled in the judgment of Hon'ble Sindh High Court in case of "Collector of Customs, Sales Tax and Central Excise Appeal Karachi v. Messrs Nizam Impex (Pvt.)
Ltd., Karachi" as reported at (2014 PTD 498) is the most relevant in all fours to the case at instance of the assessee. The relevant extract of the judgment is reproduced as under:-- "Nowhere it is the case of the department that the respondent had mala fide intention or that default was willful and that too to defraud the government, in such circumstances, the demand of penalty and additional tax is harsh and unjustified." The Hon'ble Sindh High Court in ref: "Messrs Ideal Glass (Pvt.) Ltd. v. The Federation of Pakistan" reported as (PTCL 2000 CL 605) was also pleased to settle the same proposition of law by holding that; "No additional tax could be imposed unless the assessing authority was satisfied that there was intentional and deliberate failure or the part of the petitioner to evade payment of tax."
7. The Hon'ble Supreme Court of Pakistan in case of "Messrs D.G. Khan Cement Company Limited v.
Federation of Pakistan and others" reported as (PTCL 2004 CL 224) has laid down as under:- "In the facts and circumstances of this case, we find that non-payment of the sales tax within tax period was neither willful nor it could be construed to be mala fide evasion or payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law."
8. In view of what has been stated hereinabove, particularly in the light of law and keeping in mind the principles laid down by the superior courts in various pronouncements quoted supra, there is no justification for levy of default surcharge and imposition of penalty hence, the order impugned before us is declared to be illegal, ab initio void and is thus hereby set aside.
9. Appeal filed by the assessee is accepted.
Sd/-Sd/- (Muhammad Raza Baqir)(Ch. Shahid Iqbal Dhillon)
Accountant MemberJudicial Member 10.MOHAMMAD RAZA BAQIR, ACCOUNTANT MEMBER.---I have gone through the proposed order written by my learned brother, Judicial Member, and I respectfully disagree with his observations/ findings.
11. There is no denial in the present case that the registered person has defaulted the provisions contained in section 8B of the Sales Tax Act, 1990. However, it is consistently held by this Tribunal in a number of cases, including S.T.A. No,1108/LB/2014, dated 20.11.2014, in re: New Age Cables (Pvt.)
Limited, and S.T.A. No,525/LB/2013 Messrs Saqib Star Quality Printers, Faisalabad, dated 04.02.2016, that claim of 100% input tax adjustment instead of 90% of output tax is a procedural lapse, therefore, recovery of principal amount from the registered person is not justified. But it is settled by this Tribunal that such defaulter registered persons are liable to penalty / additional tax as they defaulted the provisions of section 8B by claiming 100% input tax instead of 90%. In the draft order, the learned JM also proposed to delete penalty and additional tax which in my considered view is not justified. If, we allows this to happen the provisions of section 8B would become redundant. It is an established fact that the legislature does not bring any provision in the statute book without any purpose. Therefore, I am of the view that the learned CIR(A) has rightly ordered recovery of penalty / additional tax from the registered person as it had defaulted the provisions of section 8B of the Sales Tax Act, 1990.
Sd/- (Mohammad Raza Baqir) Accountant Member 12.Since, a difference of opinion has arisen between the Members of this Bench, we, accordingly, refer the matter to the Hon'ble Chairperson for nomination of third Member to resolve the following proposed questions of law on the subject:-- (i)Whether in the facts and circumstances of the case where default of the provisions of section 8B of the Act, is patently made, the defaulted registered person is liable to default surcharge and penalty under the law or not?
(ii)Whether the Tribunal was competent to interpret law in a way to render certain statutory provisions redundant and infructuous?
Sd/-Sd/- (Ch. Shahid Iqbal Dhillon)(Mohammad Raza Baqir)
Judicial MemberAccountant Member Khubaib Ahmad for Appellant.
Dr. Razi-ur-Rehman, D.R. (RTO) for Respondent. Date of hearing: 22nd July, 2016.
13. MUHAMMAD WASEEM CHAUDHARY, JUDICIAL MEMBER.---The matter has been entrusted to me by the Honourable Chairman for resolving the difference of opinion by my two learned brothers which has arisen while deciding the above titled appeal. The questions raised by my learned brother, Accountant Member are as under:-- i)Whether on the facts and circumstances of the case, where default of the provisions of section 8B of the Act, is patently made, the defaulted registered person is liable to default surcharge and penalty under the law or not? ii)Whether the Tribunal was competent to interpret law in a way to render certain statutory provisions redundant and infructuous?
14. The learned AR submitted that the registered person has bonafidely adjusted amount of input tax without any intent to cause loss of national exchequer and no means rea was involved therein, hence, imposition of penalty and default surcharge maintained by the learned CIR (Appeals) is contrary to law and against the principles of natural justice. The learned counsel of the registered person has asserted that when the teamed first appellate authority has himself vacated the whole demand of sales tax and nothing left payable by the registered person then the imposition of penalty and default surcharge is utter violation of the provisions of the Sales Tax Act, 1990. In this context, he has relied upon the section 33(5) of the Sales Act, 1990 which is already incorporated in the above paras. To support his version the learned counsel of the registered person has relied upon the following case laws:- i S.T.A. No,902/LB/2014 dated 10.09.2014 Messrs N.H. Packages, Faisalabad. ii.2002 PTD (Trib.) 300 Messrs Nestle Milk Pak Ltd. iii.2014 PTD 498 Messrs Nizam Impex (Pvt.) Ltd. iv. 2004 SCMR 456 = 2004 PTD 1179 Messrs D.G. Khan Cement Factory Ltd. v.GST 2006 CL 63 Messrs Pakistan Refinery Limited. vi.2010 PTD 957 Messrs Bilal Textiles (Pvt.) Ltd. Faisalabad. vii.S.T.A. No,1136/LB/2014 dated 17.09.2014 Messrs Azhar Corporation (Pvt.) Ltd. Faisalabad. viii.2012 PTD (Trib.) 1123 Messrs Zahidjee Textile Mills Ltd. Faisalabad.
15.The learned DR on the contrary supported the orders of the authorities below simply by reiterating the basis evolved in the impugned orders. No new set of arguments has been put forth which may be worth 'quoting here.
16. As far as first question, it reveals from the order of the learned CIR (Appeals) that the registered person is not a defaulter nor any mala fide intention has been disclosed by the Revenue side, therefore, provisions of section 8B is not applicable in the instant case. The Hon'ble Tribunal has already held in a propounded judgment bearing S.T.A. No,1136/LB/2014 dated 17.09.2010 wherein the court has deleted the default surcharge and penalty in a similar situation. Therefore, the question one is answered in above terms.
17.As far as the second question is concerned, when the mala fide intention is not proved at any stage then this question is baseless. However, for the sake of knowledge and a student of law I have no hesitation to state here that the Tribunal is a judicial forum and in my humble opinion that the Tribunal has an inherited power to interpret the law and if found any discrimination against the fundamental rights of the registered person he can make his findings as per judgments of the higher judiciary. Hence, the second question is purely of academic in nature and in view of above findings in respect of the first question need not be answered.
18. Keeping in view of rival arguments of the parties and orders referred I have no hesitation to agree with my learned brother judicial member and answer the question in favour of the registered person and against the department. Therefore, the findings given in the order dated 07.03.2016 authored by my learned brother the Judicial Member are fully endorsed which being well reasoned as per law and acts of the case.
19. As a result the appeal of the registered person succeeds.
Sd/- (Muhammad Waseem Chaudhary) Judicial Member