Muhammad Hashim Khan Kakar, J. This Sales Tax Reference Application has been filed under Section 47 of the Sale Tax Act, 1990 (hereinafter referred to as "the Act") by the Department and the questions of law stated to have arisen out of judgment, dated 09.06.2021 passed by the learned Appellate Tribunal Inland Revenue of Pakistan, Karachi (hereinafter referred to as "the Tribunal") proposed for our consideration are as follows: "I. "Whether on the facts and circumstances of the case, the Appellate Tribunal was justified to annual the order of the authorities below by holding that provisions of Section 11(1) of the Sales Act, 1990 (the Act) do not allow recovery and imposition of penalty and default surcharge where liability on account of principal amount of tax stands discharged voluntarily prior to initiation of proceedings under Section 11 of the Act?
II. "Whether the findings of the Appellate Tribunal are not result of misreading/non-reading of provisions of Section 11(1) of the Act?"
III. Whether on the fact and circumstances of the case the learned ATIR was justified to hold that the provisions of Section 11(1) of the Act do not allow the recovery and imposition of penalty and default surcharge alone, whereas registered person deposited due tax after due date and registered person is under obligation to pay penalty and default surcharge levied under Sections 33(5) and 34 of Act?
IV. Whether on the fact and circumstances of the case the learned ATIR was justified to annul the order passed under Section 11 of the Act, for the assessment and recovery of penalty and default surcharge which the registered person was liable to pay under Section 33(5) and 34 of the Act, for default of delayed payment of the principal amount of tax?
V. Whether on the fact and circumstances of the case the learned ATIR has misdirected itself and committed a material illegality to hold that Section 11 of the Act, is not attracted for the recovery of the amount of tax (i.e. penalty and default surcharge)?
VI. Whether on the facts and circumstances of the case the learned ATIR has failed to appreciate the amount of penalty and default surcharge levied under Section 33(5) and 34 of the Act, fall within the preview of sale tax in the terms of Section 2(29A) of the act and is assessable/recoverable under the provisions of Section 11 of the Act?
VII. Whether on the fact and circumstances of the case the learned ATIR was justified to hold that the intention of the legislation is manifestly clear that a registered person who deposit the due taxes late, the provisions of Section 11 of the Act, are therefore ab-initio not attracted for recovery, levy and imposition of penalty and default surcharge?"
2. The facts, in brief, are that the Department had conducted a desk audit of the soft data of sales tax for the tax periods from July 2015 to June 2016 and have found that M/s. Quetta Electric Supply Company Limited (QESCO), Zarghoon Road, Quetta had late deposited the amount of sales tax into Government treasury for the aforesaid tax periods. According to Section 34 of the Sales Tax Act, 1990 ("the Act"), "if a registered person does not pay the tax due or any part thereof, he shall, in addition to the tax due, pay default surcharge at the rate KIBOR plus three percent per annum, of the amount of tax due". Further, under Section 33 of the Act, "Any person who fails to deposit the amount of tax due or any part shall pay a penalty of ten thousand rupees or five percent of the amount of tax involved is higher, provided that, if the amount of tax or any part thereof is paid within fifteen days from the due date, the defaulter shall pay a penalty of five hundred rupees for each day of default." As per the order in original of the Assessing Officer, the late deposit of sales tax attracted levy of default surcharge and penalty. The registered person was served with the show-cause notice under Section 11(1) of the Act as to why the amount of default surcharge of Rs.
597,052/- under Section 34 of the Act and penalty of Rs. 4,704,746/- (Rs.10,000/- or 5% of the amount involved whichever is higher) under Section 33(5) of the Act should not be imposed on the registered person for violation and contravention of the provisions of Sections 6 and 26(1) of the Act read with sub-Rule (2) of Rule 14 of Chapter III of Special. Procedure for collection and payment of sales tax on electric power. In response to the show-cause notice, the registered person submitted its reply which was considered and found unsatisfactory by the Assessing Officer.
Accordingly, the Assessing Officer passed an order dated 17.11.2017 under Section 11(1) of the Act.
Being aggrieved, the registered person filed the first appeal before the learned CIR (Appeals) which was disposed of vide impugned appellate Order No. ST/78/2017-18 dated 11.06.2018 whereby the learned CIR (Appeals) upheld the treatment accorded by the Assessing Officer. Being dissatisfied with the order of the learned CIR(A), the registered person filed second appeal before the Appellate Tribunal.
