Kh. ZAFAR IQBAL, DISTRIBUTOR LEVER BROTHERS PAKISTAN LIMITED RAWALAKOT (A.K.) VS DEPUTY COLLECTOR CENTRAL EXCISE AND SALES TAX, RAWALAKOT, 2018 PTD-HIGH-COURT-AZAD-KASHMIR 1574 (2018)

(a) Sales Tax Act (VII of 1990)---

----Ss. 33 & 34---Offences and penalties under the Sales Tax Act, 1990---Default surcharge/additional tax---Imposition of penalty---Exercise of discretion under Ss.33 & 34 of the Sales Tax Act, 1990---Scope---Before imposition of penalty under Ss.33 & 34 of the Sales Tax Act, 1990; the Department must be satisfied that defaulting party/ taxpayer acted deliberately in defiance of the law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligations---Penalty should not be merely imposed because the officer was competent to impost the same and discretion of concerned officer of Department should be exercised judicially and after consideration of all relevant circumstances.

Hindustan Steel Ltd. v. State of Orissa, decided on August 4 of 1969 Supreme Court of India; Mamy Beverage v. Naseem 1995 PTD 91 and The Collector of Sales Tax, Gujranwala and others v. Messrs Super Asia Mohammad Din and sons and others 2017 SCMR 1427 rel.

(b) Sales Tax Act (VII of 1990)---

----S. 11---Assessment of Tax and Recovery of Tax not levied or short levied or erroneously refunded---Mandatory nature of Departmental obligations under S.11 of the Sales Tax Act, 1990---Scope---Section 11 of the Sales Tax Act, 1990 was mandatory in nature and any order passed in non-compliance of the same, particularly an order passed beyond the time period stipulated in the said section, would be invalid.

The Collector of Sales Tax, Gujranwala and others v. Messrs Super Asia Mohammad Din and Sons and others 2017 SCMR 1427 rel.

(c) Discretion---

----Public functionary---Exercise of discretion---Scope---Law did not permit an authority to exercise its discretion in an arbitrary or capricious manner.

Haji Muhammad Afzal for Appellants (in all the Appeals).

Babar Ali Khan for Respondents (in all the Appeals).

JUDGMENT

MUHAMMAD SHERAZ KAYANI, J.---The supra titled appeals have been filed by appellants, herein, against the impugned orders dated 15.09.2001, passed by Sales Tax Appellant Tribunal, Azad Jammu and Kashmir, Muzaffarabad.

2.As common questions of facts and law are involved in the instant appeals, therefore, same are clubbed and decided through this single judgment.

3.The precise facts of Appeal No.26/2001 are that appellant is a distributor of M/s. Lever Brothers Pakistan Limited at Hajeera. It is stated that Sales Tax Registration Certificate was issued in multiple repeated corrections along with changing numbers, without prescribed procedure and lawful authority to appellant. Thereafter, the appellant approached the concerned Sales Tax Departmental Authority for maintaining Sales Tax record, collection/ deposit of Sales Tax and for supplying Sales Tax Return Forms, procedure of its completion plus schedule of filing of Sales Tax Returns etc, but the authority refused to do so. It is further alleged that respondents later on provided information to Representative of the Principal Company of the Appellant, the Sales Tax Return Forms were procured from Pakistan, hence, appellant submitted the Sales Tax Returns and deposited the Sales Tax amount along with its returns. It is further alleged that appellant deposited the Sale Tax at the time of filing the Sales Tax Return. It is maintained that imposition of penalty under section 33(CC) and additional Tax under section 34 of the Sales Tax Act, 1990, is without lawful authority. It is averred that appellant against the imposition of additional Tax of Rs.9,541/- under section 34, Penalty of Rs.47,500/- under section 33 and Rs.1,90,000/- under section 33(CC) of Sales Tax Act, 1990, filed appeal before the Sales Tax Appellate Tribunal, which was heard on 03.09.2001. It is further alleged that the learned Sales Tax Appellate Tribunal, however, without waiting the written brief etcetera passed the impugned order on 15.09.2001, and partly accepted the appeal in the hurried manner, hence, the instant appeal.

