APPELLATE TRIBUNAL INLAND REVENUE, DIVISIONAL
BENCH-I,
ISLAMABAD
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M/s AAR & CO. (Holiday Inn), Main Civic
Center, Block 10, Sector G-6, Islamabad |
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Appellant
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VS |
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Commissioner Inland Revenue (Unit-IV), LTO,
Islamabad |
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Respondent |
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Appellant by |
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Mr. Sharif Ud Din Khilji, FCA |
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Respondent by |
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Mr. Imran
Shah, DR |
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Date of hearing |
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04.10.2021 |
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Date of order |
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04.10.2021 |
O R D E R
M. M. AKRAM (Judicial Member): - The titled appeal has been filed by the
appellant registered person against the Sales Tax Order in Appeal No.14/2021
dated 30.08.2021 passed by the learned Commissioner Inland Revenue (Appeals-I),
Islamabad on the grounds as set forth in the memo of appeal.
2. Brief
facts of the case are that the registered person/appellant being a retailer
falling under TIER-I was required under section 40C of the Sales Tax Act, 1990 (“the
Act”) read with Rule 150ZEA(2) of Chapter XIV-AA of the Sales Tax Rules,
2006, further read with SRO 1203(I)/2019 dated 10.10.2019 to integrate its
retail outlets with FBR’s computerized system for real-time reporting of sales
w.e.f. 01.12.2019. Accordingly, the appellant was provided two opportunities
(prior to issuance of show cause notice) vide correspondence No.98 dated
04.09.2020 and subsequent reminder vide No.189 dated 01.12.2020. to fulfill its
legal obligation by installing “Point of Sales (POS)” software and
integrating the same with the FBR’s computerized system for the real-time
reporting of sales. As the needful was not done, a show-cause notice C.No.322
dated 22.12.2021 was issued for compliance by 04.01.2021. Thereafter, multiple
opportunities of being heard were provided to the appellant for compliance by
18.01.2021, 10.02.2021, and 15.02.2021 respectively and adjournments were also
granted on two occasions, however, the appellant failed to do the needful. The
contravention proceedings so initiated culminated in the passing of the
impugned order NO.91/2021 dated 30.03.2021 whereby a penalty of Rs.1,000,000/-
was imposed and held to be recoverable from the appellant registered person
vide Serial No.25 of section 33 of the Act. The registered person being
aggrieved, filed an appeal before the learned CIR (A) who decided the appeal
against the appellant vide Sales Tax Order in Appeal No.14/2021 dated 30.08.2021.
Being aggrieved, the appellant has now come up before this forum and has
assailed the impugned order on a number of grounds.
3. This case came up for hearing on 04.10.2021.
Learned AR reiterated the contentions already submitted in the grounds of
appeal as set forth in the memo of appeal. Further contended that show cause
was issued without specifying any sub-section of section 11 therefore, nullity
in the eyes of law. On this score alone the impugned order, as well as the
original order, is liable to be annulled. On the other hand, Learned DR has
submitted the written arguments and requested that the same may be reproduced
in the order. Accordingly, it is reproduced hereunder:-
Brief
facts of the cases are that It was observed that the appellants being a Tier-I
retailer were required in terms of section 3(9A) read with section 40C of the
Sales Tax Act, 1990 further read with Rule 150ZEA(2) of Chapter XIV-AA of the
Sales Tax Rules, 2006, and SRO 1203(I)/2019, dated 10/10/2019 to integrate
retail outlet with FBR computerized system for real-time reporting of sales
w.e.f. 01/12/2019. However, the appellants allegedly failed to comply with the
said legal requirement which attracted plenty as prescribed at Serial No. 25 of
section "33" of the Sales Tax Act, 1990.
The
non-integration of retail outlet with FBR computerized system is a violation of
section 3(9A) read with the section "40C" of the Sales Tax Act, 1990
further read with Rule 150ZEA(2) of Chapter XIV-AA of the Sales Tax Rules, 2006
and read with SRO 1203(I)/2019 dated 10/10/2019. Section 3(9A) of the Sales Tax
Act, 1990 is reproduced as under: -
"Notwithstanding
anything contained in this Act, Tier-1 retailers shall pay sales tax at the
rate as applicable to the goods sold under relevant provisions of this Act or
notification issued thereunder: -
Provided further that from such date, and in
such mode and manner, as prescribed by the Board, all Tier-1 retailers shall
integrate their retail outlets with Board’s computerized system for real-time
reporting of sales.
Subsections
"1" & "2" of section "11" are applicable
where the assessment of tax is required and subsections "3" &
"4” are applicable in case of recovery, where an assessment has been made
as per subsection "1" & "2" and in case of any
procedural violation where the assessment of tax is not required and only penal
action under section 33 & 34 are applicable. For reference subsection (3)
of section "11" is reproduced as under: -
11(3)
Where by reason of some collusion or deliberate Act any tax or charge has not been levied or made or has been short
levied or has been erroneously refunded, the
person liable to pay any amount of tax or charge or the amount of refund
erroneously made shall be served with the notice requiring him to show cause
for payment of the amount specified
in the notice.
