1983 PLP (Trib (PTD)

MUHAMMAD MAZHIR ALI (CHAIRMAN).-These four departmental appeals are directed against the combined order of the learned Appellate Assistant Commissioner, Sales Tax.,... Range .... whereby he has allowed the assessee's appeals against the orders under sec tions 10 (3) and 12 (5) of the Sales Tax Act, pertaining to assessment years 1975-76 and 1976-77. We shall first take up the appeals in respect of the orders passed by the Sales Tax Officer under section 10 (3) of the Sales Tax Act both the assessment years in question. The relevant facts are these. The assessee is engaged in dismantling of ships and also runs a re-rolling mill. The assessee; as per assessment order, agreed to be assessed in accordance with the formula or policy decision taken by the C.B.R. for levy of sales tax in respect of ship-breakers vide C. B. R's. Circular No. 16 (10) T-1/ST/76, dated 30th August, 1978. The sales of ship scrap were disclosed at Rs. 82,96,157 or 1975-76 and Rs. 52,22,978 for 1976-77. The Sales Tax Officer, as per above refer red decision of the C. B. R. adopted the taxable sales at the rate of 33-1/3 %of the above-noted total sales and subjected them to sales tax on the concessional rate 7 %. The assessee had, it is stated, claimed deduction of Octroi charges, cartage expenses and carriage expenses amounting to Rs. 2,74,700 in 1975-76 and cartage, conveyance charge and levies by Government of Baluchistan at Rs. 1,33,429 from the above-noted respective total sales of the years in question. The Sales Tax Officer did not take into consideration these claims and, as already stated, worked out the taxable sales at Ra. 27,65,386 and Rs. 17,40,993 being, respectively, one-third of the total sales of ship scrap is the three years in question. The assessee went in appeal before the learned Appellate Assistant Commissioner. It was contended on its behalf before the learned Appellate Assistant Commissioner that the various charges like K. M. C. Octroi, cartage and carriage and levies by the Government of Baluchistan should have been excluded from the respective turnovers to arrive at the taxable sale. The learned Appellate Assistant Commissioner accepted this contention without any discussions and allowed the relief with the follow ing observations "This contention of the appellant is correct. As the details of these items were available on the records the Sales Tax Officer should have taken these into consideration and taxed only the net sales. He is now directed to do so."

2. Mr. Y . . . . S . . . the learned Departmental Representative pressed for the restoration of the orders of the Sales Tax Officer by contending that the impugned order of the learned Appellate Assistant Commissioner in this behalf is wholly sketchy and arbitrary. It does not even disclose the source of law or the basis on which the contention of the appellant was found to be acceptable. He emphasised that the assessments were made strictly in accordance with the agreement arrived at between the assessee and the C. B. R. and the assessee had in fact agreed to be assessee accordingly as is evident from the following context of the impugned assessments: "In response to summons S.T. 24 A . . B. . . Managing Director and Mr. M. . . H. . . . attended and agreed the formula of C. B. R. vide Circular No. 16 (10) T-1/ST/76, dated 30th August, 1978. Mr. A. B . . has given his consent vide order-sheet entry dated 18-6-1979." He then drew our attention to the above-noted circular of the C. B. R. which, inter alia, reads'. "It has been decided that ..(a) sales tax at 7 % would be charged on 33 1/3 % of the turnover as assessed by the Income-tax Officer in the corresponding Income-tax assessment ; " (rent is omitted as being not relevant for our purposes). He further submitted that in the corresponding income-tax assessment the turnovers had been taken at Rs. 82,96,157 and Rs. 52,22,978 for the two years in question and that the assessee also did not file any revised returns for these years.

3. Mr. M ..H the learned counsel for the assessee, on the other hand, submitted before us a copy of the Letter of the Second Secretary, C. B. R. to the President, Ship-breakers Association, Karachi, bearing No. 16 (10)-T-I/ST/76, dated 27th July, 1978, which makes a mention of certain understanding arrived at in the meeting held with the addressee on 26th July, 1978. He urged with vehemence that the expenses in question were incurred after the produc tion stages and hence they should not have been included is the turnover, He further stated that had the assessee made the sales at Gaddani, these expenses would not have incurred and included in the invoices. He stated that the claim in question was made through a letter and it was not necessary that a revised return should have been filed.' 4- We have given our earnest consideration to the submissions made at the bar and we are clearly of the view that there is no merit in the assessee's grievance. The letter produced by the learned counsel for the assessee also clearly shows that the sales tax has been agreed to be levied at the rate of 7 % of the total turnover in the case of ships which were being dismantled, The impugned assessment orders, however, clearly indicate that the assessments were to be made in accordance with the formula laid down by the C.B.R. vide Circular No. 16 (10)T-1 /ST/76, dated the 20th August, 1976. This circular has been produced before is by the learned Departmental Representative.: It is specifically mentioned therein that the sale tax at the rate of 7 1/2 % could be charged at 33-1/3 % of the turnover as assessed by the Income-tax Officer in the corresponding Income-tax assessment (underlined` by us for emphasis). It is admitted by both the parties before us that the declared turnover have been accepted by the Income-tax Officer in the corresponding income-tax assessment as well as by the. Sales Tax Officer in the impugned assessments. The Sales Tax Officer was to proceed on the basis of the turnover: as assessed by the,, Income-tax Officer in the corresponding income-tax assessments and he has admittedly done so in both the years in question. It is, therefore, simply irrelevant for the purposes of these appeal as to whether the expenses in ques tion which are sought to be excluded from the respective total turnover should or should not be included in the taxable sale. So long as the corresponding income-tax assessment discloses the turnover as adopted by the Sales Tax Officer, the assessee cannot succeed in getting any relief. The assessments have been framed on agreement basis and the parties are expected to honour it.

