APPELLATE TRIBUNAL INLAND REVENUE,SPECIAL BENCH, LAHORE MA(Stay)
No. 867/LB/26&STA
No.351/LB/26(Tax
Period July 2021 to June 2023)
M/s Zam Zam Flour & General Mills,
Gujranwala.
NTN No.:3769310-7 …Appellant
Versus
The CIR, LTO, Lahore. …Respondent
Appellant by: Mr.
M. Nasir Khan, Advocate
Date of
hearing: 06.03.2026
O R D E R
M. M. AKRAM (Judicial Member): The
instant sales tax appeal along with a miscellaneous application for interim
relief has been filed by the appellant/registered person against Order No. 10
dated 27.02.2026 passed by the Commissioner Inland Revenue (Appeals-I), Lahore
[“CIR(A)”], whereby the Order-in-Original No. 04/2025 dated 15.01.2025
passed by the Deputy Commissioner Inland Revenue (the assessing officer)
for the tax periods July 2021 to June 2023 was upheld. Through the said
Order-in-Original, the assessing officer imposed a penalty amounting to
Rs.600,000/- under Sr. No. 11(c) of the Table to section 33 of the Sales Tax Act, 1990 (hereinafter referred to as “the
Act”).
2. Briefly stated, the facts of the case are
that the appellant is an Association of Persons (AOP) engaged in the
operation of a flour mill. During scrutiny of the sales tax returns for the tax
periods July 2021 to June 2023, the Deputy Commissioner Inland Revenue observed
that M/s Zam Zam Flour & General Mills, bearing NTN No. 3769310-7 and STRN
No. 2500376931014, located near Lohianwali Nehar, G.T. Road, had filed its
sales tax returns without declaring the value of goods purchased, goods
supplied, and the opening and closing stock. According to the department, the
registered person was under a legal obligation to disclose accurate particulars
regarding purchases, supplies, whether taxable or exempt, and the stock
position in the sales tax returns. However, such particulars were allegedly not
disclosed by the registered person. Consequently, a show cause notice was
issued under section 11E of the Act for the imposition of a penalty under
section 33(11)(c) of the Act. Thereafter, an order under section 11E was passed
whereby a penalty amounting to Rs.600,000/- was imposed under section 33(11)(c)
of the Act.
3. Being aggrieved by the said order, the
appellant preferred an appeal before the learned CIR(A), who, through the
impugned appellate order dated 27.02.2026, confirmed the action of the
assessing officer. Still dissatisfied, the appellant has filed the instant
appeal before this Tribunal, challenging the impugned order on various legal
and factual grounds.
4. The case came up for hearing on
06.03.2026. The learned Authorized Representative (AR) for the appellant
contended that the order passed by the learned CIR(A) is arbitrary, unjust and
contrary to the law as well as the facts available on record. It was argued
that the appellate authority failed to properly consider the submissions and uncontroverted
facts presented by the appellant, thereby rendering the impugned order
capricious and unsustainable in law. The learned AR further submitted that the
proceedings initiated under section 11E of the Act, culminating in the
imposition of a penalty under section 33(11)(c), suffer from inherent
jurisdictional defects and were undertaken without lawful authority. According
to the appellant, the impugned order has been passed on the basis of
preconceived notions and without due consideration of the grounds raised before
the appellate authority. It was also contended that the appellant, being a
flour mill, deals in wheat flour, which is exempt from sales tax in terms of Serial
No. 19 of Table-I of the Sixth Schedule to the Act; therefore, the imposition
of penalty under section 33 is illegal and void ab initio. The learned AR
further maintained that the appellant neither knowingly nor fraudulently made
any false statement, declaration or representation; hence, the ingredients
necessary for invoking section 33(11)(c) are wholly absent. It was additionally
argued that there is no loss of revenue since the supplies made by the
appellant relate to goods which are exempt from sales tax under the Act. Hence,
a penalty cannot be imposed. In support, he relied on the judgment reported in
2010 PTD 1515 (Trib).
5. On the other hand, the learned
Departmental Representative (DR) supported the impugned order and
submitted that the appellant failed to disclose mandatory particulars in the
sales tax returns and therefore the action taken by the departmental
authorities is fully justified and in accordance with law.