4.The cases were decided by this Court vide judgment dated 17.05.2017, however, the Hon'ble Apex Court remanded the same for afresh decision on merits through judgment dated 03.03.2018.

5.The contents and grounds of all the other appeals are similar to Appeal No. 26/2001, hence need not to be reiterated for the sake of brevity and convenience.

6.The learned counsel for appellants filed written arguments and the learned counsel for respondents argued at bar.

7.I have perused the written arguments filed by the learned counsel for appellants and heard the learned counsel for respondents and gone through the record of the case with utmost care.

8.A perusal of the record shows that the appellants are registered persons and distributors/suppliers of different companies/manufacturers (Lever Brothers Pakistan Limited, Pakistan Tabacco Company, Lakson Tobacco Company) in their respective areas and during the course of audit of their record some irregularities were pointed out by the audit party pertaining to relevant period (1998 to 2000), mainly with the allegation that the appellants in that period made taxable supplies to the non registered persons of the respective areas, the sale tax was properly collected and deposited in government treasury but they filed their returns late and thus they also deposited the sale tax after due period. Show-cause notices were issued to the appellant by Deputy Collector Central Excise and Sale Tax. In explanation the appellants contended before the said officer that sales tax registration certificates were issued to them not on time rather the same were delayed. They also contended that under the sales tax system returns are to be filed on the different dates and the registered persons/tax payers were not in knowledge of those dates and due to such ignorance they could not file returns and deposit the sales tax well within time. The representative officer of the department opposed the version of the appellants put before the Deputy Collector and after hearing them the learned officer passed similar orders in all the cases, one of them for convenience is usefully reproduced below which was passed as order No. 4 on 21.12.2000 against Messrs Zakir Hussain & Co. D/B Lakson Tobacco Company limited, Pullandir.

"I have gone through the contentions of both the parties and perused the record available and reached to the conclusion that the registered person not only failed to prove his case but also admitted that he filed late returns. Hence the charges levelled against the registered person for the violation of sections 6, 22, 23 & 26(1) read with sections 33 and 34 of Sales Tax Act, 1990 are proved beyond any doubts.

I therefore, in exercise of power conferred upon me under sales Tax Act, 1990, adjudicate/assessee the tax liability as under:--

1.Additional Tax under section 34 5% up to 7/98 to 5/2000 Rs. 94,5100

2Penalty under section 33(CC) 10000*19 Rs.190000.00

3Late filing of returns 2500*19 Rs.47500.00

Total. Rs. 246951.00"

A perusal of above para of the order shows that the learned respondent officer imposed the penalty under section "33(CC)" and additional tax under section 34 of the Sales Tax Act, 1990, only on one ground that it is admitted fact that the appellant filed late returns, no other question was discussed neither resolved although appellant contended that the sales tax registration certificate was issued to them after a considerable delay by the department and they were also not apprised the due date of filing of the returns nor they were provided Sales Tax return forms from regional offices and deposited the principal amount of tax. These issues were not discussed by the respondent officer nor any finding were given by him in this regard. Likewise, when appeal was filed by the appellants before the "SALES TAX APPELLATE TRIBUNAL OF Azad Jammu and Kashmir Muzaffarabad" the learned Tribunal through the impugned order by disposing of all the appeals of the appellants herein, dismissed their appeals by observing in the following words:-

"The late filing of returns is admitted and it has not been proved that the returns as well as deposit of tax was in time, so the penalty and additional tax has to be paid. It is a legal requirement. Ignorance of procedure is no excuse because when you deposit the tax beyond the due date it means that you know the method and procedure. Anyhow the additional tax shall be reckoned only for the period in default and not for the whole month."

However, in the next para the tribunal reduced the amount of penalty to 50% of the original one for the period mentioned therein.