5. For the foregoing reasons, we find such force in these departmental appeals and allow them so as to set aside the order of the Appellate Assistant Commissioner quo ad hoc and restore the orders of assessment as made by the Sales Tax Officer for both the years in question.

6. Now we take up the appeals pertaining to cancellation of penalties levied under section 12 (5) of the Sales Talc Act. The Sales Tax Officer levied penalties under section 12 (5) of the Sales Tax Act at the rate of 2 % of the outstanding demands of Rs. 1,84,439 and Rs. 1,21,767 for 1975-76 and 1976-77, respectively. The- amounts of penalty worked out at R-1. 4,611 and Rs. 3,044, respectively later on the Sales Tax Officer levied further penalties of Rs. 9,222 and Rs. 18,443 on 27-10-1979 and 22-11-1979 for 1975-76 and at Rs. 6,088 and Rs. 12,176 for the subsequent year under appeal. The assessee filed the appeals before the I.-A. C. . , . Range, . . . . against these penalty orders. It was contended on its behalf before the first appellate authority that no show cause notice was issued to it before the imposition of these penalties and that subsequently, the Commissioner of Sales Tax had allowed the assessee to clear the sales tax demands in monthly instalments of Rs. 30,000, The learned Appellate Assistant Con1mmissioner cancelled all the penalties with the follow ing observations "In this case relief has been allowed in the main assessments for the two years vide my order No. A A. C./B/1979/80 of dated, on the principle of merger as laid down in Bawany Violin Textile Mills Ltd. and in the case of Begum Mumtaz Jamal, all the penalties are cancelled."

7. The Department, it is noted, has filed only two appeals instead of six appeals against the impugned order. These appeals are, therefore, as per submission of the learned Departmental Representatives taken to have been filed against the first order of penalty passed in each year.

8. We have heard the learned representatives of the parties. The relief allowed by the learned Appellate Assistant Commissioner in respect of the main assessments for the two years have been reversed-by us and have the original tax demands for both the years stood revived. The basis for allowing reliefs by the learned Appellate Assistant Commissioner, therefore, stands demolished. It is, however, observed that notwithstanding the reversal of the Appellate Assistant Commissioner's impugned orders in respect of the main assessment orders, these appeals would still fail, for violation of principle of natural justice and on account of C. S. Rs. order allowing instalments on subsequent-application of the sales tax. The learned Departmental Representative could not controvert the fact that before levy of penalties is dispute the Sales Tax Officer did dot issue any show-cause notice to the assessee against the proposed levy of penalties under section 12 (5) of the Sales Tax Act. A bare perusal of subsection (5) of section 12 of the Sales Tax Act manifestly shows that a discretion is vested in the Sale Tax officer to levy penalty if a person fails to pay the tax or penalty as provided in subsection (3) or subsection (3-A). It is not every failure to pay the tax or penalty which attracts the levy of penalty under section 12(5) but only such failure as is not sufficiently explained. It is, thus, obvious than unless the Sales Tax Officer gives an opportunity to the assessee to show cause which rendered him in default in payment of tax or penalty, how could it be possible for him to exercise his discretion judicially. Moreover, in the instant case it is an admitted fact that the Commissioner of Sales Tax on the applications of the assesses allowed him a concession to pay the sates tax deemed in question is monthly instalments of Rs. 30,000 payable by 20th of each month. No doubt this order was passed by the Commissioner of Sales Tax on or about 30th January, 1980, i.e., after the levy of the impugned penalties but the fact remains that the ratio decidendi of the judgment of the erstwhile High Court of West Pakistan in the "so of Dawany Violin Textile Mills Ltd. v. Commissioner of Income-tax (1967 PTD 612), is usually applicable to the facts of the instant case. In that case the assesses was served with a demand notice to pay the entire demand of tax on or before the 1st September, 1959. The assesses, on 30th August, 1955 paid the sum of Rs. One Lakh out of total demand and on 31st August, 1955 made an application to the Income-tax Officer concerned for payment of the balance of the tax in monthly instalments. The Income-tax Officer rejected this application and informed the assessee accordingly on 5th September, 1955. On 13th September, 1955, the Income-tax officer imposed a penalty under section 46(11 of the Income-tax Act, 1922 for default in making payment of the balance of the tax. The assesses had in the meanwhile approached the Inspecting Assistant Commissioner for the necessary relief but his application was rejected by the said authority on 1st October, 1955, whereupon the assessee, on 12th October, 1955 moved an application before the Commissioner of Income-tax praying for grant of instalments, who by order dated 19th October, 1955 allowed the assessee to pay the tax in three monthly instalments. The Income-tax Officer had imposed a further penalty under section 46(1) on 13th October, 1955 for assessee's default to pay the demand of tax by the due date viz. 3rd September, 1955. Against the two orders of penalty the assessee went iii appeal before the Appellate Assistant' Commissioner who, by order dated 17th May, 1955 allowed them thereby reducing the amount of first penalty and setting aside the order of imposition of the entire amount of further penalties as in his :opinion, the: Income-tax Officer should have awaited the decision of -the Commissioner of Income-tax on the applications of the assessee for the grant of instalments inasmuch as the assessee while applying the Commissioner of Income-tax for grant of instalments had forwarded a copy of his application to the Income-tax Officer concerned. The Department, thereupon, preferred two appeals before the Income-tax Appellate Tribunal, which were allowed resulting to the revival of the two penalties imposed by the income-tax Officer. The assesses then got the matter referred to the High Court for opinion on the question of law as to whether in the facts and circumstances of the case the Tribunal was justified in holding that the Income-tax Officer was competent to impose penalty under section 46 (1) of the Income-tax Act. The High Court held as under :- "If the order of the Income-tax Officer had remained unchallenged or was not modified by the Income-tax Commissioner it was open to the applicant-company to argue that they did not commit default in the payment of tax. In the present case the position bad changed after the Commissioner granted instalments. Admittedly the Income tax Commissioner allowed the applicant-company to put the income-tax due from them in three equal monthly instalments starting from 15th November, 1955. After the passing of this order it is difficult to hold that the applicant-company was in default or the penalty imposed on then survived."

