SABIHUDDIN AHMED, J.---According to the facts stated in the memo. of petition the petitioner- company which is engaged in the manufacturing of glassware and by a Notification No,SRO 599(1)/1990, glass tumblers manufactured by them were exempt from payment of sales tax. The petitioners were, therefore, clearing such tumblers without payment of any sales tax. The aforesaid exemption was apparently withdrawn vide Notification No,SRO 505(1)/1991, dated 30th May, 1991.
However, the petitioners being unaware of the latter Notification, which according to them was not even available with the respondent department, continued to clear manufactured goods without payment of sales tax till 18-4-1992. The Deputy Superintendent of Sales Tax informed them that the goods in question were no longer exempt from sales tax and required them to furnish particulars regarding month wise quantities of glass tumblers cleared. The petitioners furnished the aforesaid information, where after they received show-cause notice, dated 17-6-1992 from respondent No,3 alleging that despite withdrawal of the exemption the petitioners had cleared the goods, without payment of sales tax and they were not only liable to pay the amount of the tax due but also additional tax in terms of section 34 as well as penalty in terms of section 33 of the Sales Tax Act, 1990. The petitioners submitted a reply contending, inter alia, that non-payment of tax after withdrawal of the exemption was not deliberate but due to some misunderstanding on the part of both the petitioners as well as the Excise Staff empowered to collect the same and being an indirect tax the burden whereof is passed on to consumers, it would be unfair to realize the tax amount or impose any surcharge/additional tax or levy any penalty.
2. The respondent No,3, however, observed that the goods forming subject-matter of the notice were cleared more than seven months after the withdrawal of Notification, and therefore, declined to accept the petitioners' contention as to absence of knowledge, directing them to pay an amount of Rs,54,445.33 being the amount of sales tax leviable together with additional tax and surcharge to be calculated under section 34 of the Sales Tax Act vide his order in original, dated 24-11-1993. The petitioner submitted an appeal against the aforesaid order before the respondent No,3 after depositing an amount of Rs,54,445 under protest. They also applied for exemption from payment under section 65 of the Sales Tax Act. The respondent No,2, however, found no reason to interfere with the impugned order of the respondent No,3 and dismissed the appeal vide order, dated 23-6- 1994. Subsequently the respondent issued demand notices for an amounts of Rs,101,000 by way of additional tax and by letter, dated 8-2-1995 directed the petitioner to pay the amount within seven
(7) days failing while embargo will be imposed on further clearance of the goods. Aggrieved by the same petitioner approached this Court under Article 199 of the Constitution.
3. Mr. Mansoorul Arfin learned counsel for the petitioner at the outset candidly stated that he does not question the demand of Rs,54,445 payable by way of sales tax in terms of the show-cause notice and the impugned orders and would only call in question the levy of additional tax in terms of section 34 of the Act. He argued that under the aforesaid provision additional tax was also a form of penal action and could only be levied if there had been deliberate and contumacious failure on the part of the petitioner to discharge its tax liability.
5. On other hand Mr. Abdul Saeed Khan Ghouri, learned counsel for the respondents contended that the additional tax required to be levied under section 34 was different from a penalty under section 33 of the Sales Tax Act and was leviable irrespective of the reason for failure to pay sales tax within the period prescribed by law. To appreciate the contentions of the learned counsel it may be appropriate to reproduce the provisions of section 34 of the Sales Tax Act as they existed prior to the amendment brought about through Finance Act, 1996:--- "Additional tax---Notwithstanding the provisions of section 11, if a registered person fails to pay the tax within the time specified in section 6, he shall, in addition to the tax due be liable to pay additional tax and surcharge at the following rates:---
(a) 5 per cent. of the tax during the first month or part thereof;
(b) 10 per cent. of the tax due for the next month or part thereof;
(c) 100 per cent. of tax due for the succeeding period;
(d) surcharge at the rate of 1 per cent. for every month or part thereof on the total accumulated amount that remains unpaid after the expiry of three months.
Explanation.---(1) For the purpose of calculating additional tax, the period of default shall be reckoned from the 21st of a month (following the due date) to the day preceding the date do which the tax is actually paid;
(2) In this section the expression 'tax due', includes the additional tax."