In
the context of the issue under adjudication, the breakdown of the sub provision
is as under: -
· Whereby
reason of some collusion or deliberate Act any tax or charge has not been levied or made or has been short
levied.
·
The person is liable to pay
any amount of tax or charge.
·
shall be served with the
notice requiring him to show cause for payment
of the amount specified.
In view of the above, the part of sub provision "Tax or charge" requiring
interpretation.
"Tax" has been defined by the Act, under section
2(34). However, "charge" has not been defined by the Act, but The
Black's Law Dictionary has defined "charge" as " To
impose a burden, duty, obligation, or lien; to create a claim against property;
to claim; to demand; to
accuse; An encumbrance, lien, or claim; a burden or load; an obligation or
duty; a liability; an accusation".
In view of the above, it is humbly submitted that part of
the sub provision "charge" clears the intention of the legislator that
if the taxpayer has not levied any burden, duty, and obligation imposed under
section 3(9A) read with section 40C of the Sales Tax Act, 1990 further read
with Rule 150ZEA(2) of Chapter XIV-AA of the Sales Tax Rules, 2006, and SRO
1203(I)/2019 dated 10/10/2019 the amount of charge in the shape of penal action
under serial No. "25" of section "33" of the Act, so
recoverable from him under subsection "3" of section "11"
of the Act, alone, by invoking penal provisions of the Act, without any
assessment of tax of the principal amount.
The Honorable Lahore High Court in his decision reported
as 2016 PTD 643 has addressed the same question as " Monthly return--Imposition of penalty for non-furnishing of
monthly return--Interpretation of S.26 of the Sales Tax Act, 1990. Imposition
of penalty for non-filing of monthly return where supply was zero-rated Penalty
and the additional tax imposed on the taxpayer for non-filing of monthly return
was set aside by Appellate Tribunal.
The Honorable High Court has stated that "whether
tax has been paid or not, filing of return is the mandatory and non-submission
of the return within due date would amount to commission of an offense and it
is imperative for the registered person to file a return and ignorance of the
same carries punishment in the shape of penalty". .................. We have declared that it
is mandatory for a registered person to file a return under section
"26" of the even in case of zero-rated supply and non-submission of
the same would hold him liable under the provision of Section 33 of the Act,
therefore, we resolve the question of law forwarded through this Reference as
under".
The provisions of Sections 3, 6, and 26(1) of
the Sales Tax Act, 1990 remain operative and functional and do not become
redundant even in cases of zero-rated supply.
ii) The learned Appellate Tribunal Inland
Revenue Lahore was not justified in upholding the order of the Commissioner
Inland Revenue (Appeals) in derogation of statutory provisions of section 26 of
the Sales Tax Act, 1990 and that
iii) The learned ATIR was not justified to
uphold the order of the Commissioner Inland Revenue (Appeals) that penalty
under Sections 33 and 34 of the Sales Tax Act, 1990 cannot be imposed where
supply is zero-rated.
The judgment reported as 2016 PTD 643 has addressed the
same question as the question in hand in this case.
The judgment of Honorable ATIR referred by AR in the case
of M/s Quetta Electric Supply Company Limited in STA No. 362/KB/2018, dated
09/06/2021 is distinguishable, as it only discussed sub-section (1) of section
"11" of the Act, subsection 2, 3 and 4 of section "11" has
not been discussed in the judgment while the conclusion has been drawn under
the purview of entire section 11 of the Act. The issue in hand is also
distinguishable as in the above-referred Judgment the taxpayer has paid the due
amount of tax voluntarily. The Honorable Tribunal has mainly interpreted the
word "including" in
subsection (1) of section "11" of the Act, in the referred judgment,
which is clearly distinguishable with the present cases in appeal.
Prayer.
In view of the above, it is humbly prayed that the
impugned Order-In-Originals and Order-In-Appeals are legal and sustainable in
the eye of law therefore, may please be upheld and the appeals may please be
rejected.”
In
addition to the written arguments, the learned DR argued that the combined
reading of the provisions of section 2(29A) and 2(34) of the Act makes it clear
that the default surcharge, fine, penalty, or any other sum payable under the
Act or the rule made thereunder are “species of sales tax” and its recovery can
only be made under the provisions of section 11 of the Act. In support, he
placed on record the copy of the order dated 24.08.2021 passed by this Tribunal
in STA No.1021/LB/2021 titled M/s Fiza Noor Creations (Pvt) Ltd,
Faisalabad Vs The CIR, RTO, Faisalabad. Thus, the orders passed by
the lower authorities are in accordance with law, and there is no infirmity in
the impugned order.
