M/s Mari Petroleum Company Limited; Vs Deputy Commissioner Inland Revenue, LTO, Islamabad

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-1,

ISLAMABAD

STA No.25/IB/2025

(Tax Periods October 2019 to April 2022)

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M/s Mari Petroleum Company Limited, 21, Mauve Area, 3rd Floor, Sector G-10/4, Islamabad. NTN:1414673 STRN:0701271003973		Appellant
	Vs
Deputy Commissioner Inland Revenue, LTO, Islamabad.		Respondent
Appellant by:		Mr. Moiz Humayun, ACA Mr. Adeel Ahmed, Advocate
Respondent by:		Mr. Imran Shah, DR
Date of hearing:		07.05.2024
Date of order:		07.05.2024

O R D E R

M. M. AKRAM (Judicial Member): The titled appeal has been filed by the appellant, a registered person, challenging Order-in-Original No. 04/28 of 2024 dated 14.01.2025, issued by the Deputy Commissioner Inland Revenue, Unit-XIV, Range-I, Zone-III, Large Taxpayers Office (LTO), Islamabad. The appeal pertains to certain tax periods and is based on the grounds outlined in the accompanying memorandum of appeal.

2.      The brief facts culled out from the record are that during an analysis of sales tax returns for the tax periods from October 2019 to April 2022, as available on the FBR’s online portal, it was observed that M/s Mari Petroleum Company Limited (NTN: 1414673-8) had claimed or adjusted input tax multiple times against specific invoices. This led to a short payment of sales tax amounting to Rs. 242,760,169/-, in contravention of sections 2(14), 7, 8, 23, and 26 of the Sales Tax Act, 1990. As a result, Show Cause Notice No. ST/Dup-II/33 was issued on 07.11.2024, with a hearing scheduled for 19.11.2024. The appellant submitted a reply to the notice through a letter dated 31.12.2024. After reviewing the case record and considering both written and verbal submissions made by the appellant’s Authorized Representative (AR), the Deputy Commissioner issued an order under section 11(2) of the Sales Tax Act, 1990. The order directed the appellant to deposit the aforementioned tax amount of Rs. 242,760,169/-. In addition, a penalty of Rs. 11,837,648/- was imposed under section 33(5), along with a default surcharge under section 34 (to be calculated at the time of actual payment), due to violations of the provisions mentioned earlier. Dissatisfied with this decision, the appellant has now filed the present appeal, disputing the imposition of the default surcharge and penalty.

3.      A hearing was conducted on 07.05.2024. During the hearing, the appellant’s Authorized Representative (AR) admitted to the factual findings of the impugned order and informed the tribunal that the principal tax amount had already been paid following the issuance of the show cause notice. However, the appellant’s primary grievance relates to the imposition of the default surcharge and penalty. The AR argued that the repeated input tax adjustments were unintentional and occurred due to a technical glitch in the STRIVE system. He emphasized that there was no deliberate intent to evade tax and requested the deletion of the default surcharge and penalty. In support of the argument, he cited a precedent set in the appellant’s own case (STA No. 455/IB/2024), wherein this tribunal had deleted the penalty under similar circumstances through an order dated 09.09.2024.

4.      On the contrary, the Departmental Representative (DR) opposed the appeal strongly, asserting that the appellant, being a corporate entity, was fully aware of the technical error in the STRIVE system and should have promptly reported the issue to the concerned tax authorities. Instead, the appellant failed to fulfill its legal obligation to accurately calculate and timely pay the sales tax. The DR further pointed out a pattern in the appellant’s conduct, where similar violations had occurred in earlier tax periods. Specifically, he referenced:

• Order-in-Original No. 01/28 dated 22.07.2024, relevant to the tax period October 2021 to May 2023.
• Order-in-Original No. 03/28 dated 09.01.2025, relevant to the tax period October 2019 to April 2021.

In both instances, the appellant only paid the due tax after receiving show cause notices, indicating a repeated pattern of non-compliance. According to the DR, this behavior demonstrates a deliberate strategy of delaying tax payment until prompted by departmental action. Therefore, he argued that the appellant is not entitled to any relief and requested that the appeal be dismissed in its entirety.

