SHAHID MASOOD MANZAR, CHAIRMAN .----The titled appeal has been filed under section 46 of the Sales Tax Act, 1990 at the instance of registered person/taxpayer calling in question the impugned Order-in-Appeal No. 461 of 2019 dated 30-10-2019 passed by the learned CIR(A), Faisalabad.
2. Brief facts of the case as emanating from the case record are that appellant is a registered person running its business as an authorized distributor of M/s. Century Engineering Industries (Pvt.) Ltd. (formerly Phoenix Batteries) and Messrs Exide Pakistan Ltd. dealing with storage batteries. The Inland Revenue Officer, on selection of audit by the FBR under section 72-B of the Act, has conducted audit of appellant's sales tax records under section 25 of the Act for the financial, year commencing from 1st July-2015 ending on 30th June-2016 which was resulted into certain discrepancies on basis of which a show-cause notice dated 31-01-2019 was issued as to why an amount of sales tax worth Rs.762,238/- may not be recovered under section 11(2) of the Act and as to penalty under section 33(19) ibid may not be imposed in violation of sections 2(9), 3(B) 6, 7, 22, 23 and 26 of the Act. During adjudication proceedings, appellant contested the issues supported with documentary evidences but the ACIR has adjudged liability of sales tax worth Rs.762,238/- vide order dated 10-05-2019 along with default surcharge under section 34 and penalty under section 33 of the Act was also imposed. Being discontented and aggrieved by the said order , appellant filed the first appeal before learned CIR(A), Faisalabad who dismissed the appeal vide order dated 30-10-2019. Now , the appellant has filed the second appeal before this Tribunal.
3. The arguments of the learned representatives of both the rival parties have been heard, the orders of the authorities below as well as relevant record and provisions of law and the case laws cited by the learned AR of the taxpayer have also been perused carefully .
It is an admitted fact that the appellant is engaged in business of Storage Batteries falling at Sr. No. 7 of the Table provided in Chapter XIII of the Sales Tax Special Procedure, 2007 as amended vide SRO 896(1)/2013 and conduct his business as an authorized distributor of Messrs Century Engineering Industrie s (Pvt.) Ltd. and Messrs Exide Pakistan Ltd. and pay sales tax at the rate of 17% along with 2% extra sales tax at the time of purchases and its subsequent supplies are exempt from 'payment' of sales tax under sub-rule (5) of Rule 58T of the Chapter-XIII (Special Procedure for Payment of Extra Sales Tax on Specified Good). The appellant has paid extra tax on these items therefore, subsequent supplies made by him are exempt from 'payment' of sales tax under Rule 58T(5) of Chapter XIII of the Sales Tax Special Procedure, 2007 as amended vide SRO 525(1)12008 as payment of extra tax should be considered his final discharge of tax liability . Since, the appellant has duly fulfilled all prescribed requirements by discharging his sales tax liability on account of extra tax as a final discharge in terms of the Special Procedure Rules, 2007 therefore, the appellant was not legally required to pay. sales tax on 'supply' of these items. The allegation of excess collection of sales tax is unjustified, unfounded and illegal as no excess sales tax was levied, charged and collected on subsequent supplies of these items hence; the department has wrongly applied the provisions of section 3(B) of the Act. It may be applied when rate of sales tax was chargeable @ 17% but the appellant charged 20% then it may be said that 3% excess sales tax was collected. The appellant has not charged and collected a single rupee in excess of 17% on his subsequent supplies but has charged and collected standard rate of sales tax as prescribed under section 3 of the Act.
The interpretation of the department cannot be accepted that the subsequent supplies of storage batteries made by appellant were exempted from "levy" of sales tax because it is statutory authority under subsection (1) of section 13 of the Sales Tax Act, 1990, which vests in the Federal Government the power to 'exempt' any taxable supply made in Pakistan or any goods or class of goods from the whole or any part of the tax chargeable under the said Act, subject to the conditions and limitations so specified but the alleged goods have never been provided in the list of "exempted goods" as available in the Sixth Schedule hence, supply of the alleged goods by the appellant, being not exempted under section 13 of the Act or being not specified in the Sixth Schedule were chargeable to sales tax thus, the appellant has rightly levied, charged and collected sales tax on 'supply' of the said goods. Reliance can safely be placed on the judgment of Hon'ble Supreme Court of Pakistan in case of "Collector of Customs Sales Tax and Central Excise and others v. Messrs Sanghar Sugar Mills Ltd, Karachi and others" reported as PLD 2007 SC 517 = 2007 PTD 1902 where in it has been laid down as under:- "The disposal of fixed assets, scrap by a registered person, being not exempted under section 13 or being not specified in the 6th Schedule to the Sales Tax Act are chargeable to sales tax and supply thereof, are taxable supply"
The intention of law is otherwise clear from the provisions of section 7 of the Act existing at the relevant time and even those as exist today that a registered person shall claim 'input tax adjustment' against 'output tax' in accordance with the provisions of section 7 read with section 73 of the Sales Tax Act, 1990. In case, the interpretation of the department is accepted that subsequent supplies of the alleged goods were exempted from 'levy' of sales tax and no sales tax was chargeable thereon then the provisions of section 7 of the Act as presently existing would become redundant. That can hardly be the intention of the law .
In the context of penalty for late filing of returns, the initial onus of proving of mens rea is on the department. The imposing of penalties in case of committing default in payment of tax or late filing of sales tax returns is not automatic and some determination which regard to element of mens rea is required and the presence of mens rea is essential for imposition of any penalty under the law. Mens rea in short denotes the state of mind that would compel a person to deviate from the law or to commit an offence which also encompasses recklessness within its ambit. Concept of mens rea basically resolves around the state of mind and the conduct of the person. It is necessary to establish mens rea before levying penalty and imposition of penalty is a quasi criminal and the presence of mens rea is mandatory however , no material is available on record to the effect that the late filing of sales tax returns was mala fide or wilful act on part of registered person. The Assessing Officer has failed to establish mens rea and mala fide on the part of the appellant, which is a necessary ingredient for imposing penalty therefore, imposition of penalty for late filing of sales tax returns under section 33(1) of the Act is illegal and not sustainable under law .
In view of what has been stated and particularly in the light of legal propositions discussed hereinabove, the titled appeal is accepted and impugned show cause notice and consequent orders of both the authorities below being illegal and unlawful are hereby set aside.
4. The instant appeal filed by the taxpayer is disposed of in the manners as indicated above.