9.It is true that when any person fails to furnish a return within due date a penalty of Rs. 5000/- can be imposed upon him under section 33 of the Act and if a registered person does not pay the tax due or any part of that in time or in the manner specified in the Act, rules etc, refund or makes an adjustment which is not admissible to him or incorrectly applies the rate of 0% to supplies made by him in addition to the tax due, or surcharge can be imposed upon him at the rate mentioned in section 34 of the Act. But before imposing the penalty or default surcharge the competent Inland Revenue Officer must satisfy that the defaulting party acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligations. Penalty should not be imposed merely because it was lawful and the officer was competent to impose the same. It is matter of discretion of the concerned officer which should be exercised judicially and judiciously and on a consideration of all the relevant circumstance. In the referred case "Hindustan Steel Ltd. v. State of Orissa" decided on August 4 of 1969 Supreme Court of India held that if such omission or breach of the provision of the law is from bona fide belief that the offender is not liable to act in the manner prescribed by the law even a minimum penalty should not be imposed. The relevant portion of the judgment is given below:--

"Under the Act penalty may be imposed for failure to register as a dealer: Section 9(1) read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of authority to be exercised judicially and on the consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out."

The same preposition came before the Lahore High Court in case titled "Mamy Beverage v. Naseem" 1995 PTD 91 and the learned Lahore High Court held that it is not a mandatory requirement of law that the tax officer is bound under section 34 of Sales Tax 1990 to impose penalty to a registered person for failing to file returns within time rather it is matter of discretion and which should be exercised while keeping in view the overall circumstance of the each case. In the said judgment detail discussion was made to differentiate the expression "shall be liable" and "shall pay" and it has been held that the words "shall be liable" used under section 34 give discretion to the imposing authority/adjudicating officer to levy or not to levy additional sales tax even in the event of failure of a person to pay the sales tax in time rather the officer should keep in view the facts and circumstance of the case and causes for non-payment. Relevant portion of both the paragraphs of the judgment are given below:--

"9. On the plain language of this provision it is apparent that liability to pay sales tax is not a necessary consequence or corollary of non-payment of sales tax within the stipulated period. On the other hand, use of expression "shall be liable" in contradistinction to "shall pay" clearly vests a discretion in the adjudication officer to levy or not to levy additional sales tax even in the event of failure of a person to pay the sales tax keeping in view the facts and circumstances of the case and reason for non-payment."

12. It follows from the above that the imposition of sales tax under section 34 of the Sales Tax Act, 1990 was in the discretion of the Deputy Collector who unfortunately was not aware of this jurisdiction vesting in him and proceeded in the matter under a misconception that he was obliged by law to recover the sales tax merely because, according to him, the sales tax not been paid within the due period .. He was obliged by law to examine the reasons stated by the petitioner as to why it cannot be deemed to be a defaulter."

In another case titled "The Collector of Sales Tax, Gujranwala and others v. Messrs Super Asia Mohammad Din and Sons and others" reported as 2017 SCMR 1427, Hon'ble Supreme Court of Pakistan while defining the word "shall" used in the relevant section held that the word "shall" is not a sole factor which determine the mandatory or directory nature of the provision although it is one of the indicators of legislative intent but other factors included the presence of penal consequences in case of non-compliance, object, and purpose of the statute, and the provision in question should also be considered to form the view whether the provision is mandatory in nature or directory one.

One of the contention of the learned counsel for the appellants was that the original impugned order of the Collector was not passed within the period prescribed under section 11 of Act (within 120 days) and thus an order passed after a considerable delay is not valid. In the supra judgment Supreme Court of Pakistan while declaring the section 11 of the Act as mandatory in nature observed that any order passed in non-compliance of its terms particular order passed beyond the stipulated time period would be invalid. The relevant portion of the above judgment is reproduced below.