3. The learned Tribunal in the light of facts of the case and related provisions of law framed and considered following question: "i. Whether any of the provisions of Section 11 and in particular sub-section (1) of Section 11 of the Act vests with the power to the Assessing Officer to initiate the proceedings against a person who has filed his return and paid the tax due thereon after the due date but voluntarily, prior to issuance of a notice, for the purpose of imposition of penalty and default surcharge alone under Sections 33 and 34 of the Act respectively?"
4. The learned Tribunal after examining the facts of the case and considering provisions of Sections 11, 33 and 34 of the Sales Tax Act, 1990 as well as pari materia provisions for imposition of penalty and default surcharge as are available in the shape of Sections 182 and 205 of the Income Tax Ordinance, 2001 accepted the appeal of the registered person and annulled the orders passed by the Assessing Officer and the CIR (Appeals) with following observations: "We have heard the submissions made by the learned representatives and also keenly gone through the case laws relied upon by both parties. However, none of the judgment has addressed the question at hand. We are of the opinion that the Inland Revenue Officer cannot make an order for imposing a penalty or default surcharge in accordance with Sections 33 and 34 respectively without making an assessment order. In holding so, we are enlightened by the proviso to the sub- section (1) of Section 11 of the Sales Tax Act, 1990. This reads that the show-cause notice shall abate where the person has filed the return after the due date and paid the actual amount of tax in accordance with the return along with default surcharge and penalty. Where, a person files the return after the due date and pays the amount of tax payable in accordance with the tax return voluntarily prior to the show-cause notice then there is no amount of tax due left based on which, either show-cause notice could have been issued or ensuing penalty or default surcharge could be imposed'. The triggering point under this provision remains that if a person has not been filing his return or for some miscalculation has been paying the tax less than the amount of tax actually payable the provisions of Section 11 may be invoked. The provisions of Sections 33 and 34 of the Act are inapplicable for the imposition of penalty/default surcharge alone under the said section for the reason that these charging provisions do not provide for passing of order under these provisions unlike the pari materia provisions of sub-section (2) of Section 182 and sub-section. (5) of Section 205 of the Income Tax Ordinance, 2001. This interpretation is also in line with the word "including" used in the legislative text which reads "make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with Sections 33 and 34" [underlined for emphasis only]. The term implies that the order imposing a penalty or default surcharge is an essential part of the assessment of actual tax. Hence, no order alone for imposing a penalty or default surcharge can be passed by an Inland Revenue Officer under Sections 33 and 34 ibid, where a person has filed the return and paid his tax due after the due date but prior to show- cause notice."
5. Mr. Sohail Ansari, learned counsel for the applicant assailed the order of the learned Tribunal and argued that Section 33 of the Act provides that if any registered person does not file the return and pay the due tax as required under Section 26, he shall be subjected to penalty as provided in Section 33 ibid. By providing this penal provision of law, the intention of the legislature becomes more clear that irrespective of the fact whether tax has been paid or not, filing the return is mandatory and non-submission of return within due date would amount to commission of an offence and carries punishment in the shape of penalty. He further asserted that the penalty and default surcharge under Sections 33 and 34 of the Act respectively can only be imposed under Section 11 of the Act and there are no other separate provisions available to levy such charges. The learned counsel contended that the orders passed by the Assessing Officer under Section 11(2) of the Act for imposition of penalty and default surcharged under Sections 33 and 34 of the Act respective were in line with the intent of legislature and the learned Tribunal has misread the provisions of Sections 11, 33 and 34 of Act therefore the questions of law submitted may be decided in affirmative.
6. Mr. Khalid Sultan, learned counsel of the respondent contended that the respondent has been charging and collecting seven categories/types of sales tax from their four types of consumers which are more than six hundred and twenty thousand spread all over the Province. In addition to that, the appellant is also burdened for collection and payment of withholding taxes, fees, and surcharges from consumers which the appellant has to collect, compile the data, and then deposit the amount of taxes/surcharges to the relevant account/department on monthly basis. The learned counsel further contended that Balochistan Province having the most backward and remote areas of Pakistan and for the last many years due to bad law and order situation, it is very difficult for any organization to collect and deposit the taxes well on time. It has been stated that the appellant being a public limited company, fully owned by the Government of Pakistan cannot act mala fide and intentionally file the sales tax returns late in the order, to gain any financial benefit from late depositing of tax. He asserted that despite the genuine reasons for deposit of sales tax and delay in filing the returns, during the tax periods under consideration the due amount of sales tax was paid voluntarily and without any notice of non-filing of sales tax returns.
