JUSTICE (RETD.) NADEEM AZHAR SIDDIQI, CHAIRMAN.---- This appeal has been filed by the appellant challenging the Order-in-Appeal No.78/2018 dated 21.05.2018 passed by the Commissioner (Appeals) in Appeal No. 10/2017 filed by the appellant against the Order-in-Original No.12/2017 dated 21.01.2017 passed by the Assistant Commissioner , Unit 27 (Ms. Shumaila Yar Muhammad), SRB, Karachi.
1. The facts of the case as' mentioned in the Order-in-Original are that the Appellant is registered with SRB as a service provider in the category of "Fumigation Services" (Tariff Heading 9822.1000) of the Second Schedule of the Sindh Sales Tax on Services Act, 201 1 (hereinafter referred to as the Act) chargeable to Sindh sales tax.
2. It was alleged in the order in original that despite issuance of several notices the appellant had failed to e-file monthly sales, tax returns for the tax periods November , 2015 and January , 2016 to June, 2016.
3. A show-cause notice dated 26.07.2016 was issued to the appellant to explain as to why penal action under Sr, No.2 of Table under section 43 of the Act should not be taken for violation of section 30 of the Act. As per the order in original neither appellant appeared nor file written reply .
4. The Assessing Officer passed order imposing penalty in the sum of Rs.647,994/- under Sr. No.2 of Table under section 43 of the Act.
5. The said order of the Assessing Officer was challenged by the appellant by' way of filing appeal before the Commissioner (Appeals), who dismissed the appeal for non-prosecution, hence this appeal before this forum.
6. Mr. Ashraf Sattar Adamjee submitted that unjustified and illegal penalties were imposed by the Assessing officer and confirmed by the Commissioner (Appeals) by dismissing the appeals for non-prosecution. He then submitted that reasons for non-filing returns were explained to the Assessing Officer as well as Commissioner (Appeals) but none have considered the same in its true perspective. He then submitted that appellant is not a willful defaulter and is a victim of circumstances and is not liable to be penalized.
7. Mr. Ashraf further submitted that all the tax returns were filed. He then submitted that the returns were not filed within time due to personal and health reason and that he was suffering from psychiatric_ problem and due to medicine remained in sleeping condition. He then submitted that some emplo yees of the appellant left the organization and formed other company and there was no one to operate computers for online e-filing returns. He then submitted that huge amount 'of penalties were imposed against law without any just cause and reason.
8. Mr. Irfan Sohu submitted that the appellant has willfully and deliberately failed to e-file monthly returns as prescribed in violation of specific provisions of law and the penalties were rightly imposed.
9. The learned AC confirmed that appellant e-filed all returns. The learned AC also filed Reconciliation Dated 11.10.2018 enhancing the penalties from Rs.647,994/-, to Rs.2,647,666/-.
I have heard the learned representatives of the parties and perused the record made available before us.
10. From perusal of order in original it appears that through the penalty under Sr. No.2 of Table under section 43 of the Act was imposed but nowhere in the order in original it was stated or establish ed that the willfulness, mala fide and mens rea were present. It is now well settled principle of law that penalty can only be imposed if non-payment of tax on the part of appellant is proved as mala fide, willful, contumacious and having an element of mens rea, which is lacking in this case. 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-compliance of statu tory provisions has been due to some avoidable cause. Mere non-deposit of tax without element of willfulness, mala fide contumacious cannot entail penalty . Though the appellant tried to explain the reasons for non-payment of tax and non-filing of returns, but the prime duty is of the department to prove mens rea and only then the burden is shifted upon the appellant to explain the reason of non-filing of returns.
In the reported case of Pakistan through Secretary Ministry of Finance and others v. Hardcastle 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". In the reported case of Commissioner of Income Tax v. Habib Bank Limited 2007 PTD 901 (H.C. Karachi) 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 under section 111 is the existence of mens rea and therefore, it is necessary for the department to establish mens rea before levying penalty under section 111". In the reported case of Collector Customs v. Nizam Impex (2014 PTD 478) 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" . Same is the position in this case the department has failed to establish mens rea, mala fides, willfulness and contumacious default on the part of appellant, which are necessary elements for imposing penalty .
11. In the reported case of Deputy Collector , Central Excise and Sales Tax, Lahore v. ICI Pakistan Limited, Lahore PTD 2006 1132 the Honorable Supreme Court has held that "In an appropriate case of default in payment of sales tax, a manufacturer or producer of goods could be burdened with additional sales tax under section 34 of the Act as well as penalty under section 33 of the Act. However , it does not necessarily follow that in every case such levy was automatic requiring no determination at all." In this case also there is no independent determination at all in this regard and it was taken for granted by the Assessing Officer that the liability to pay penalty is a necessary consequence or corollary of non-filing of e-returns within stipulated period. In view of the above I am satisfied that the penalty was imposed without any just cause.
12. Furthermore the penalty under seria l No.2 of the Table under section 43 of the Act has been erroneously imposed against the provision of law and against the earlier order of Tribunal in Appeal No.A T-92/16 (Slingshot v.
AC) decided on 25.01.2017 by DB-1 of this Tribunal. It is noted that in this case the default of non-filing of monthly returns pertains to 07 returns and Penalty @ Rs.10,000/- for each not filed return works out to 70,000/- 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.647,994/- which is too harsh and excessive and is not tenable. The operative part of the order of Tribunal is reproduced as under: "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 t Rs.10,000/- for each not filed return 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 Messrs Mehran Associates v. Commissioner Income Tax, Karachi 1993 SCMR page 274. It was also held by Sindh High Court in M/s. Citi Bank v. 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".
13. The above order of the Tribunal is still in field and has not been set aside by the Honorable High Court in referential jurisdiction and is binding upon the Commissioner (Appeals) and Assess ing Officers. Any order/decision of the Assessing Officer and the Commissioner (Appeals) cannot be sustained if the same is against the order/decision of Tribunal. The Department should follow the orders of Tribunal in letter and sprit.
14. In view of above, this appeal is allowed and the penalties imposed by the Assessing Officer under Table 2 of section 43 of the Act D are set aside. The copy of this order be provided to the learned representative of the parties.