4. We have heard the rival contentions, perused the material
on record, case laws relied upon by the learned DR, and duly considered facts
of the case in the light of the applicable legal position. The undisputed
facts, relevant to the disposal of the instant appeal are that the appellant
has failed to integrate its point of sale (POS) with the FBR online
system in terms of sections 2(43A), 3(9A), and 40C of the Act read with
Notification No.SRO.1203(I)/2019 dated 10.10.2019. The appellant was required
to install POS software duly integrated for monitoring, tracking, recording, or
reporting of sales with the FBR and has allegedly failed to do so. In
consequence thereof, the assessing officer passed the order under section 11
read with Serial No.25 of section 33 of the Act by imposing a penalty of
Rs.1,000,000/-. Thus, the following questions emerge from the record, grounds
of appeal, and the arguments advanced by both the parties for the determination:
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i. Whether under the facts and in the
circumstances of the case, the provisions of section 11 of the Sales Tax Act,
1990 could be pressed into service for the purpose of imposition of the penalty
prescribed at serial No.25 of section 33 of the Sales Tax Act, 1990?
ii. Whether
under the facts and in the circumstances of the case, the provisions of section
33 of the Sales Tax Act, 1990 confer the powers to the Officer of Inland
Revenue to issue a show-cause notice and pass order thereon to impose penalty prescribed at serial No.25 of section 33
of the Sales Tax Act, 1990?
iii. Whether the provisions
of section 33 of the Sales Tax Act, 1990 requires amendment through proper
legislation in consonance with the pari
materia provisions of section 182 of the Income Tax Ordinance, 2001 for the
imposition of certain penalties prescribed in section 33 ibid?
5. First it has to be
considered what precisely is the nature of the penalty proceeding. Is it
possible to say that simply because the word "penalty" is used in a
statute, it has classified that proceeding as a proceeding of a criminal
nature? When a statute provides for the imposition of penalty, it will have to
be found out from the scheme of the Act and the particular provision under
which penalty is imposable, whether the imposition of penalty is provided as a punishment
for an offence. Simply because something more than the usual payment of tax
that is payable by an individual is imposed on him, could it be said that
punishment is inflicted on him for an offence he has committed? Once again, it
will have to be kept in mind that as human values have been changing and
changing at a fast pace, a spate of social legislation has been taken up by all
countries, particularly developing countries like India. Taxation statutes have
two purposes. They are intended not only to collect revenues for the State but
also for bringing about social justice and to enable the State to implement
social welfare schemes undertaken by it. Consequently, several taxation
statutes, if not all, have taken great care in making provisions for the collection
of taxes imposed, as speedily as possible. If there is a delay on the part of
the taxpayer to pay his taxes, taxation statutes have provided for not only
remedial and coercive proceedings, but also punishments treating certain tax
delinquencies as offences. These several measures should not be confused with
each other. The position has been explained thus in Corpus Juris Secundum,
Volume 85, at page 580: -
"A penalty imposed for a tax
delinquency is a civil obligation, remedial and coercive in its nature, and is
far different from the penalty for a crime or a fine or forfeiture provided as
punishment for the violation of criminal or penal laws."
In the same page, it
proceeds to state: -
"In some jurisdictions, it is held
that the penalty becomes, by operation of the statute imposing it, a part and
parcel of the taxes due, and in other jurisdictions penalties are a type of
tax. In still other jurisdictions, however, it is held that the penalty is not
a part of the tax, and that will not be regarded as a legal incident to a tax.
It is merely a method of enforcing payment of the tax."
It was held by the Supreme Court of the United States dealing with the
nature of penalties in Guy T. Helvering v.
Charles E. Mitchell (303 US 391);
"Where the civil procedure is
prescribed for the enforcement of remedial sanction, the accepted rules and
constitutional guarantees governing the trial of criminal prosecutions do not
apply."
Once again, the Supreme Court of the United States, dealing with
penalties imposed for evasion or avoidance of payment of income-tax, observed
in Murray R. Spies v. the United
States, (317 US 492 at 495): -
"The penalties imposed by Congress
to enforce the tax laws embrace both civil and criminal sanctions. The former
consists of additions to the tax upon determinations of fact made by an
administrative agency and with no burden on the Government to prove its case
beyond a reasonable doubt. The latter consists of penal offences enforced by
the criminal process in a familiar manner. Invocation of one does not exclude
resort to the other... The failure in a duty to make a timely return, unless it
is shown that such failure is due to reasonable cause and not due to willful
neglect, is punishable by an addition to the tax of 5 to 25 percent thereof
depending on the duration of the default... The offence may be more grievous
than a case for a civil penalty. Hence, the willful failure to make a return,
keep records, or supply information when, required, is made a misdemeanor, with
regard to existence of tax liability."
6. We
will now examine how the Sales Tax Act, 1990, had dealt with the
penalties. Practically all taxing statutes lay down their own procedure and
machinery for enforcing, implementation of their provisions. It must be
remembered that all these taxation laws are intended to fetch revenue for the
State to enable it to run its administration and to implement welfare programs.