Notwithstanding the aforesaid, he contended that the imposition of penalty is a matter of discretion which must be exercised by the authorities judiciously on consideration of the relevant facts and circumstances of the case.
7. Arguments have been heard, record examined and relevant provisions of the Sales Tax Act, 1990 as well as the Income Tax Ordinance, 2001 (the Ordinance) considered. Prior to answer to the question, the scheme of the law has to be understood. Section 3 of the Act is the charging section.
Subsection (9) of Section 2 defines the expression "due date". Similarly, sub-Sections '(29A) and
(34) of Section 2 define the expressions "sales tax" and "tax" respectively. Section 6 prescribes the time and manner of payment of sales tax, sub-section (2) of section 6 expressly provides that the tax in respect of taxable supplies made during a tax period shall be paid by the registered person at the time of filing of return in respect of the corresponding tax period. Section 7 describes the mechanism for the determination of tax liability. A plain reading of Sections 3, 6, and 7 conjunctively shows that inadmissible adjustment of input tax amounts to tax not levied or short levied. The inadmissible adjustment of input tax in a relevant tax period is liable to be recovered in the manner as provided under the Act. Likewise, if a person has not paid the due tax within the time he is liable to pay a penalty and default surcharge under Sections 33 and 34 of the Act respectively. Section 33 of the Act describes the various offenses/violation in column No. 1 of the Table. The penalty against the corresponding offence is mentioned in column No. 2 thereof. Clause 1 of column No. 1 of the Table contemplates the offence where any person fails to furnish a return within the due date. The penalty of such offence has been prescribed in column No. 2 which envisages that such a person shall pay a penalty of Rs. 5000/- provided that in case a person files the return within ten days of the due date, he shall pay a penalty of one hundred rupees of each day of default. Clause 5 of column No. 1 of the Table prescribes offence where 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. Correspondingly column No. 2 of the table contemplates the penalty. Next is the liability of default surcharge under Section 34 of the Act. Section 34 provides that failure on the part of the registered person to pay the tax due or any part thereof, whether willfully or otherwise in the time or the manner specified under the Act, rules or notification made thereunder or tax credit, or if a refund is claimed or an adjustment is made which is not admissible, or the rate of zero percent of supplies made during the course of taxable activity has been incorrectly applied, then such a registered person shall, in addition to the tax due, pay default surcharge at the rates specified in clause (a) to (c) of sub-section (1) of Section 34 ibid. The legislative intent is obvious from a plain reading of the provisions of Sections 33 and 34 of the Act.
The legislature has only described the offences and penalties in Section 33 ibid. Similarly, the legislature has described the categories of the registered persons and eventualities which would attract default surcharge under Section 34 of the Act. However, in both these Sections the procedure for levy and collection of penalty and default surcharge is not provided and without invoking the provision of Section 11 of the Act penalty and default surcharge cannot be imposed/charged. It is unlike the Income Tax Ordinance, 2001 where pari materia provisions for imposition of penalty and charge of default surcharge are available in the shape of Sections 182 and 205 of the Ordinance respectively which specifically prescribe an inbuilt mechanism for charging/imposition of default surcharge and penalty under the said provisions. It is also pertinent to mention that the Sales Tax Act, 1990 does not give any statutory right of appeal to the registered, person against the a standalone order passed under Sections 33 and 34 of the Act whereas under the Income Tax Ordinance, 2001 provides a specific and separate right of appeal to the aggrieved person if the order is passed under Sections 182 and 205 of the Ordinance against him.
8. We also deem it appropriate to reproduce the relevant provisions of Sections 11, 33 and 34 of the Sales Tax Act, 1990 and Sections 182 and 205 of the Income Tax Ordinance, 2001 which deals with penalty and default surcharge as under:-
11. Assessment of Tax and Recovery of Tax not levied or short levied or erroneously refunded.--
(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an officer of Inland Revenue shall, after a notice to show-cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with Sections 33 and 34: Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show-cause and the order of assessment shall abate.
(2).........
33. Offences and penalties:--Whoever commits any offence described in column (1) of the Table below shall, in addition to and not in derogation of any punishment to which he may be liable under any other law, be liable to the penalty mentioned against that offence in column (2) thereof.