6. We have heard the learned representatives
of both parties and have carefully examined the record available on file. From
the arguments advanced and the material placed before us, the following
questions arise for determination in the present case:
i. Whether, under the facts and
circumstances of the case, proceedings could validly be initiated under section
11E of the Act?
ii. Whether, in the absence of determination
of any evasion or short-levy of tax, the penalty prescribed under section
33(11)(c) of the Act could lawfully be invoked?
RELEVANT
LAW
For a
proper appreciation and adjudication of the questions involved, it would be
expedient to reproduce hereunder the relevant provisions of the Act for ready
reference.
Section 11E: Assessment of tax and recovery of tax not levied or short
levied or erroneously refunded.- (1) Where due to any reason, any tax or
charge has not been levied or short levied or where the officer of Inland
Revenue not below the rank of Assistant Commissioner suspects on the basis of
audit or otherwise that due to any reason a person has-
(a) not paid or
short paid due sales tax;
(b) claimed input
tax credit or refund which is not admissible; or
(c) has obtained an
amount of refund not due,
the officer of
Inland Revenue after issuing a show cause notice to the person shall pass an
order to determine and recover the amount of tax unpaid or short paid,
inadmissible input tax or refund, or unlawful refund obtained and shall also
impose penalty and default surcharge in accordance with sections 33 and 34:
Provided that this
section shall not be applicable to the extent of proceedings initiated under
section 37A of the Act.
(2) For the
purposes of sub-section (1), the officer of Inland Revenue may also disallow
input tax on goods or services if the taxpayer is unable, without reasonable
cause, to provide a receipt, or invoice or other record or evidence of the
transaction or circumstances giving rise to such claim.
(3) Where a tax or charge
has not been levied under clause (a) of sub-section (1), the amount of tax
shall be recovered as tax fraction of the value of supply.
Section 33. Offences, Penalties and Punishment.– 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
|
Offences |
Penalties and
Punishment |
Section of the
Act to which offence has reference |
|
(1) |
(2) |
(3) |
|
11. Any person who,– (a) submits a false or forged
document to any officer of Inland revenue; or (b) destroys, alters, mutilates or
falsifies the records including a sales tax invoice; or (c) Knowingly
or fraudulently makes false statement, false declaration, false
representation, false personification, gives any false information or issues
or uses a document which is forged or false. |
Such person shall
pay a penalty of twenty five thousand rupees or one
hundred per cent of the amount of tax involved, whichever is
higher. He shall, further be liable, upon conviction by a Special
Judge, to imprisonment for a term which may extend to three years, or with
fine which may extend to an amount equal to the amount of tax involved, or
with both. |
2(37) and General |
7. As regards the first question, a plain
reading of section 11E of the Act reveals that the said provision empowers the
Officer of Inland Revenue to determine and recover the amount of tax where any
tax has not been levied, has been short levied, or has been erroneously
refunded, or where inadmissible input tax credit or refund has been claimed.
The scheme of the provision clearly indicates that its primary object is the
determination and recovery of unpaid or short-paid tax. The authority to impose
penalty and default surcharge flows as a consequential action once the officer
determines that tax has not been paid or has been short paid or that
inadmissible input tax or refund has been claimed. In other words, the
foundation for invoking section 11E lies in the existence of a tax liability
which has either escaped assessment or has been short-assessed.
8. In the present case, however, the record
shows that the department did not determine any unpaid or short-paid sales tax
liability against the appellant. The proceedings were initiated merely on the
ground that the appellant had not declared the value of purchases, supplies and
stock position in the sales tax returns. While such omission may amount to
non-compliance with procedural requirements, the department has not established
that any tax was due and remained unpaid or that any inadmissible input tax or refund
was claimed by the appellant. Therefore, the essential jurisdictional
requirement for invoking section 11E, namely the determination of tax not
levied or short levied, appears to be absent. Consequently, the initiation of
proceedings under section 11E in the instant case does not appear to be fully
aligned with the scope and object of the provision. Hence, proceedings are illegal,
void ab-initio and without jurisdiction.