5.      Findings and Order

1. Default Surcharge under Section 34 of the Sales Tax Act, 1990

After thoroughly considering the arguments advanced by both parties and examining the record, it is established beyond dispute that the appellant, M/s Mari Petroleum Company Limited, made dual adjustments of input tax on certain invoices during the tax periods spanning from October 2019 to April 2022. This resulted in a short payment of sales tax to the tune of Rs. 242,760,169/. The appellant, despite being a well-established corporate entity with an internal tax compliance mechanism, failed to inform the tax authorities of these discrepancies in a timely manner. The issue only surfaced following the issuance of Show Cause Notice No. ST/Dup-II/33 dated 07.11.2024, and it was only thereafter that the appellant expressed willingness to pay the principal amount. Prior to this, there was no voluntary disclosure, correction, or deposit of the short-paid tax. During this entire period, the appellant continued to utilize funds collected from customers, intended to be deposited as sales tax with the government, for its own business operations, thereby depriving the national exchequer of its due revenue.

Given these circumstances, the imposition of a default surcharge under section 34 of the Sales Tax Act, 1990, is both justified and mandatory. This position is further fortified by the recent judgment of the Hon’ble Supreme Court of Pakistan in The Commissioner Inland Revenue v. M/s Byco Petroleum Pakistan Ltd (C.P. Nos. 1221-K to 1257-K and 1290-K to 1299-K of 2022), decided on 05.07.2024. In that case, the Apex Court conclusively held:

“Section 34 post amendment is a strict liability provision and leaves no margin for any inadvertent mistake… it is declared that the respondent is liable to pay default surcharge.”

The Supreme Court clarified that the post-2005 amendment to section 34 has removed any discretion that might allow relief on grounds of inadvertent error, negligence, or good faith. Accordingly, this tribunal is bound to apply the principle of strict liability under section 34, without exception. Therefore, the appellant is liable to pay the default surcharge as mandated by law. The respondent is directed to compute the exact amount of surcharge in accordance with section 34 of the Sales Tax Act, 1990, and communicate the same to the appellant forthwith.

2.  Penalty under Section 33(5) of the Sales Tax Act, 1990

The second issue relates to the imposition of a penalty amounting to Rs. 11,837,648/- under section 33(5) of the Sales Tax Act, 1990. This penalty was imposed due to the late deposit of the sales tax amount for the periods under scrutiny. The appellant’s main contention is that the default was unintentional and occurred due to a technical glitch in the STRIVE system, arguing that there was no willful or deliberate attempt to evade tax. In support of this position, the appellant referred to a prior decision of this tribunal in STA No. 455/IB/2024, where the penalty was deleted under somewhat similar circumstances. However, this argument does not stand to scrutiny in the present case for the following reasons:

i.     The appellant is a seasoned taxpayer with a dedicated tax compliance infrastructure and cannot shift the burden of its internal errors or system-related failures to the department.

2. The conduct of the appellant reveals a pattern of repeated non-compliance. It is an admitted fact that similar defaults were committed in prior tax periods as well, resulting in multiple show cause notices and corresponding adjudication orders (e.g., Order-in-Original No. 01/28 dated 22.07.2024 and Order-in-Original No. 03/28 dated 09.01.2025). In all such instances, the appellant only deposited the due tax after being confronted with departmental action.
3. This habitual conduct indicates a deliberate tendency to delay tax payments unless compelled by enforcement proceedings, thus undermining the integrity of the tax system.

Section 33(5) clearly prescribes a penalty for failure to deposit sales tax within the stipulated time, and it does not hinge on intent alone. Unlike a default surcharge, which is compensatory in nature, the penalty serves a deterrent function and must be enforced where consistent non-compliance is evident. In this case, the department has rightly exercised its discretion under the law to impose a penalty, which is neither excessive nor arbitrary. Therefore, the imposition of a penalty under section 33(5) is found to be legal, reasonable, and warranted by the facts and pattern of the appellant's conduct.

CONCLUSION

In light of the foregoing findings:

I.     The appeal fails on both counts—default surcharge and penalty.

2. The appellant is liable to pay the default surcharge under section 34 as per the mandatory provisions and the Supreme Court judgment referenced above.
3. The penalty imposed under section 33(5) is also upheld, considering the appellant's repetitive defaults and failure to rectify the error voluntarily.

Accordingly, the appeal is hereby dismissed. The respondent is directed to calculate and communicate the payable default surcharge amount to the appellant in accordance with law.

 

                                                                                        -SD-

-SD-  (IMRAN LATIF MINHAS) ACCOUNTANT MEMBER

/(M. M. AKRAM)   JUDICIAL MEMBER