6. Mr. Mansoorul Arfin placed strong reliance on a judgment of the Lahore High Court in Malt-79 Manufacturer v. Collector (1995 PTD 345) wherein the aforesaid section 34 was interpreted. In the aforesaid case the petitioner had deposited the amount of sales tax payable under a wrong head of account relating to Central Excise Duty. They were called upon to pay additional tax and their plea as to inadvertent error was not accepted by the Tax Authorities apparently on the ground that the above provisions created strict liability. The High Court, however, took the view that the words "liable to pay additional tax" occurring in the text of section 34 clearly indicated that a discretion was available to the assessing authority to impose or not to impose a tax and for the purpose of reaching this conclusion, reliance was placed upon the Supreme Court judgment in Shamroz Khan v. Muhammad Amin (PLD 1978 SC 89), where the words "liable to have his defence, if any, struck out" used in Order 8, Rule 12, C.P.C. were interpreted. Accordingly it was held that no additional tax could be imposed unless the assessing authority was satisfied that there was intentional and deliberate failure on the part of the petitioner to evade payment of tax. Mr. Mansoorul Arfin also drew our attention to Sales Tax Circular No,4 of 1995, issued by the Central Board of Revenue, wherein it has been stated that additional tax and surcharge should be recovered after notice to a tax payer in the event of short levy or erroneous refund on account of some collusion or deliberate act but nowhere such short levy or refund has arisen out of inadvertent error or misconstruction. Learned counsel argued that this circular clearly indicates that additional tax was a form of penalty and could not be levied in the absence of mens rea on the part of the petitioner.
7. Mr. Abdul Saeed Khan Ghouri, learned counsel for the respondents in the first place argued that penalties for non-payment of tax were prescribed in section 33 of the Sales Tax Act and the fact that liability to pay additional tax has been stipulated in different provisions i,e,, section 34 indicates that the same could not be treated as penalty. However, we are of the view that when the Legislature conferred a discretion upon the authorities to levy or not to levy additional tax it could not be assumed that duty to pay could be considered to be a matter of strict liability. Moreover, reliance was placed on a Division Bench judgment of this Court in Caltex v. Federation of Pakistan, disposing of the C.P. Nos.D-223 and 278 of 1994, dated 26-1-1995, relating to the aforesaid section
34. As rightly pointed out by Mr. Mansoorul Arfin, this judgment is not applicable in the circumstances inasmuch as the question of mens rea was not involved and the only question raised was that provisions of section 34 itself were violative of Article 25 of the Constitution, which (we may say so with respect) was duly repelled.
8. We have also noticed, though it was not argued by the learned counsel, that the provisions of section 34 were amended through Finance Act, 1996, and now read as under:--- "34. Additional tax.---(1) Notwithstanding the provisions of section 11, if a registered person or enrolled person does not pay the tax due or any part thereof in time or in the manner prescribed under this Act, rules or notification 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 per cent. to supplies made by him, he shall, in addition to the tax due, and the prescribed penalties, pay additional tax at the rate of five per cent. of the tax due per month or any part thereof.
(2) For the purpose of calculation of additional tax---
(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 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 21st day of a month (following the due date of the tax period to which the default relates) to the day preceding the date or which the tax due is actually paid.
Explanation.---For the purpose of this section, the expression 'tax due' includes the additional tax."
9. Evidently the words "liable to pay" have been substituted by the words "pay" and there would have been force in the contention of the learned counsel for the respondents if the above provisions were applicable at the relevant time. However, they cannot, nor they were intended to, be given retrospective effect and the Legislature is presumed to be aware of the state of law as existing at the time of enactment of statute. This fact also lends support to the contention of the learned counsel for the petitioner and we accordingly hold that prior to the 1996 amendment additional tax could only I be levied if the concerned authorities were satisfied that there was some deliberate act on the part of the tax payer to evade payment.
10. We have gone through the impugned orders and found that no such attempt has been attributed to the petitioner. Mr. Arfin further pointed out that the petitioners were manufacturer, of goods and sales tax was being collected by Excise Authorities through A.R-I. Evidently it appears that the Excise Authorities charged with the duty to collect tax were themselves unaware of the withdrawal of exemption, and therefore, it would be unfair to assume any deliberate evasion on the part of the petitioner. In view of the above we would allow this petition and declare that the levy of additional tax is without lawful authority and of no legal effect. The parties to bear their own costs.