2015 PLP (Trib (PTD)

The instant appeal has been filed by Messrs Azhar Corporation (Pvt.) Limited against Order-in-Appeal No. 609 of 2014 dated 21-7-2014 passed by the learned CIR(A), Faisalabad whereby he while vacating whole demand of principle amount of sales tax has upheld liability of default surcharge and penalty under sections 34 and 33(5) of the Act.

2. The pivotal facts as emanating from the case record are that the appellant is a private limited company incorporated in Pakistan under the Companies Ordinance, 1984 and also registered under the Sales Tax Act, 1990 as a manufacturer engaged in supply of laundry soap. During scrutiny of sales tax returns filed by the appellant, it was observed that he has claimed/adjusted input tax in excess to ninety percent of output tax in terms of section 8B(1) of the Act read with S.R.O. 647(I)/2007 dated 27-6-2007 and resultantly, the appellant was called upon with a show-cause notice asking him as to why an amount adjusted in excess of ninety percent of output tax may not be recovered under section 11(3) of the Act along with default surcharge under section 34 of the Act and a penalty under section 33 ibid. The written submissions filed by the appellant could not convince the adjudicating authority and in result thereof, an order dated 30-4-2014 was passed against the appellant. The said order was challenged by way of appeal before the learned CIR(A) who on one hand, vacated whole principle amount of sales tax but on the other hand, has upheld liability of default surcharge and penalty. Now, the appellant has come up before this Court by arguing that imposition of default surcharge and penalty is highly unjustified, unwarranted and illegal particularly when the whole demand of sales tax has already been vacated by the CIR(A). Conversely, the learned DR appearing on behalf of revenue department has opposed the contentions of learned counsel for the appellant and supported the orders of authorities below for the reasons recorded therein and reiterated almost the same arguments as advanced earlier at time of adjudication and fully supported the orders passed by both authorities below simply re-endorsing the basis evolved therein.

3. The arguments of the learned representatives of both the rival parties have been heard, the orders of the authorities below as well as relevant provisions of law and the case-laws cited by the learned AR of the taxpayer have also been perused carefully.

4. After due consideration, we have found that the impugned appellate order levying penalty and default surcharge upon the appellant is illegal and unlawful as the learned CIR(A) has himself held that there is no dispute regarding the genuineness of input tax and vacated whole demand of principal amount of sales tax whereas upheld recovery of penalty of five percent of the amount of tax involved under section 33(5) of Act. For ease of reference, provisions of section 33(5) of the Act are reproduced hereunder:-- Any person who fails to deposit the amount of tax due or any part thereof in the time or manner laid down under this Act or rules or orders made thereunder. Such person shall pay a penalty of ten thousand rupees or five percent of the amount of the tax involved, whichever is higher. By bare reading of above provisions of law, it becomes crystal clear that penalty under section 33(5) of the Act can only be imposed in case of failure of depositing due amount of tax but in the instant case, the learned CIR(A) has himself vacated whole amount of sales tax and nothing left payable by the appellant therefore, imposition of penalty is utter violation of provisions of section 33(5) of the Act.

5. It is not of least importance to say that whole edifice of the instant case has been built up on the sole allegation that the appellant has violated provisions of section 8B(1) of the Act but no penalty on account of violation of the said section has ever been provided under section 33 of the Act hence, imposition of penalty stands highly unjustified and unwarranted under law.

6. It is worth mentioning here that neither any charge of wilful default nor charge to defraud the government has been levelled on the appellant and there is plenty of law available that in the absence of any allegation in respect of the deliberate or wilful default, imposition of default surcharge and penalty are not only unjustified but also illegal. Reliance is placed on judgments of Hon'ble Sindh High Court, Karachi in case of Messrs Nizam Impex (Pvt.) Ltd., reported as 2004 PTD 498 and judgment of Supreme Court of Pakistan in case of Messrs D.G. Khan Cement Factory Ltd. reported as 2004 SCMR 456 = 2004 PTD 1179.

7. We have further observed that the impugned show-cause notice failed to reflect whether alleged act was a result of collusion or the same was a deliberate step to deceive the Government. The onus to prove the allegations of collusion or of a deliberate act lay on the department. In absence of any charge of collusion or of a deliberate act in the impugned show-cause notice issued under section 11(3) of the Act, the levy of additional tax and penalty was not called for, for the reason that the show-cause notice does not discloses whether there was a wilful default on the part of the appellant. Reliance is placed on the judgments of Hon'ble Customs, Excise and Sales Tax Appellate Tribunal in case of Messrs Pakistan Refinery Limited reported as (GST 2006 CL 63) and in case of Messrs Bilal Textiles (Pvt.) Ltd., Faisalabad reported as (2010 PTD 957).

8. The additional demand of penalty of five percent of the amount of tax involved under section 33(5) of the Act, is by all means is a tax of punitive nature and no penalty could be imposed and adjudged against a taxpayer through an adjudication order until and unless, each and every subsection is specifically mentioned and confronted in the show-cause notice and if any penalty is imposed without confronting the relevant provisions as contained in subsections of section 33, it would definitely fall beyond the scope and contents of show-cause notice which would render it illegal, unlawful and void ab initio. The stance taken by learned counsel for registered person is fully supported by the ratio settled in the reported judgment of Apex Court of Pakistan in case of "The Collector Central Excise and Land Customs v. Rahim Din" reported as (1987 SCMR 1840).

9. We have also found that the learned adjudicating authority has imposed penalty and default surcharge but neither specified amount of penalty and default surcharge nor the extent of percentage of penalty and default surcharge in the impugned show-cause notice, thus, penalty and default surcharge imposed against the appellant is otherwise not recoverable with the said specification until and unless a lump-sum amount or percentage thereof given in its subsection is not confronted in the show-cause notice. Reliance can safely be placed on the judgment of Division Bench of ATIR, Lahore in case of "Messrs Zahidjee Textile Mills Ltd., Faisalabad v. The Commissioner (Appeals) Inland Revenue (R.T.O.), Faisalabad" reported as (2012 PTD (Trib.) 1123).

10. In view of what has been stated hereinabove, particularly in the light of law and keeping in mind the principles laid down by the superior courts in various pronouncements quoted supra, the order impugned before us is declared to be illegal, ab initio void and is hereby set aside.

11. The instant appeal filed by the taxpayer is accepted in the manners and to the extent as dilated supra. HBT/130/Tax(Trib.) Appeal accepted.