1990 PLP (Trib (PTD)

FARHAT ALI KHAN, (CHAIRMAN)‑‑‑

1. These departmental appeals are directed against consolidated order of learned Commissioner of Income‑tax (Appeals) recorded by him on 31st December, 1983 relating to assessment years 1974‑75, 1975‑76 and 1976‑77.

2. The brief facts giving rise to' these appeals are that the respondent, a company engaged in the business of sale of products filed its sales‑tax returns showing nil sales for the purposes of Sales Tax Act. In the assessment proceedings before the Sales Tax Officer it was contended by the respondent that no sales tax was leviable on the product of the respondent during the relevant assessment years as it was made exempt from sales‑tax from assessment year 1974‑75 onwards. The Sales‑tax Officer however, directed the respondent to produce such notification and on default sales‑tax was levied in assessment years 1974‑75, 1975‑76 and 1976‑77 respectively vide his order dated 19th December, 1977 but that was not the end of the matter. On 20th March, 1981 the Sales Tax Officer served a notice on the respondent to show cause as to why penalty should not be imposed on it under section 23(1) of the Sales Tax Act. The respondent explained to the Sales Tax Officer that since the Customs authorities did not charge any sales tax on the imports of the respondent, it got the impression that the sales tax on that material was abolished. It was further explained to the Sales Tax Officer that the respondent neither collected nor paid any sales tax and in all its quarterly returns it was mentioned that the product of the respondent was exempt from sales‑tax. It was further argued before him that levy of penalty after three years would not be legally sustainable. The Sales Tax Officer however, repelled all the submissions and levied penalty amounting to Rs. 3,13,671, Rs. 4,05,313 and Rs. 3.54,046 in each assessment year respectively by his order dated 29th April, 1981. Having been aggrieved and dissatisfied the respondent went up in appeal. Here once again the respondent reiterated his submissions advanced before Sales Tax Officer. The learned Commissioner of Income‑tax (Appeals), accepted the appeal in all the three assessment years. Regarding the first submission the learned Commissioner of Income‑tax (Appeals) observed:‑‑ "The perusal of the record shows that there did exist some confusion and misunderstanding regarding the taxability of the item and it appears that the Sales Tax Officer was also not clear about the taxability of the product for the reason that he also did not object to the company's claim and non‑payment of sales‑tax for three years under reference. Although the law may not cast any responsibility upon the Sales‑tax Officer but, his to silence on the company's claim and non‑collection and non‑payment of sales‑tax strengthened the appellant's confusion. The company was under a bona fide belief that no sales tax was payable but, as it is evident from the assessment orders under section 10(3), the appellant admitted its liability as soon as it was ascertained that there was no exemption notification available." Dealing with the objection of the respondent regarding initiation of penalty proceedings after three years the learned Commissioner Income‑tax (Appeals) observed:‑‑ "The orders under section 10(3) were passed on 19th December, 1977 and the impugned penalties were levied vide orders passed on 29th April, 1981, i.e., after a lapse of more than three years. Although there is no time limit prescribed under the relevant section for levying the penalty but as held in a case reported as K.P. Narayan Nappa Setty & CO. v. C.I.T. (H.C.) (100 [19751 I.T.R. 17), there should not be inordinate delay and penalty should be levied within a reasonable time ...."

3. The respondent had also argued before the Commissioner of Income‑tax (Appeal) that it was not given an opportunity of hearing hence the order of the Sales Tax Officer was illegal being in violation of principles of natural justice. The Commissioner of Income‑tax (Appeals) also accepted this contention when he observed, "By not providing an opportunity of hearing the Sales Tax Officer did not follow the principles of audi alteram partem. Thus, he allowed all the three appeals and ordered deletion of penalty imposed in each assessment year respectively. This time the department felt aggrieved and has come up in second appeal before us.

