ZIA MAHMOOD MIRZA, J.--This is a petition for leave to appeal against the judgment of Lahore High Court dated 6-7-1994 dismissing the Constitutional petition filed by the petitioner to assail the validity of the orders passed by the Central Excise and Sales Tax Authorities.
2. Petitioner-company is stated to be doing the business of production and sale of Potato Chips, Daal Moong, Nimco and Fried Peanuts. These items, it is stated, were exempt from the payment of the sales tax. By notification dated 17-6-1990, however, Potato chips were declared liable to the payment of the said tax. According to the petitioners, they hired the services of Sohail Enterprises, a Firm claiming to be the consultants and clearing-agents, for the purpose of securing exemption from the payment of sales tax for Potato Chips Industry. The said firm later informed the petitioner that by Notification, dated l0th March, 1991, the Central Board of Revenue had exempted Potato Chips from levy of sales tax and delivered a copy of the Notification to the petitioners. Case of the petitioners is that they sent the copy of the said notification to the sales tax department vide letter dated 19-3-1991 stating therein that in view of the notification of exemption, they were no longer required to deposit the sales tax in future. Petitioner-company thereafter, stopped depositing the sales tax on its future sales. It appears that in October, 1991 the authorities detected that the notification was a fake document. A notice was accordingly issued to the petitioner by the Deputy Collector, Central Excise and Sales Tax on 10-12-1991 to show cause "as to why penal action should not be taken against them under sections 33 and 35 of Sales Tax Act, 1990 for violation of the said law and rules and as to why sales tax amounting to Rs.29,75,457 for the period mentioned above plus additional tax and surcharge thereon should not be recovered under sections 3, 33, 34 and 36 of the Sales Tax Act, 1990. It was stated in the show-- cause notice that the petitioner had not paid the sales tax on their products namely Potato Chips etc. From 3-6-1989 to 3-10-1991 and neither deposited the sales tax nor filed the returns on due dates during the period November, 1990 to September 1991. It was alleged that the petitioner was defaulter in the sum of Rs.23,85,581 on account of Potato Chips and the amount of Rs.5,89,876 was due on other items.
3. Petitioner in its reply to the show-cause notice claimed that it had paid the sales tax during November and December, 1990, and January and February, 1991 which payments were not taken into consideration when issuing the show--cause notice. The amount so paid was stated to be Rs.2,65,738. It was also pointed out by the petitioner that no adjustment of input sales tax amounting to Rs.9,21,337 paid for the period November, 1990 to September, 1991 was made. As regards the demand of Rs.5,89,876 on account of sales tax on Daal Moong, Nimco and Fried Peanuts, it was stated that there was a bona fide dispute as to the liability to pay sales tax on these items and as such non-payment thereof did not justify any penalty thereon.
4. Deputy Collector Customs adjudicated the case and held that the petitioner was liable to pay Rs.29,75,457 by way of sales tax. He also imposed a penalty of Rs.59,50,914 under section 33 of the Sales Tax Act and a further penalty in equal amount under section 35 of the Act. Feeling aggrieved, petitioner preferred an appeal which was dismissed by the Collector (Appeals) by his order dated 29-4-1993. In revision, however, the Central Board of Revenue reduced the amount of penalty to 50% vide order dated 16-9-1993.
5. Petitioner then invoked the Constitutional jurisdiction of the High Court but with no better result as the learned Judge in the High Court dismissed the writ petition in limine.
6. Learned counsel appearing in support of this petition has raised the following contentions:--
(i) That the departmental authorities and the learned Judge in the High Court in recording the finding that the petitioner had a hand in manipulating the forged exemption notification have not appreciated/considered that the petitioner itself was the victim of fraud perpetrated by Sheikh Muhammad Sohail and Shehzad Anjum of M/s. Sohail Enterprises; that soon after the Notification in question was handed over to the petitioner; it sent the same to the Sales Tax Department alongwith a covering letter but the departmental authorities failed to obtain confirmation from the C.B.R. Whether or not it had issued the said notification; that on coming to know that the notification was a fake document, petitioner immediately got a case registered against Sheikh Muhammad Sohail etc. And also wrote to the Member, Sales Tax explaining the whole position. In the circumstances, petitioner could not be burdened with additional tax and surcharge nor could personal penalty be imposed on it under sections 33 and 35 of the Sales Tax Act which are not at all attracted to the case of the petitioner.
(ii) that if at all, the penalty could be imposed under section 33 on the sales of Potato Chips but not on other items as there was a bona fide dispute as to the liability to pay the sales tax on Daal Moong, Nimco and Fried Peanuts. No penalty could, therefore, be imposed at all oh the amount of Rs.5,89,876 which according to the authorities was the sales tax on Daal Moong, Nimco and Fried Peanuts; (i.e) that in the facts and circumstances of the case provisions of section 35 were not at all attracted and the penalty provided therein could not be imposed on the petitioner;
(iv) that the departmental authorities failed to adjust the amount of input sales tax paid by the petitioner viz. Rs.9,21,337 and another sum of Rs.2,65,735 which the petitioner had paid as sales tax during November, December, 1990 and January, February, 1991. It is pointed out that the payment of these to amounts has since been acknowledged/confirmed by the authorities vide letter dated 23- 2-1994. If these to amounts (Rs.9,21,337 + Rs.2,65,735) are excluded from the total liability on account of unpaid sales tax, petitioner's liability is reduced to Rs.17,88,385 -(Rs.29,75,457-- Rs.11,87,072). Grievance being made is that the petitioner in its reply to the show-cause notice had pointedly claimed the afore-noted to payments but the adjudicating authorities took no notice thereof. Similarly this point was specifically raised before the High Court and it has also been noted in the impugned judgment but no finding has been recorded thereon;
(v) that the departmental authorities assessed the value of the sales of Nimco Mix, Daal Moong and Peanuts for the month of December at Rs.1,49,575 but strangely enough the sales tax worked out thereon is Rs.1,86,971 instead of the actual amount of Rs.18,697. This clearly, was a case of arithmetical or clerical error. This error was brought to the notice of authorities as also to the learned Judge in the High Court but no consideration was given to it and the department illegally recovered the full amount from the petitioner;
(vi) that the case of M/s. Standard Foods (Pvt.) Ltd. Was also at par with that of the petitioner but the Collector (Appeals) by his order dated 25-8-1992 set aside/waived the penalties imposed on them. Petitioner was thus inequitably discriminated against.
7. The afore-noted contentions, the points raised in the petition and other related issues need deeper examination. Leave to appeal is accordingly granted to the petitioner STAY MATTER After hearing the learned counsel for the petitioner and the learned counsel appearing for the respondents on Court's notice, it, prima facie, appears 'that the petitioner had failed to pay the sales tax in the sum of Rs.17,88,385 which amount, it is stated, has since been paid. That being so, the penalty, if at all was leviable, could be impsed on this amount. As noted above, the Member, C.B.R. Had reduced the amount of penalty to 50%. In the circumstances, petitioner is directed to furnish security in the sum of Rs.9,00,000 (almost 50% of Rs.17,88,385) to ensure payment of the said amount in the event of the "dismissal of its appeal. The security shall be furnished to the satisfaction of Deputy Collector, Central Excise and Sales Tax, Lahore within to weeks.