ZAHID SIKANDAR, JUDICIAL MEMBER. The titled second appeal has been preferred under section 46 of Sales Tax Act, 1990 (hereinafter referred as 'STA') by the registered person against Order No.10 dated 26.06.2023 passed by Commissioner Inland Revenue (Appeals-I), Lahore wherein the learned Commissioner (Appeals) rejected the appeal of the registered person and confirmed the penalty and default surcharge levied by the OIR.
2. Brief facts of the case are that M/s Crescent Fibres/appellant did not deposit sales tax due within the dates prescribed for tax periods 05/2021 to 09/2022. Accordingly, the assessing officer issued show-cause notice on 12.12.2022 calling explanation from the taxpayer confronting the said default with the intention to impose penalty and default surcharge to the tune of Rs.37,513,641/- and Rs.3,799,538/- respectively. Derails of delay in sales tax payment along with calculation of penalties and default surcharge for each tax period is tabulated in the show cause notice as well as order- in-original. Allegedly, as per order-in-original, the appellant failed to furnish any explanation despite seeking adjournment. Resultantly, the OIR finalized the show-cause proceedings and levied penalty of Rs.37,513,641/- under section 33(5) and default surcharge under section 34 at Rs.3,799,538/-.
3. Felt aggrieved, the appellant filed appeal before the CIR(A) which was regretted. The learned CIR(A) vide Order No.10 dated 26.06.2023 confirmed the imposition of penalty and default surcharge. Hence, the appellant has come up in this second appeal before the ATIR against the orders passed by the learned authorities below.
4. Heard.
5. Record suggests that the appellant despite seeking adjournments did not furnish any explanation for the confronted delay in sales tax payments for the tax periods 05/2021 to 09/2022.
The consisting delay in depositing sales tax for almost one and half year suggests that the appellant is habituated to making sales tax payment with delay and that constitutes willful default.
Rather than furnishing any plausible explanation before the CIR(A) or even before us, the learned AR for the appellant contested the matter mainly on legal grounds. It was submitted that penalty cannot be recovered under section 11 of STA and the same contention is taken before us. The CIR(A) turned down the objection by relying' upon a decision of the Hon'ble High Court in I.C.A.
No.50591/2021 in case titled as Shahbaz Hussain v. FOP reported in 2023 PTD 30. We may add here that a full bench of this tribunal in S.T.A. No.1021/LB/2021 in an appeal titled as M/s. Fiza Noor Creations (Pvt.) Ltd. CIR, RTO Faisalabad held that 'sales tax' includes the tax, additional tax, default surcharge, a fine, penalty of any other sum payable under the provisions of STA or the rules made thereunder. Sales tax (including penalty) can only be assessed and recovered under section 11 of STA. Hence, contention is turned down. The contention relating to imposition of penalty in the absence of proving any mens rea is also not tenable in the given circumstances as the default in making sales tax payments is for tax periods almost one and half year and for a prudent mind it is not hard to understand that the appellant committed willful default.
6. The learned AR heavily relied upon a decision of the tribunal given in an appeal S.T.A.
No.362/KB/2018 titled as Messrs Quetta Electric v. CIR Karachi. We have carefully gone through the referred judgments and find that the judgment is of no help to the appellant. There is plethora of judgments given by the Hon'ble High Courts and Hon'ble Supreme Court where the penalty imposed by the department on account of late payment of sales tax was upheld however there is also no cavil to the preposition that each and every case has to be decided on its own merits and facts. Further, penalty has to be imposed in compliance with the provisions of law and the quantum must be proportionate to the gravity of default committed by the taxpayer. To hold this, we seek guidance from the decision of Hon'ble High Court in a case reported in 2017 PTD 1579.
7. There has been a repetitive violation on the part of the assessee as admittedly due sales tax was not deposited within the dates prescribed for tax periods 05/2021 to 09/2022. Once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary. In the present case, the intention of the party is wholly irrelevant since there has been a clear violation of the statutory provisions repetitively, covering a period of one and half year.
Hence, we hold that the appellant has willfully violated statutory provisions with impunity.
8. Conversely, no doubt, the taxpayer has committed willful default by making late sales tax payments for many tax periods under review which resulted in imposition of penalty and default surcharge, however we are also conscious of the fact that penalty provisions have been provided in the statute to ensure compliance and have never been regarded as a tool to generate revenue.
The Hon'ble apex courts as well as this tribunal have always taken lenient view while dealing with the question of imposition of penalties. Further, penalties should be levied after consideration of relevant circumstances and discretion to decide the quantum of penalty should be exercised judiciously.
9. After carefully considering the facts of the case and judgments of the apex courts, we are of the opinion that levy of extreme amount of penalty is not justified. Hence, by taking a judicious view, penalty imposed/upheld by the learned authorities below of Rs.37,513,641/- is reduced to 10% of the penalty amount which comes to Rs.3,750,000/-. Whereas the default surcharge levied/upheld of Rs.3,799,538/- by the lower fora is maintained.
10. The instant appeal is disposed of as above.