TABLE Offences PenaltiesSection of the Act to which offence has reference (1) (2) (3)
1. Where any person fails to furnish a return within the due date.Such person shall pay a penalty of five thousand rupees: Provided that in case a person files a return within ten days of the due date, he shall pay a penalty of one hundred rupees for each day of default26 2............. ................ ................
3........... ................ ...............
4........... ................ ................
5. 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 thereunderSuch person shall pay a penalty of ten thousand rupees or five percent of the amount of the tax involved, whichever is higher: Provided that, if the amount of tax or any part thereof is paid within ten days from the due date, the defaulter shall pay a penalty of five hundred rupees for each day of default: Provided further that no penalty shall be imposed when any miscalculation is made for the first time during a year: Provided further that if the amount of tax due is not paid even after the expiry of a period of sixty days of issuance of the notice for such payments by an officer of Inland Revenue, not below the rank of Assistant Commissioner Inland Revenue, the defaulter shall, further be3, 6, 7 and 48 liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to amount equal to the amount of tax involved, or with both ................ ........................ .....................
34. Default Surcharge.--(1) Notwithstanding the provisions of Section 11, if a registered person does-not pay the tax due or any part thereof, whether willfully or otherwise, in time or in the manner specified under this Act, rules or notifications issued thereunder or claims a tax credit, refund or makes an adjustment which is not admissible to him, or incorrectly applies the rate of zero percent to supplies made by him, he shall, in addition to the tax due, pay default surcharge at the rate mentioned below:--
(a) the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall pay default surcharge at the rate of twelve percent per annum, of the amount of tax due or the amount of refund erroneously made; and
(b) Omitted
(c) in case, the default is on account of tax fraud, the person who has committed tax fraud shall pay default surcharge at the rate of two percent per month, of the amount of tax evaded or the amount of refund fraudulently claimed, till such time the entire liability including the amount of default surcharge is paid.
(2) For the purpose of calculation of default surcharge,--
(a) in the case of inadmissible input tax credit or refund, the period of default shall be reckoned from the date of adjustment of such credit or, as the case may be, refund is received.; and
(b) in the case of non-payment of tax or part thereof, the period of default shall be reckoned from, the 16th day of a month (following the due date of the tax period to which the default relates) to the day preceding the date on which the tax due is actually paid.
Explanation:--For the purpose of this section tax due does not include the amount of penalty.
182. Offences and penalties:-(1) Any person who commits any offence specified in column (2) of the Table below shall, in addition to and not in derogation of any punishment to which he may be liable under this Ordinance or any other law, be liable to the penalty mentioned against that offence in column (3) thereof-- TABLE Sr.No.Offences PenaltiesSection of the Ordinance to which offence has reference (1)(2) (3) (4)
1. Where any person fails to furnish a return of income as required under Section 114 within the due date.Such person shall Pay a penalty equal to 0.1% of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50% of the tax payable provided that if the penalty worked out as aforesaid is less than forty thousand rupees or no tax is payable for that tax year such person shall pay a penalty of forty thousand rupees Provided that If seventy-five percent of the114 and 118 income is from salary and the amount of income. under salary is less than five million Rupees, the minimum amount of penalty shall be five thousand Rupees, Explanation.--For the purposes of this entry, it is declared that the expression "tax payable" means the tax chargeable on the taxable income on the basis of assessm ent made or treated to have been made under Sections 120, 121, 122, or 122C.
IA ----------- ----------- ----------- 1AA----------- ----------- ----------- 1AAA----------- ----------- -----------
2. ----------- ----------- -----------
3. ----------- ----------- -----------
4. ----------- ----------- ----------- 4A.----------- ----------- ----------- 4B.----------- ----------- ----------- 5.5. Any person who fails to deposit the amount of tax due or any part thereof in the time or manner laid down under this Ordinance or rules made thereunder. Provided that if the person opts to pay the tax due on the basis of an order under Section 129 on or before the due date given in the notice under sub-section (2) of Section 137 issued in consequence of the said order, and does not file an appeal under Section 131 the penalty payable shall be reduced by 50%.Such person shall pay a penalty of five percent of the amount of the tax in default. For the second default an additional penalty of 25% of the amount of tax in default. For the third and subsequent defaults an additional penalty of 50% of the amount of tax in default.137
6. ----------- ----------- -----------
(2) The penalties specified under sub-section (1) shall be applied in a consistent manner and no penalty shall be payable unless an order in writing is passed by the Commissioner, Commissioner (Appeals), or the Appellate Tribunal after providing an opportunity of being heard to the person concerned: Provided that where the taxpayer admits his default he may voluntarily pay the amount of penalty due under this section.