ANSWER
TO THE QUESTION NO. (ii)
9. Section 33 of the Sales Tax Act, 1990 contains a schedule
enumerating various offences along with their corresponding penalties. Entry
No. 11 of the Table addresses situations where a person submits forged or false
documents, falsifies records, or knowingly makes false statements, declarations,
or representations before the Inland Revenue authorities. The provision
prescribes a penalty of Rs. 25,000 or an amount equal to one hundred percent of
the tax involved, whichever is higher, and further provides for criminal
liability upon conviction by a Special Judge.
10. A careful interpretation of this provision,
particularly in circumstances where the registered person admittedly made
exempt supplies under the Act, necessitates examination of the essential
ingredients required to constitute the offence. Clause (c) explicitly provides
that liability arises only where a person knowingly or fraudulently makes a
false statement, declaration, or representation, or issues or uses a forged or
false document. The language of the provision therefore makes it clear that the
legislature intended to penalize deliberate acts of falsification or
misrepresentation designed to evade or reduce tax liability. Consequently, the
presence of mens rea,
namely knowledge or fraudulent intent, is an indispensable element for the
application of this entry.
11. In cases involving exempt supplies, the
legal consequences under the sales tax regime materially differ from those
relating to taxable supplies. Exempt supplies, by their nature, do not attract
output tax, and a registered person is not required to charge or collect sales
tax thereon. In such circumstances, the determination of the “tax involved,”
which forms the basis for the computation of penalty under Entry No. 11,
assumes critical importance. Unless it is first demonstrated that the taxpayer
intentionally misrepresented facts with the object of evading tax that was
otherwise legally payable, the foundation for invoking this penal provision
remains doubtful.
12. It is also well recognized that disputes may
arise in relation to the classification of goods, interpretation of exemption
provisions, or the manner in which transactions are disclosed in returns. Such
issues, even where they lead to a different interpretation by the tax
authorities, cannot by themselves be equated with the submission of forged
documents or fraudulent declarations unless there is clear and convincing
evidence establishing that the taxpayer knowingly furnished false information.
An omission or error in disclosure, without proof of deliberate falsification,
does not fall within the mischief contemplated by clause (c).
13. In the present case, the department has
alleged that the appellant failed to disclose certain particulars in the sales
tax returns. However, the record does not reveal any material indicating that
the appellant knowingly or fraudulently made a false statement, declaration, or
representation. Mere non-disclosure of certain information, in the absence of
evidence demonstrating fraudulent intent or conscious misrepresentation, is
insufficient to attract the penal consequences envisaged under Entry No. 11.
14. Moreover, the department has neither
quantified any amount of tax involved in the alleged offence nor established
that the appellant derived any unlawful benefit as a consequence of the alleged
omission. In the absence of such determination, the application of the said
penal provision appears to lack the necessary legal foundation.
15. It is also relevant to observe that the
appellant is engaged in the milling and supply of wheat flour, which, according
to the record, falls within the ambit of exemption provided under Serial No. 19
of Table-I of the Sixth Schedule to the Act. While exemption from tax does not
dispense with the obligation to comply with procedural requirements, the
absence of any discernible revenue implication further diminishes the basis for
initiating penal proceedings.
16. In view of the foregoing discussion, it
becomes evident that the initiation of proceedings under section 11E, without
first determining any unpaid or short-paid tax, and the subsequent imposition
of penalty under Entry No. 11(c) of section 33 without establishing the
essential elements of the offence, suffer from significant legal infirmities.
The scheme of the Act requires that penal consequences must rest upon clear
findings supported by evidence and must strictly conform to the conditions
prescribed by law. Where these foundational requirements are absent, the
imposition of penalty cannot be sustained in the eyes of law.
17. Accordingly, the appeal filed by the
appellant is hereby accepted, and the penalty amounting to Rs. 600,000/-
imposed by the department is deleted. As the main appeal has been decided on
merits, the miscellaneous application seeking interim relief has consequently
become infructuous.
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