"7. From the plain language of the first proviso, it is clear that the officer was bound to pass an order within the stipulated time period of forty-five days, and any extension of time by the Collector could not in any case exceed ninety days. The Collector could not extend the time according to his own choice and whim, as a matter of course, routine or right, without any limit or constraint; he could only do by applying his mind and after recordings reasons for such extension in writing. Thus the language of the first proviso was meant to restrict the officer from passing an order under section 36(3) supra whenever he wanted. It also restricted the Collector from granting unlimited extension. The Curtailing of the powers of the officer and the Collector and the negative character of the language employed in the first proviso point towards its mandatory nature. This is further supported by the fact that the first proviso was inserted into section 36(3) supra through an amendment(note:- the current section 11 of the Act, on the other hand, was enacted with the proviso from its very inception in 2012). Prior to such insertion, undoubtedly there was no time limit within which the officer was required to pass orders under the said section. The insertion of the first proviso reflects the clear intention of the legislature to curb this earlier latitude conferred on the officer for passing an order under the section supra. When the legislature makes an amendment in an existing law by providing a specific procedure or time from for performing a certain act, such provision cannot be interpreted in a way which would render it redundant or nugatory. Thus, we hold that the first proviso to section 36(3) of the Act [and the first proviso to the erstwhile section 11(4) and the current section 11 (5) of the Act] is was mandatory in nature."

"Thus, having held the first proviso to section 36(3) supra to be mandatory, the natural corollary of non-compliance with its terms would be that any order passed beyond the stipulated time period would be invalid."

From the above survey of the law it becomes clear that the Deputy Collector Excise and Sales Tax passed the impugned order after a prescribed period mentioned in section 11 of the Act, he was bound to dispose of the matter within the stipulated period. The law also envisages that while imposing the penalty and surcharge the competent authority should also consider the version of the registered person/ tax payer and look into matter whether it was bona fide mistake or deliberately he evaded the tax and did not file the return within due time and the respondent Deputy Collector has not taken into consideration all these factors but imposed not only the penalty under section 33 but also the additional tax under section 34 of the Act only on the simple ground that the appellants filed late returns. The order does not contain any other grounds and finding whether the appellants failed to carry out their statutory obligation deliberately in defiance of law or their conducts were contumacious or dishonest, or they acted in conscious disregard of its obligation or it was just a bona fide mistake of fact . In absence of these elements the order of the officer cannot be treated as a valid order as he was not bound, in all the circumstances to impose the penalty rather it was his discretion, and it should have been exercised with due cautious and judiciously while keeping in view the contention of the appellant and if it was not acceptable to him the reasons should have given by dismissing the same. The appellant specifically alleged that the sales tax registration certificate was issued by the department after undue procrastination and they were not aware about the dates of the filing the returns, according to the version of the appellants, tax returns form were not available in the local office of the department and it was contended by the appellant that they approached the concerned officers many times and the concerned officers did not bother to provide requisite information to the appellants, the learned Deputy Collector has not given any finding in this regard as under the principles laid down in the supra ruling, he should have given findings on the grounds of registered persons appellant, and after rejecting them with reasons, he could impose the penalty and additional surcharge under the relevant provisions of law. The law does not permit an authority to exercise the discretion in an arbitrary and capricious manner. It is also admitted fact that the appellants has not only filed returns but also deposited the original amount of sale tax they deducted on the supplies. When the sale tax was properly collected and deposited in government treasury by the appellant and mere late filing of returns in absence of any other breach of the provision of law they cannot be treated as their wilful or deliberate default for evasion of any tax amount. In such circumstance not only the Deputy Collector respondent fell in grave error of law by imposing penalty as well as additional tax upon the appellant but also the learned Appellate Tribunal while dismissing the appeals of the appellants through the impugned order dated 14.09.2001. The Inland Revenue Officer exercised the discretion in capricious and arbitrarily manner which is not warranted by law and such discretionary orders cannot be passed due to the only reason that it is lawful and the officer is competent to pass the order, rather the prevailing circumstances have to be kept in mind in a judicious manner. Thus the impugned order is liable to be set aside.

Therefore, in the light of what has been stated above by accepting these all appeals the order passed by the Sales Tax Appellate Tribunal of Azad Jammu and Kashmir Muzaffarabad dated 14.09.2001 is hereby set aside as well as the orders passed by respondent Deputy Collector Central Excise and Sales Tax dated 21.12.2000 and 24.12.2000 against the appellants, being invalid, are set aside.

KMZ/23/AJK(HC) Appeals accepted.