4. Mr. Muhammad Farid the learned D.R. vehemently argued that the order of learned Commissioner of Income‑tax (Appeals) was not sustainable in law. The learned D.R. firstly contended that the moment the A.R. of the respondent admitted that sales tax was leviable in all the relevant assessment years it stood proved beyond any shadow of doubt that when the returns were filed the respondent knew or at least had reasons to believe that they were untrue. Mr. Z.H. Jafri appearing for the respondent, however, argued that the respondent was misled by Customs authorities who did not levy sales tax on the imports of the respondent. The learned counsel vehemently argued that it neither collected any sales tax nor paid any and in each quarterly returns filed this position was reflected. According to learned counsel it was the duty of the Sales tax Officer to point out any defect in the return if there was any. Mr. Jafri further contended that since the Sales‑tax Officer kept quiet for long three years it meant that he was himself not sure about the exemption. The learned counsel pointed out that the respondent who had been paying sales tax right from 1971‑72 should not have made such a Himalayan mistake had there not been any confusion regarding the chargeability of sales tax.

5. We have heard both the learned D.R. as well as the learned counsel for the respondent. We think that the learned Commissioner of Income‑tax (Appeals) has arrived at correct conclusion under the facts and circumstances of these appeals. It does not appeal to reason that an assessee who has been paying sales‑tax in earlier assessment years would stop paying it without any rhyme or reason. The learned Commissioner of Income‑tax (Appeals) has also referred to certified bills of entries which actually caused the confusion. The fact that the respondent subsequently paid sales tax did not prove that at the time when it filed its return had neither known or had reasons to believe that the return which it was filing was untrue. In our judgment the Commissioner of Income‑tax (Appeals) has come to the right conclusion. We, therefore, confirm his finding on this point.

6. Now turning to the issue of initiation of proceedings after three years let us point out that the submission of Mr. Muhammad Farid, the learned D.R. that since there was no time limit the Sales Tax Officer could initiate sales tax proceedings at any time he likes is not sustainable in law. The law requires every act to be done either within the time prescribed or within reasonable time. In sales‑tax matters where quarterly returns are fled three years period cannot be held to be reasonable period particularly in view of fad that the sales in such cases are generally staggering figures at millions of rupees. A company which is making sales worth millions of rupees would face a lot of hardship and sometimes even may suffer because of inordinate delay on part of Sales‑tax Officer because of weeding out of its record. We, therefore, under the facts and circumstances of this appeal again uphold the conclusion of learned Commissioner of Income‑tax (Appeals) as reproduced above. However, let us point out that if the Sales Tax Officer could offer some plausible explanation for the delay, of course, it could be condoned. The matter would, however, depend on circumstances prevailing in each case.

7. Now as far as the third finding of learned Commissioner of Income‑tax (Appeals) is concerned, with due respect to him we think the law is settled that the right of hearing does not mean and include right of personal hearing in each and every case. Mr. Muhammad Farid invited our attention to the correspondence which was exchanged between the Sales‑tax Officer and the respondent and we found that the respondent had enough opportunity of taking up all the relevant pleas before the Sales‑tax Officer which it wanted to take. As such we do not think that right of personal hearing was at all necessary under the facts and circumstances of these appeals. We, therefore, hold that his conclusion that the order of the Sales‑tax Officer was in violation of principles of audi alteram partem is not sustainable in law. We think that the law is settled that the right of hearing does not mean and include right of personal hearing in each and every case. Mr. Muhammad Farid invited our attention to the correspondence which was exchanged between the Sales Tax Officer and the respondent and we found that the respondent had enough opportunity of taking up all the relevant pleas before the Sales Tax Officer which it wanted to take. As such we do not think that right of personal hearing was at all necessary udder the facts and circumstances of these appeals. We, therefore, hold that his conclusion that the order of the Sales Tax Officer was in violation of principles of audi alteram partem is not sustainable in law. However, this finding does not affect the merits of the appeal.

8. In view of discussion made above all the three departmental appeals stand rejected accordingly. M.BA./858/T Appeals rejected.