There shall be neither evasion of tax, nor delay in the procedure relating to
assessment and collection of taxes. In order to see that payment of tax is not
evaded, that there is no delay in assessment or the collection of the tax
imposed, every taxation statute lays down a clear-cut procedure. While doing
so, the statute may treat minor delinquencies lightly, some other delinquencies
which are not simple in nature slightly harshly and delinquencies of grave
nature very severely. The Sales Tax Act, 1990 adopts the same policy. If
the Act is analyzed, it could be seen that it has dealt with different types of
penalties in different ways. Section 33 of the Act deals with "Penalties
imposable" separately. The said section 33
defines the offences described in column I of the Table given in the section
and makes a person liable to the penalty mentioned against that offence in
column II. Primarily, therefore, the provision is about the imposition of
penalties. However, the nature of section 33 is to describe various offences
and penalties for those offences by registered persons under various provisions
of the Act, 1990. However, it is pertinent to mention that no power has been conferred
in section 33 to be exercised by any Officer of Inland Revenue. The scheme of
section 33 conveys merely to describe the offences and their
penalties/punishments for which proceedings are to be taken under different
sections of the Act, 1990 to which that offence has a reference. Those sections
have been mentioned in column III of the Table given in section 33. Therefore,
for all intents and purposes, the proceedings have to be taken under provisions
which are different from section 33, and only in respect of the penalties and
punishments is the said provision to be made relatable to section 33. That is
the entire scheme which permeates section 33. Section
33 of the Act can broadly be divided into the following three sets of penalties,
each set contains certain serial Nos: -
i.
The
first set of penalties simply relates to different types of defaults of certain
provisions of the Act. These are mentioned in serial Nos.1, 4, 9, 10, 21, 25,
and 28 of section 33. The case of the appellant falls in the said category
against which no machinery provisions are available in the Act for imposing
such penalties.
ii.
The
second set of penalties relates to different types of defaults of certain
provisions of the Act and these penalties are dependent on the tax involved.
Therefore, without first determining the amount of tax involved through
adjudication under section 11 of the Act such penalties cannot be imposed.
These are mentioned at serial Nos.2, 3, 6, 8, 15, 16, 17, 19, 26, and 27 of
section 33.
iii.
The
third set of penalties relates to different types of defaults of certain
provisions of the Act, however, these penalties are dependent on the tax
involved and the defaulters are further liable to conviction by the Special
Judge. These are mentioned at serial Nos.5, 7, 11, 12, 13, 14, 18, 22, 23 and
24 of section 33. The machinery provisions are available under the Act for
imposing the penalty and the conviction by the Special Judge.
The procedure for imposition of penalties mentioned at second and
third sets of categories have been given in section 11 of the Act which
provides that tax involved has firstly to be determined through an adjudication
process. By the second limb of the penalty, the defaulter shall further be
liable, upon conviction by a Special Judge, to imprisonment, fine, or both. The
latter part of the penalty is the jurisdiction of the Special Judge against which
a procedure is also given under the Act and no such power can be conferred on
an Officer of Inland Revenue. At best, what the officer can do is to proceed
under Section 37B (11) of the Act, 1990 to submit to the Special Judge a
complaint in the same form and manner in which the officer in charge of a
police station submits a report before a court. This he shall do after
completing the inquiry. However, the penalties mentioned at the first set of categories
which simply relate to the default of certain provisions of law, no machinery
provisions are available under the Act for the imposition of such penalties in
the civil law jurisdiction.
7. Before
answer to the questions, the scheme of the law has to be seen. Section 3 of the
Act is the charging section. Sub-sections (29A) and (34) of section 2 define
the expressions “sales tax” and “tax” respectively. Section 6 prescribes the
time and manner of payment of sales tax, sub-section (2) of section 6 expressly
provides that the tax in respect of taxable supplies made during a tax period
shall be paid by the registered person at the time of filing of return in
respect of the corresponding tax period. Section 7 describes the mechanism for
the determination of tax liability. A plain reading of sections 3, 6, and 7
conjunctively shows that inadmissible adjustment of input tax amounts to tax
not levied or short levied. The inadmissible adjustment of input tax in a
relevant tax period is liable to be recovered in the manner as provided under
the Act. Likewise, if a person has not paid the due tax within the time, he is
liable to pay a penalty and default surcharge under sections 33 and 34 of the
Act respectively. Section 33 of the Act describes the various
offenses/violation in column No.1 of the Table. The penalty against the
corresponding offense is mentioned in column No.2 thereof.
8. The legislative intent is obvious from a
plain reading of the provisions of section 33 of the Act. The legislature has
only described the offences and penalties in section 33 ibid. Similarly, the
legislature has described the categories of the registered persons and
eventualities which would attract default surcharge under section 34 of the
Act. However, in both the sections the procedure for levy and collection of
penalty and default surcharge alone without invoking the provision of section
11 of the Act has not been given like other taxing statutes. In the Income Tax
Ordinance, 2001 where pari materia provisions
for imposition of penalty and default surcharge are available in the shape of
section 182 and 205 of the Ordinance respectively, there been prescribes an
inbuilt mechanism for assessment/ imposition of penalty and default surcharge
under the said provisions. It is also pertinent to mention that the Sales Tax
Act 1990 does not give any statutory right of appeal to the registered person
against the order passed alone under sections 33 and 34 of the Act whereas
under the Income Tax Ordinance a separate right of appeal is available to the
aggrieved person if the order is passed under section 182 and 205 of the
Ordinance against him.
