RATE OF ADDITIONAL TAX IN CASES WHERE TAX IS NOT LEVIED OR SHORT LEVIED

RATE OF ADDITIONAL TAX IN CASES WHERE TAX IS NOT LEVIED OR SHORT LEVIED <!--[if gte mso 10]> RATE OF ADDITIONAL TAX IN CASES WHERE TAX IS NOT LEVIED OR SHORT LEVIED By Mr. Akhtar Javed, Advocate, Lahore In cases, where sales tax is not levied or is short levied or is erroneously refunded, the person liable to pay any amount of tax or the amount of refund erroneously made is served with a notice by a competent officer of sales tax requiring him to show cause for payment of the amount of tax alongwith additional tax and penalty. The additional tax is demanded in terms of section 34 of the Act which provides that if a registered person does not pay the tax due or any part thereof in time or in the manner specified under the Act, he shall, in addition to tax due, and the prescribed penalties pay additional tax. The rate of additional tax has been different at different point of time. Rate of additional tax period-wise Period From To Additional tax Surcharge Nature 1-11-1990 30-6-1996 5% 1st Month 10% 2nd Month 100% 3rd Month 1% in succeeding month of the amount that remains unpaid Compound 1-7-1996 12-6-1997 5% for first 3 months 2% for succeeding months Compound 13-6-1997 18-6-2000 5% per month Compound 19-6-2000 14-3-2001 1.5% per month Simple 15-3-2001 30-6-2003 2% per month Simple 1-7-2003 To date 1% per month Simple 2. The sales tax officials are of the view that in case of default, that rate of additional tax will be applicable which was prevailing during the period when the default occurred. In one such case, a multi-national company deposited the sales tax in December, 2000 when the rate of sales tax was 1.5% per month simple. However, the default had occurred during 'the period when the rate of sales tax was 5% per month compound. The Collector (Adjudication) Lahore held that the company was required to pay additional tax at the rate of 5% per month compound which was applicable during the period when default had occurred. Being aggrieved, the company filed an appeal in the Appellate Tribunal. While accepting the said appeal, it was held by the learned Chairman of the Tribunal that charging of additional tax @ 5% per month compound was a draconian law which is no more available on the statute book, hence, cannot be applied. Interestingly, the Department has filed an appeal in the High Court against the aforesaid order of the Appellate Tribunal. In the said appeal, the Department has not contended that the rate of additional tax should have been 5% per month compound whereas it has been contended that the rate should have been 2% per month simple which was prevalent on the date when the order of the Tribunal was passed. 3. In another case, Department had raised demand of tax on bagasse which had been used by the sugar mills within the same factory for the production of sugar. During the said period, supply of sugar was exempt so bagasse, being an intermediatary good used for the manufacture of exempt supply, was liable to tax. The case went up to the Supreme Court. The apex Court held that the bagasse used in the same factory for the purpose of manufacture of exempt sugar was liable to tax. When the issue of levy of tax on bagasse was settled by the Supreme Court, various other issues were raised inter alia including as to what would be the rate of additional tax. The matter has again come before High Court. The Lahore High Court has held in Civil Appeal No. 85 of 2002 titled "Collector of Sales Tax Lahore v. Messrs Pattoki Sugar Mills Pattoki" that keeping in view the beneficial amendments made in section 34 (additional tax) of the Act during pendency of these proceedings, the Revenue shall charge the additional tax at the rate which is applicable in similar cases as of today.