9. The next case which could be said to be on all fours with the present case is Commissioner of Income-tax, Lahore Zone v. Lahore Textile and General Mills Ltd. ((1974) 20 Taxation 236). In this case the Income-tax Officer imposed a penalty of Rs. 13,072 on 18th April, 1972, on the respondent for the default committed by them in the payment of tax within the specified time as per demand notice served upon them. The assesses approached the C. B. R. which ultimately granted payment by instalments on 26th May, 1972. When the matter came up before the Appellate Tribunal (Pakistan), Lahore it allowed relief to the assessee with these observations :- "The appellant's only case is that they had approached the ' Central Board of Revenue which ultimately granted payment of instalments on 26th May, 1972 and which clearly established the genuine hardship due to which the appellants were not able to pay these amounts. We find that the Central Board of Revenue's ultimate orders establish the appellant's case of hardship and following the decision of Bawany Violin Textile Mills, we will hold that the present penal actions no more remain exigible after this order of the Central Board of Revenue." The Department filed Reference Application before the High Court, but without success. The Department's stand before the High Court was that the Tribunal acted illegally in relying upon the case of Bawany Violin Textile Mills Ltd. and that since the order passed by the C. B. R. granting the instalments to the assessee was a purely administrative order, it had no lawful authority to interfere and invalidate the judicial order of the Income-tax Officer imposing the penalty on the assessee. The Department's case, in short, was that the order passed by the Income-tax Officer could rot be said to have merged in the administrative order of the C. B. R. The High Court rejecting the reference application, in limine, observed :- "The Income-tax Officer imposed the penalty in question for the default in the payment of the tax in the exercise of the discretion vested in him under subsection (1) of section 46 of the Act. This order was not sacrosanct and was open to appeal by the Tribunal. From the order passed by the Central Board of Revenue, the Tribunal was satisfied that this was a case of genuine hardship for the respondent. On this view the Tribunal in the exercise of 'the discretion vested in it in appeal reversed the order passed by the Income-tax Officer and held that the penalty levied was no more exigible. In these circum stances no question of law arises from the Tribunal's order." The Supreme Court of Pakistan refused to grant Special Leave to Appeal against this judgment. See 1980 P T D 301.

10. The decision of the Lahore High Court in C. I. T., Rawalpindi v. Begum Mumtaz Jamal (P L D 1976 Lah. 761) and the decision of Sind High Court in Commis sioner of Income-tax, Karachi (East) v. Azan: Industries Ltd. (1980 P T D 26) and in Com missioner of Income-tax (West), Karachi v. Fateh Textile Mills, Karachi (1982 P T D 193) have also been cited before us. 'Although these authorities have no direct bearing on the subject yet they, by way of analogy, offer some assistance. In fact these decisions enunciate and propound the theory of merger of original order with the Appellate Order and its consequential effect on assessee's failure to pay the demand of tax raised on the basis of original order of assessment.

11. On the facts and circumstances of the case, we are clearly of the view that the assessee had sufficient cause for not paying the entire tax demand within the time specified in the respective notices of demand and that the Income-tax Officer was wrong in holding that the appellant-company had committed a wilful default and consequently it was liable to be penalised under section 12(5) of the Sales Tax Act, 1951.

12. In the result, all the four appeals stand disposed of in the manner indicated above. Appeals disposed of.