9. In the backdrop of the aforesaid analysis,
now we turn to the questions. It would be beneficial to first reproduce hereunder
the relevant provisions of the Sales Tax Act, 1990 and the Income Tax
Ordinance, 2001 which deals with the penalty and default surcharge: -
Section 2(29A) “sales
tax”
means– (a) the tax, additional tax, or default surcharge levied under this Act;
(b) a fine, penalty or fee imposed or
charged under this Act; and
(c) any other sum
payable under the provisions of this Act or the rules made thereunder;
Section 2(34) “tax”, unless
the context requires otherwise, means sales tax;
3. Scope of tax: - (1)
Subject to the provisions of this Act, there shall be charged, levied,
and paid a tax known as sales tax at the rate of seventeen]
percent of the value of–
(a) taxable supplies
made by a registered person in the course or furtherance of any taxable
activity carried on by him; and
(b) goods imported
into Pakistan, irrespective of their final destination in the territories of
Pakistan.
11. Assessment of Tax
& Recovery of Tax not levied or short levied or erroneously refunded.– (1)
Where a person who is required to file a tax return fails to file the return
for a tax period by the due date or pays an amount which, for some
miscalculation is less than the amount of tax actually payable,
an officer of Inland Revenue shall, after a notice to show cause to such
person, make an order for assessment of tax, including imposition of penalty
and default surcharge in accordance with sections 33 and 34:
Provided that where a
person required to file a tax return files the return after the due date and
pays the amount of tax payable in accordance with the tax return along with
default surcharge and penalty, the notice to show cause and the order of
assessment shall abate.
(2) Where a person has
not paid the tax due on supplies made by him or has made short
payment or has claimed input tax credit or refund which is not admissible under
this Act for reasons other than those specified in sub-section (1), an officer
of Inland Revenue shall after a notice to show cause to such person, make an order
for assessment of tax actually payable by that person or determine the amount
of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty
and charge default surcharge in accordance with sections 33 and 34.
(3) Where by reason of
some collusion or deliberate Act any tax or charge
has not been levied or made or has been short levied or has been erroneously
refunded, the person liable to pay any amount of tax or charge or the amount of
fund erroneously made shall be served with the notice requiring him to show
cause for payment of the amount specified in the notice.
(4) Where, by reason
of any inadvertence, error or misconstruction any tax or charge
has not been levied or made or has been short-levied or has been erroneously
refunded, the person liable to the amount of tax or charge or the amount of
refund erroneously made shall be served with a notice requiring him to show
cause for payment of the amount specified in the notice; Provided that, where a
tax or charge has not been levied under this subsection the amount of tax shall
be recovered as tax fraction of the value of supply.
(4A) Where any person,
required to withhold sales tax under the provisions of this Act or the rules
made thereunder, fails to withhold the tax or withholds the same but fails to
deposit the same in the prescribed manner, an officer of Inland Revenue shall
after a notice to such person to show cause, determine the amount in default.
(5) No order under
this section shall be made by an officer of Inland Revenue unless a notice to
show cause is given within five years, of the end of the financial year in
which the relevant date falls, to the person in default
specifying the grounds on which it is intended to proceed against him and the
officer of Sales Tax shall take into consideration the representation made by
such person and provide him with an opportunity of being heard:
Provided that order
under this section shall be made within one hundred and twenty days of issuance
of show cause notice or within such extended period as the Commissioner may,
for reasons to be recorded in writing, fix provided that such extended period
shall in no case exceed ninety days:
Provided further that
any period during which the proceedings are adjourned on account of a stay
order or Alternative Dispute Resolution proceedings or the time taken through
adjournment by the petitioner not exceeding sixty days shall be excluded from
the computation of the period specified in the first proviso.
(6) Notwithstanding
anything in sub-section (1), where a registered person fails to file a return,
an officer of Inland Revenue, not below the rank of Assistant Commissioner,
shall subject to such conditions as specified by the Federal Board of Revenue,
determine the minimum tax liability of the registered person.
(7) For the purpose of
this section, the expression “relevant date” means—
(a) the time of
payment of tax or charge as provided under section
6; and
(b) in a case where tax
or charge has been erroneously refunded, the date of its refund.
34.