(3) Where a Commissioner (Appeals) or the Appellate Tribunal makes an order under sub-section (2), the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall immediately serve a copy of the order on the Commissioner and thereupon all the provision of this Ordinance relating to the recovery of penalty shall apply as if the order was made by the Commissioner.
(4) Where in consequence of any order under this Ordinance, the amount of tax in respect of which any penalty payable under sub-section (1) is reduced, the amount of penalty shall be reduced accordingly.
205. Default surcharge.---(1) A person who fails to pay -
(a) any tax, excluding the advance tax under Section 147 and default surcharge under this section;
(b) any penalty; or
(c) any amount referred to in Section140 or 141,.......
(1A).......
(IB) .......
(2) .......
(4) .......
(5) The Commissioner shall make an assessment of any default surcharge imposed under this Part in accordance with the provisions of Part II of this Chapter as if the default surcharge were tax.
(6) .......
(7) .......
9. From plain reading of above provisions of Sales Tax Act, 1990 and Income Tax Ordinance, 2001 it is evident that for imposition of penalty and default surcharge the Ordinance provides a standalone mechanism in Sections 182 and 205 besides giving details of offences and consequent penalties and default surcharge. More specifically under sub-section ,(2) of Section 182 and sub- section (5) of Section 205 of the Ordinance detailed mechanism for imposition of penalty and default surcharge is provided.
10. On the contrary Sections 33 and 34 of the Act lack a standalone mechanism for imposition of penalty and default surcharge. Sections 33 and 34 of the Act just provide details of offences and consequent penalties and default surcharge. Under the Act for imposition of penalty and default surcharge provisions of Section 11 of the Act are to be invoked, more specifically sub-section (1) of Section 11 of the Act provide such mechanism. This sub-section perceives two eventualities where penalty and default surcharge can be imposed:. i. Where a person, who is required to file a tax return fails to file the return for a tax period by the due date or ii. pay an amount which, for some miscalculation is less than the amount of tax actually payable,
11. In both the above cases the, Officer of Inland Revenue shall issue a show-cause notice and impose penalty and default surcharge under Sections 33 and 34 of the Act. The Officer can issue show-cause notice if no return is filed or if return is filed but tax payable is not fully paid. Perusal of order-in-original shows that the registered person had already filed return, although after due date, before issuance of show-cause notice. Therefore at the time of issuance of show-cause notice the above two eventualities were nonexistent. Therefore the officer was not justified to issue show-cause as such to impose penalty and default surcharge when the registered person had already filed return and paid tax. At best the Officer could have issued a show-cause if tax paid by the registered person was less than the tax actually payable. Even if show-cause notice is issued in case of said two eventualities then the moment the registered person files return and pay tax as well as penalty and default surcharge then such show-cause notice stands abated as provided in Proviso to sub-section (1) of Section 11 of the Act. Proviso to sub-section (1) of Section 11 of the Act provides that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show-cause and the order of assessment shall abate. It means that even if a registered person falls in any of the aforesaid two eventualities and the Officer issues a show-cause notice or pass an assessment order under sub-section (1) of Section 11 but thereafter the registered person files return after due date and also pays tax on the basis of such return along with default surcharge and penalty then show-cause notice as well as assessment order under sub-section (1) of Section 11 shall abate.
12. In the light of above legal and factual aspects of the case it is evident that for imposition of penalty under Section 33 and default surcharge under Section 34 of the Sales Tax Act, 1990 an Officer of Inland Revenue may invoke provisions of sub-section (1) of Section 11 and issue show- cause notice and pass an assessm ent order if the registered person has either failed to file return by due date or having filed return by due date pays an amount which, for some miscalculation is less than the amount of tax actually payable. Since both the eventualities triggering action under sub-section (1) of Section 11 of the act were nonexistent hence show-cause notice and subsequent order in original passed by the Officer of Inland Revenue are not sustainable and the learned Tribunal has rightly annulled orders of the Officer of Inland Revenue and the Commissioner (Appeals).
13. In view of the above, our answer to the proposed questions is in negative i.e. against the applicant Department and in favour of the respondent-taxpayer/registered person.
A copy of this order is directed to be sent to the Registrar of the learned Appellate Tribunal under the seal of this Court in terms of sub-section (5) of Section 47 of the Sales Tax Act, 1990.