Mr. Justice Shahid Jamil Khan and Mr. Justice Muhammad Sajid Mehmood Sethi in their judgment has decided the issue regarding applicability of additional tax and penalty on sales tax payment in installments in Sales Tax Reference No. 07 of 2014.
1. This single order shall decide instant Reference Application under Section 47 of the Sales Tax Act, 1990 (“Act”), along with following connected case, as common questions of law and facts are involved in the cases STR No. 08 of 2014 titled Commissioner Inland Revenue, Special Zone, RTO, Multan. v. M/s. Arain Mills Ltd.
2. The following questions of law, asserted to have arisen out of the order dated 18.12.2013 passed by Appellate Tribunal Inland Revenue of Pakistan, Camp at Multan (“Appellate Tribunal”), are proposed in the instant reference application, for our opinion:
i). Whether on the facts and in the circumstances of the case, the learned ATIR was justified to ignore rule 6 (3) read with SRO 1271 (I) / 96 dated 10.11.1996 which provides that a registered person shall not be entitled to claim adjustment or refund of input tax in respect of such purchases unless he pays the amount of additional tax or penalty chargeable on such late remittance under section 33 & 34 of Sales Tax Act, 1990?
ii). Whether an executive order issued by the Board to facilitate the Registered Person to deposit the tax in instalments overrides the provisions of Section 33 and 34 of the Sales Tax Act, 1990 and gives immunity to the taxpayer / Registered Person from chargeability of penalty and default surcharge?
iii). Whether on the facts and in the circumstances of the case, ATIR was justified in not considering the element of tax fraud as defined U/S 2 (37) of Sales Tax Act, 1990, committed by the respondent to evade the legitimate sales tax, the burden of proof of which is on the respondent in terms of Section 2 (37) ibid?
3. Brief facts of the case are that the respondent / taxpayer was served with a Show Cause Notice (“SCN”) alleging therein that respondent failed to pay sales tax amounting to Rs.1,54,81,897/- against the purchase of cotton lint and wrongly adjusted the same as input tax from tax years 07 / 2001 to 04 / 2004, therefore, an amount of Rs.1,54,81,897/- was recoverable along with additional tax. The said SCN was contested by respondent, however, order-in-original was passed by the Collector (Adjudication) against respondent. Feeling aggrieved, respondent filed appeal before learned Appellate Tribunal, who vide order dated 18.12.2013, allowed the appeal. Through instant reference application, the aforesaid order dated 18.12.2013 has been assailed.
4. Learned counsel for applicant-department submits that learned Appellate Tribunal was not justified to ignore rule 6 (3) read with SRO 1271 (I) / 96 dated 10.11.1996, which provides that a registered person shall not be entitled to claim adjustment or refund of input tax in respect of such purchases unless he pays the amount of additional tax or penalty chargeable on such late remittance under Section 33 & 34 of the Act. He adds that the executive order issued by the Board was only to facilitate the registered person to deposit the tax in instalments, which does not, in any manner, override the provisions of Section 33 and 34 of the Act, and does not give immunity to the taxpayer / registered person from chargeability of penalty and default surcharge. He further submits that impugned order is not sustainable in the eye of law, in circumstances.
5. On the other hand, learned counsel for respondent / taxpayer defends the impugned order and submits that applicant department has failed to point out any illegality or legal infirmity in the impugned order, thus, the same is liable to be upheld.
6. Arguments heard. Available record perused.
7. The relevant part of impugned order dated 18.12.2013 is reproduced here under:
“7. Rival parties have been heard and the case record examined. We are of the view that when by following substantive provisions of Section 74 of the Sales Tax Act, 1990, the executive authority had granted facility of installments to the taxpayer in discharging of its statutory liability, then the simultaneous action in terms of Section 73 of the Sales Tax Act, 1990, cannot be taken. Hence, the Order-in-Original dated 31.12.2004 merits annulment.
8. Furthermore, the issue in hand has already been decided by this Tribunal vide STA No.1488 / LB / 2009, STA No.1489 / LB / 2009 and STA No.150 / LB / 2009, the relevant portion of the said orders reproduced here under:
“4. We have given anxious thought to the arguments advanced by the rival parties and perused the available record. We have observed that liquidity / financial problems since long and in this regard he submitted an application in the office of the Collector to inform their basic problems who, after having sympathized with the appellant issued a letter vide C.No.213/Text. Rec/ST/17521 dated 17.11.2004. Cost Accountant, the Collector, Sales Tax, Multan allowed the appellant to pay arrears of Sales tax in installments. We have noted that in the past, the Collector of Sales Tax accepted the appellant’s submission to that extent. We also appreciate this action of the Collector because the whole structure of sales tax, income tax, wealth tax etc., stand on the shoulder of these taxpayers who perform their tax liabilities to run the business of the Government Department. Keeping in view of the aforementioned opinion when the appellant is paying sales tax as per schedule given by the Collector, there seems to be no reason for imposition of the penalty as well as the additional tax.”
8. Perusal of above reproduced relevant part of impugned order shows that the applicant-department itself has granted facility of instalments to the taxpayer in discharging of its statutory liability. Keeping in view the aforesaid action of FBR itself, learned Appellate Tribunal came to the conclusion that penalty as well as additional tax is not justifiable.
9. The applicant-department is demanding additional tax and penalty from respondent / taxpayer simply on the ground that there was no specific order regarding waiver of additional tax and penalty in the executive order passed by FBR. Admittedly, there was no specific order passed by FBR that additional tax and penalty should be recovered in instalments along with principal liability of sales tax. The absence of any specific order would go in favour of respondent/taxpayer. In the instant case, the act of competent authority allowing the respondent to pay due sales tax in instalments, connotes that it had waived additional tax and penalty for the period of instalments. Had respondent / taxpayer failed to pay agreed installments, then he could have been burdened with additional tax and penalty, not otherwise. Reference in this regard can be made to Messrs Bawani Violen Textile Mills v. Commissioner of Income-Tax (PLD 1967 Karachi 688).
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