Default Surcharge.– (1) Notwithstanding the provisions of section
11, if a registered person does not pay the tax due or any part thereof,
whether willfully or otherwise, in time or in the manner specified under this
Act, rules or notifications issued thereunder or claims a tax credit, refund or
makes an adjustment which is not admissible to him, or incorrectly applies the
rate of zero percent to supplies made by him, he shall, in addition to the tax
due, pay default surcharge at the rate mentioned below:—
(a) the person liable to pay any amount of tax
or charge or the amount of refund erroneously made shall pay default surcharge
at the rate of twelve percent per annum, of the amount of tax due or the amount
of refund erroneously made; and
(b) Omitted
(c) in case, the default is on account of tax
fraud, the person who has committed tax fraud shall pay default surcharge at
the rate of two percent per month, of the amount of tax evaded or the amount of
refund fraudulently claimed, till such time the entire liability including the
amount of default surcharge is paid.
(2) For the purpose of calculation of default
surcharge, –
(a) in the case of inadmissible input tax
credit or refund, the period of default shall be reckoned from the date of
adjustment of such credit or, as the case may be, refund is received; and
(b) in the case of non-payment of tax or part
thereof, the period of default shall be reckoned from the 16th day of a month
(following the due date of the tax period to which the default relates) to the
day preceding the date on which the tax due is actually paid.
Explanation: – For the
purpose of this section tax due does not include the amount of penalty.
33. Offences and
penalties: - Whoever commits any offence described in column (1) of
the Table below shall, in addition to and not in derogation of any punishment
to which he may be liable under any other law, be liable to the penalty
mentioned against that offence in column (2) thereof: –
TABLE
|
Sr No. |
Offences |
Penalties |
Section of the Act to which offences has reference |
|
|
(1) |
(2) |
(3) |
|
25 |
Any person, who is required to
integrate
his business for monitoring, tracking, reporting or
recording of sales, production and similar business transactions with the
Board or its computerized system, fails to get himself registered under the
Act, and if registered, fails to integrate in the manner as required under
law. |
Such person shall be liable to
pay a penalty up to one million rupees, and if continues to commit the same
offence after a period of two months after imposition of penalty as
aforesaid, his business premises shall be sealed till such time he integrates
his business in the manner as stipulated under subsection (9A) of section 3
or section 40C, as the case may be. |
40C |
PARI MATERIA PROVISIONS UNDER THE INCOME TAX ORDINANCE,
2001
182.
Offences and penalties: - (1) Any person who commits any offence
specified in column (2) of the Table below shall, in addition to and not in
derogation of any punishment to which he may be liable under this Ordinance or
any other law, be liable to the penalty mentioned against that offence in
column (3) thereof: -
TABLE
|
Sr No. |
Offences |
Penalties |
Section of the Act to which offences has reference |
|
(1) |
(2) |
(3) |
(4) |
|
1 |
………………… |
………………… |
……… |
|
2 |
……………… |
………………… |
……… |
|
.. |
……………… |
………………. |
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2) The penalties specified under sub-section (1) shall be applied
in a consistent no penalty
shall be payable unless an order in writing is passed by the Commissioner, Commissioner
(Appeals), or the Appellate Tribunal after providing an opportunity of being
heard to the person concerned:
Provided that where
the taxpayer admits his default he may voluntarily pay the amount of penalty
due under this section.
(3) Where a Commissioner
(Appeals) or the Appellate Tribunal makes an order under sub-section (2), the
Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall
immediately serve a copy of the order on the Commissioner and thereupon all the
provision of this Ordinance relating to the recovery of penalty shall apply as
if the order was made by the Commissioner.
(4) Where in
consequence of any order under this Ordinance, the amount of tax in respect of
which any penalty payable under sub-section (1) is reduced, the amount of
penalty shall be reduced accordingly.
205.
Default surcharge: - (1) A person who fails to pay –
(a) any tax, excluding the advance tax under
section 147 and default surcharge under this section;
(b) any penalty; or
(c) any amount referred to in section 140 or
141,………..
(1A) ………………
(IB) ………………
(2) ……………..
(4) ……………..
(5) The
Commissioner shall make an assessment of any default surcharge imposed under
this Part in accordance with the provisions of Part II of this Chapter as if
the default surcharge were tax.
(6) …………….
(7) ……………..
10. Scope of
section 11
The statutory provision is already reproduced above.
The Act of 1990 was promulgated to consolidate
and amend the law relating to the levy of a tax on the sale, importation,
exportation, production, manufacture, or consumption of goods. The said tax is
known as the sales tax. The Act of 1990 came into force on 01-11-1990 by virtue
of a notification, dated 28-10-1990, issued under subsection (3) of section 1
ibid. At the time of the promulgation of the Act of 1990, there were two
distinct provisions relating to the adjudication of cases i.e. section 11 and
section 36. Section 36 was omitted vide the Finance Act, 2012, and the
provisions thereof were inserted in section 11 as subsections (3) and (4). The
legislature, therefore, consolidated the provisions relating to adjudication by
substituting section 11. Subsection (1) of section 11 is attracted when a
person, who is required to file a tax return, fails to file the return for a
tax period by the due date or pays an amount which, because of some
miscalculation, is less than the amount of tax actually paid. It is obvious
from the language of the said provision that it contemplates a situation which
does not involve a dispute regarding the actual amount payable as tax by the
registered person. Likewise, subsection (2) envisages a situation where a
person has not paid the tax due on supplies made by him, or has made the short
payment, or has claimed input tax credit or a refund which is not admissible
under the Act of 1990 for reasons other than those specified in subsection (1).
