2026 PLP (Trib (PTD)

RAO MUHAMMAD NASIR JAMIL (MEMBER).

The titled Income Tax appeal has been directly preferred by the taxpayer before this Tribunal against the impugned order passed under sections 11E and 33 of the Sales Tax Act, 1990 (hereinafter "the Act"), on 25.11.2024 by the learned Deputy Commissioner Inland Revenue (hereinafter "the Assessing Officer"), Unit-17, Zone-III, LTO, Lahore, for the tax period October, 2021 to May, 2022 because the Commissioner Inland Revenue (Appeals) did not have pecuniary jurisdiction to decide the appeal after coming into force of the Tax Laws Amendment Act, 2024. The registered person is a Public Limited Company Quoted on stock exchange and engaged in the business of manufacturing of un-dyed cotton yarn for the last many decades. The registered person filed appeal against the Order-in-Original on the basis of the following grounds:‑

1. That the orders passed by the Deputy Commissioner Inland Revenue dated 25-11-2024 received on 02-12-2024 are illegal and against the facts and circumstances of the case.

2. That during the proceedings the registered person raised various legal objections vide letter dated 02-09-2024 and same have been intentionally ignored by the adjudicating officer to avoid the legal issues involved in this matter which are in favour of the registered person. Copy of the letter dated 02-09-2024 is attached.

3. That no proper opportunity of being heard has been accorded to the taxpayer and the taxpayer has been condemned unheard.

4. That the adjudicating officer issued show cause notice under section 11E of the Sales Tax Act, 1990 which is illegal because section 11E was inserted in the statue book on 1st July 2024, therefore, the period involved in this order is prior to July 2024 therefore, section 11E is not applicable in the case of the registered person and if the show cause notice is illegal then all the subsequent proceeding is also illegal.

5. That section 11E being the charging section is not applicable retrospectively.

6. That the assessing officer unlawfully charged default surcharge amounting to Rs.4,536,485/- and penalty amounting to Rs.8,324,459/-.

7. That the registered person during proceedings explained that the registered person is legally allowed to claim purchase invoices within six months from the date of purchase and also allowed to make payment within six months from the date of purchase invoice. The assessing officer while passing orders have ignored this fact and charge default surcharge and penalty unlawfully.

8. That it is an admitted fact that before issuing the show cause notice the registered person already paid the principle amount in the month in which the purchase invoices were claimed in its sales tax return, therefore, the default surcharge and penalty charged is illegal.

9. That the superior judiciary already held that when the principle amount is paid before the issuance of show cause notice then default surcharge and penalty cannot be charged independently.

10. That the assessing officer misinterpreted the SRO 1087(I)/2019 dated 19-09-2019 to imposed heavy penalties without any justification and without considering the other provisions of law applicable in the case of registered person.

11. That the orders passed by the assessing officer are bad in law for such other reasons which may be adduced at the time of hearing of appeal."

3. When case was called out for hearing, Mr. Ahmad Nawaz Khurram, Advocate attended on behalf of the appellant-taxpayer and contested the case in the light of aforesaid grounds of appeal. However, No one attended on behalf of the department. During the hearing the registered person produced the written arguments and argued the case at length as under:‑ The AR of the taxpayer stated that the legal arguments raised during the assessment proceedings remained unattended and the facts of the case was not properly considered by the OIR at the time of passing orders. The AR stated that the while calculating the period the OIR failed to appreciate this fact that the return was filed on 18th of the Next Month and the payment made till 15th of the next month of the sales tax return. The tax withheld paid when the invoice was claimed in that month. The statute allows the registered person to pay the principal amount of tax within six months and also to claim the input tax within six months. The tax will be withheld at the time of payment. When the show-cause notice was issued the principal amount of tax was already paid therefore the default surcharge and penalty provisions are not applicable in the case of the taxpayer and in support of the contention the AR of the taxpayer relied upon the following judgments:- The judgment of the Lahore High Court Lahore of CIR v. Coca Cola Pakistan Limited cited at 2022 PTD 1400 in which the Honourable Court held as under:- "Respondent taxpayer was manufacturer of soft drinks selling its product exclusively by chain of restaurants through their outlets. Dispute was with regard to collection of tax on amount paid in consideration for acquiring rights for exclusive sale of brands of respondent taxpayer, consideration of acquisition exclusive rights, by its nature, did not come within the expression of "services" as used in section 153(1)(b) of Income Tax Ordinance, 2001, rather had come within the ambit or "Royalty" defined in S. 2(54) of Income Tax Ordinance, 2001, Rebate was reduction against sale consideration and could not be equated with consideration for services simply for the reason that buyer of goods did not render any service to seller. Registered person as per provision of S. 153 of Income Tax Ordinance, 2001 was only required to deduct tax at the time of making payment to a resident person etc. When payment was not made actually, physically or practically, possibility of tax deduction did not rise at all. Only rebate was there and not an actual payment and respondent taxpayer was entitled to deduct amount in question as an expense under S. 21(c) of Income Tax Ordinance, 2001, such was impracticable and impossible to deduct certain amount from an amount which was not paid..." In the case of Quetta Electricity Supply Company Limited v. CIR in STA No. 362/KB/2018 the Appellate Tribunal Inland Revenue held as under:- "for what has been discussed above, we are of the considereq view that the provision of section 11(1) of the Act do not allow recovery and imposition of penalty and default surcharge alone where liability on account of principal amount of tax stands discharged voluntarily prior to initiation of proceedings under section 11(1) of the Act, if the amount of penalty is considered to be a part of "tax" as used in the provisions, then there is no need for legislature to use the words penalty and default surcharge separately and independently, the intention of the legislature is manifestly clear that such registered persons who deposit the due amount of sales tax, the provision of section 11 of the Act are therefore ab-initio not attracted..." The honourable High Court of Baluchistan in the case of CIR v. Quetta Electric Sale Tax Reference No. 05/2021 held as under: "In the light of the above legal and factual aspects of the case it is evident that for the 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 provision of subsection (1) of section 11 and issue show cause notice and pass an assessment 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 subsection (1) section 11 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 the orders of the officer inland revenue and the Commissioner Appeals..." On the other hand, no one appeared on behalf of the department. After going through the record of the case and hearing arguments from both the sides we feel that the arguments put forth by the AR of the registered person carry's weight because the OIR charged default surcharge and penalty without properly looking in to the facts of the case and the legal provisions applicable in the case of the registered. Moreover, the OIR has failed to apply his mind regarding the norms in Spinning Mills Industry that after receiving Cotton Lint it has to pass the certain lab tests, resultantly, purchase return oftenly occurred. On the other hand, in a sales tax period, month end liability is calculated as per law and procedures on month end. In the instant case when all principle is admittedly paid, no question of default surcharge and penalty can be called for at all. Therefore, the Order-in Original passed by the OIR is hereby annulled. The appeal filed by the appellant/registered person is allowed accordingly. This order consists of (05) pages and each page bears my signature. MQ/41/Tax (Trib) Appeal allowed.