The language clearly shows that subsection (2) also envisages eventualities
which do not involve the short levy or non-levy of tax i.e. the tax due is not
disputed. On the other hand, however, subsections (3) and (4) are attracted
when the allegation relates to a tax or charge not having been ‘levied or
made’, or having been ‘short levied’ or erroneously refunded. Subsection (4A)
relates to the default of withholding tax. Thus, the five subsections obviously
envisage distinct eventualities. However, none of the eventualities cater to the
imposition of the penalty prescribed at serial No.25 of section 33 which is the
subject matter of the appeal.
11. As already noted above, at the time of the
promulgation of the Act of 1990, subsections (1) and (2) after certain
amendments, as they stand today, were part of section 11, while subsections (3)
and (4) were part of another distinct provision i.e. section 36. The
legislature, in its wisdom, has used separate expressions which clearly
distinguish each subsection from the other. The crucial expression which
distinguishes subsections (3) and (4) from subsections (1) and (2) are ‘tax not
levied’ or ‘short levied’. The charging provision under the Act is Section 3
which used the phrase "There shall
be charged, levied and paid tax" the word "charged" refers to the imposition of the tax known
as sales tax, "levied" to quantification, and "paid" to the
collection. The word "levy" has several meanings. It is sometimes
used in the sense of imposition of the tax, sometimes to indicate
quantification and sometimes even to steps taken for collection. Reliance is
placed on the judgment titled Byramjee Jeejeebhoy V. Province of
Bombay, AIR 1940 Bom 65 (FB). Hence the meaning of the
word "levy" has to be gathered from the context in which it is used.
As mentioned earlier, the main charging section 3 has used the word
"levied" to indicate quantification. Again, in Subsections (3) and
(4) of section 11, the word "levy" is used to connote quantification
of the main charge i.e sales tax. The word “charge” used in subsections (3) and
(4) refers to the main charge of tax given in charging provision i.e section 3.
This interpretation is further fortified when the expression “relevant date”
used in subsection (5) of section 11 is read with subsection (7) which defines
that the “relevant date” means the time of payment of tax
or charge as provided under section 6 and in a case where tax or charge has been
erroneously refunded, the date of its refund. Section 6 of the Act only
prescribed the time and manner of payment of tax payable under section 3 of the
Act. Thus, the arguments of the learned DR that levy of the penalty prescribed
at serial No.25 of section 33 covers the word “charge” used in subsection (3)
of section 11 is misconceived and not tenable. It is obvious from the
foregoing discussion that the imposition, assessment, and collection of a tax
i.e the main charge under the Act, fall within the ambit of the expression “levy”
and “charge”.
12. A perusal of the record shows that the allegations mentioned
therein relate to the failure on the part of the appellant to integrate its point of sale (POS) with the FBR
online system in terms of sections 2(43A), 3(9A), and 40C of the Act read with
Notification No.SRO.1203(I)/2019 dated 10.10.2019. It is not an
allegation that would attract the provisions of section 11 of the Act. The
allegations, therefore, fall within the ambit of the penalty prescribed at
serial No.25 of section 33 against which no machinery provisions are available
in the statute on the basis whereof such penalty could be imposed and passed
the order thereon. Though the show cause
notice mention that they have been issued under section 11 without specifying
any subsection of section 11 of the Act. It is argued by the learned AR that it
is a settled principle of law that no order for penalty or default surcharge
alone can be passed by the department in the absence of assessment order
vis-à-vis tax due. If there is no tax due, which could be determined under
Section 11, then a penal action in the form of default surcharge or imposing
penalty cannot be taken against the registered person. The contention of the
learned AR is well-founded. We are of
the opinion that the Inland Revenue Officer cannot make an order for
imposing a penalty or default surcharge in accordance with Sections 33 and 34
respectively without making an assessment order. In holding so, we are
enlightened by the provisions of Section 11 of the Act. The triggering point
under this provision remains that if a person has not been filing his return or
for some miscalculation has been paying the tax less than the amount of tax
actually payable the provisions of section 11 may be invoked or has not paid
the tax due on supplies or has made short payment or has claimed input tax
credit which is not admissible under the Act. Similarly, subsections (3) and (4) are attracted when the allegation
relates to a tax or charge not having been ‘levied or made’, or having been
‘short levied’ or erroneously refunded. Subsection (4A) relates to the default
of withholding tax. The provisions of section 33 and 34 of the Act are
inapplicable for the imposition of penalty/default surcharge alone under the
said section for the reason that these charging provisions do not provide for
passing of order under these provisions unlike the pari materia provisions of sub-section (2) of section 182 and
sub-section (5) of section 205 of the Income Tax Ordinance, 2001. This
interpretation is also in line with the word “including” used in the
legislative text which reads “make an order for assessment of tax, including
imposition of penalty and default surcharge in accordance with section 33 and
34” [underlined for emphasis only]. The term implies that the
order imposing a penalty or default surcharge is an essential part of the
assessment of actual tax. Hence, no order alone for imposing a penalty or
default surcharge can be passed by an Inland Revenue Officer under Sections 33
and 34 ibid, where a person has simply defaulted certain provisions of the Act.
We
are mindful of the legislative anomaly that where Section 34 imposes default
surcharge or Section 33 imposes a penalty, then that must be levied but
unfortunately, there is no machinery provision in the Sales Tax Act, 1990 to
address this anomaly except the mode of assessment of tax due under section 11 ibid. There are several instances in the
provisions related to offences, penalties, default surcharge, etc where the
legislation is silent as to the enforcement of the provision and the right to
appeal. Such a set of penalties has been highlighted in para 6(i) above.
13. Further, according
to the learned DR, the penalty is the part of tax according to the definition
of the expression “sales tax” therefore, penalties prescribed under section 33
are to be assessed under section 11 of the Act. We are unable to accept this
submission. When the legislature in the same section intentionally uses in the
first the word "tax" and, in the other, the word "penalty",
it cannot be said that both these expressions mean or were intended to mean one
and the same thing. The meaning to be attributed to the concluding portion of
section 11(2) is that the person is liable, to the extent specified in 11(2),
as the case may be, for tax and penalty and default surcharge. The opening part
of section 2 of the Act, which is the definition section, by which the
definitions given by the various clauses of the said section apply "unless
there is anything repugnant in the subject or context". Similarly,
the definition of the expression “tax” given in section 2(34) also uses the
phrase “unless the context requires otherwise”. Thus, the context of section 11 requires that the
word "tax" is used with respect to tax due in respect of supplies but
does not and cannot mean that the word "tax" in this context would
also mean penalty. It is settled law that a definition clause in a
statute is of declaratory nature though normally the definitions provided for
in the definition clauses are to be read into the provisions of the Act while
interpreting the defined terms/words, but if the contents of the provisions of
the Act indicate otherwise, the definition clause cannot override a main
provision of the statute. In the instant case, as stated above, section 2 makes
it explicit by providing that “unless
there is anything repugnant in the subject or context.” Reliance is placed
on the judgment titled Syed Muhammad Haider Zaidi and others Vs Abdul
Hafeez and others, (1991
SCMR 1699). The penalty is not merely a sanction. It
is not merely an adjunct to assessment. It is not merely consequential to
assessment. It is not merely machinery. The penalty is in addition to tax and
is a liability under the Act. It is clear from the provisions of the Act which
refers to three distinct and different items, viz., tax, penalty, and default
surcharge. Hence, the assessment proceedings and penalty proceedings are
distinct and different, and not one and the same. The penalty is levied in
addition to the sales tax imposed under the Act. But each case has got its own
separate concept and content. The burden of
proof would depend upon the nature and character of the penalty proceedings.
Two views are manifest with regard to the true nature and character of the
penalty: (1) It is only an additional levy designated as penalty and levied on
account of the dishonest and contumacious conduct of the taxpayer; and (2) it
is penal in character and is akin to criminal proceedings. An order imposing a penalty for failure to carry out
a statutory obligation is the result of a quasi-criminal proceeding, 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. The penalty will
not also be imposed merely because it is lawful to do so. Whether a penalty
should be imposed for failure to perform a statutory obligation is a matter of
discretion of the authority to be exercised judicially and on a 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 a penalty, when there is a technical or venial breach of the provisions
of the Act or where the breach flows from a bona fide relief that the offender
is not liable to act in the manner prescribed by the statute. Thus, the Act
confers a discretion on the authority as regards levy of penalty whereas on the
other hand the assessment of due tax, not levied or short levied is not the
discretion of the authority it has to be determined and assessed under the law.
14. For what has been discussed above, we are of the considered view
that the provision of section 11 of the Act does not allow recovery and
imposition of penalty as prescribed at serial No.25 of section 33 of the Act alone
where liability on account of the principal amount of tax stands discharged. If
the amount of penalty is considered to be a part of “tax” as used in the
provisions, then there was no need for the legislature to use the words penalty
and default surcharge separately and independently. The intention of the
legislature is manifestly clear that such registered persons who deposit the
due amount of sales tax, the provision of section 11 of the Act are therefore ab-initio not attracted. Thus, the
answer to the question Nos. (i) and (ii) are in the negative and the answer to
question No. (iii) is in the affirmative.
15. In view of the above,
the appeal of the appellant is accepted and the orders passed by the lower
authorities are annulled. Let this order be sent to the
Member Legal and Member Policy for information and necessary action to resolve
the anomaly discussed in the foregoing paragraphs.
16. This order consists of
(22) pages and each page bears my signature.
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Sd/- (M.
M. AKRAM) JUDICIAL
MEMBER |
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Sd/- (IMTIAZ
AHMED) ACCOUNTANT MEMBER |
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