ZAHEER & CO. Versus COMMISSIONER APPEALS-I, SINDH REVENUE BOARD, KARACHI
ALIA ANWER, MEMBER JUDICIAL.--- The appellant has assailed the order dated 08.11.2023 vide Order-in-Appeal No.310/2023 ( hereinafter referred to as "the first Appellate Order" ) passed by the Commissioner Appeals-I in Appeal No.97/2023, whereby the default surcharge amounting to Rs.421,505/- imposed under section 44 of the Act, 2011 1 by the Assistant Commissioner (Unit-34) vided Order-in-Original No.4890/2023 ( hereinafter referred to as 'the Original Order" ) date 05.07.2023, has been confirmed. It is pertinent to mention that while appreciating the payment of Principe amount prior to passing the Original Order , the Commissioner Appeals-I deleted penalty amounting to Rs.52,422/ imposed in terms of serial No.3 of the Table uncle section 43 of the Act, 2011.
2. Appellant's representative submits that impugned order is bad in law and on facts so also against the principle of natural justice and fair play. He argue that findings of Commissioner Appeals are contradictory to his own observation. He argued that on the one hand while considering non-existence of mens rea , Commissioner Appeals deleted the penalty imposed in terms of serial No.3 of the Table under section 43 of the Act, 2011, on the other hand confirmed the penalty of default surcharge imposed under section 44 of the Act, 2011. Learned counsel argued that appellant had deposited tax due, prior to passing "the Original Order" , therefore no penalty can be imposed on him. Learned counsel prays that instant appeal may be allowed and the default surcharge imposed upon appellant may be waived upto 100%.
3. Assistant Commissioner (Unit-34) vehemently oppose the arguments advanced by learned counsel for appellant. He submits that on account of short-payment of tax show-cause notice was served upon the appellant. He contends that appellant has deposited the tax due with delay. He argued that imposition of default surcharge is mandatory in such circumstances. Assistant Commissioner (Unit-34) supported the impugned order and prayed for dismissal of instant appeal.
4. After hearing arguments of both the side, following are the points for determination before this Tribunal;
1. Whether default surcharge imposed under section 44 of the Act, 2011 is justified?
2. What should the judgment be?
POINT No.1:
5. The provisions of Act, 2011 are tax payer friendly, especially section 23, which provides both sides a forum to get resolved any of the issues coming under the way of compliance of the subject provision of law. For ready reference section 23 is reproduced here;
23. Assessment of Tax.-- (1) Where on the basis of any information acquired during an audit, inquiry, inspection or otherwise, an officer of the SRB, not below the rank of Assistant Commissioner SRB is of the opinion that a registered person has not paid the tax due on taxable services provided by him or has made short payment, the officer shall make an assessment of sales tax actually payable by that person and shall impose a penalty and charge default surcharge in accordance with sections 43 and 44.
(1A) Notwithstanding anything contained in this Act and subject to such conditions and guidelines as may be prescribed by the Board in this regard, where a person fails to file the return for a tax period by the due date or where the registered person fails to furnish any information, explanation, documents, record or any other details as may be required in a notice issued under sections 23, 27, 28, 29 or 52, an officer of the SRB, not below the rank of an Assistant Commissioner, shall, based on any available information or material, make an assessment order to the best of his judgment; determining the minimum tax liability of such registered person for the tax period specified in the notice. The minimum tax liability shall be in addition to the penalty and default surcharge prescribed in sections 43 and 44.
Explanation: Determination of minimum tax liability for a tax period shall not be the final tax liability and the registered person shall be liable to discharge his actual liability, as it may accrue or may be determined as a result of audit or special audit or forensic audit under this Act.
(2) No order under subsection (1) or (1A) shall be made by an officer of the SRB unless a notice to show-cause is given to the person in default within eight years from the end of the tax period to which the order relates specifying the grounds on which it is intended to proceed against him and the said officer shall take into consideration the representation made by such person and provide him with an opportunity of being heard if the person so desires.
(3)
(4)
(5)
(6) * * *
(7)
(8)
(Underlining is emphasized)
6. Bare reading of the above provision categorically shows that, prior to passing "the Original Order" , the Assessing Officer must give to the tax payer a show-cause notice. Main purpose of issuing show-cause notice is to apprise the taxpayer about the allegations for which the authorities intend to proceed against him and to give an opportunity to ensure compliance of law.
7. It is the matter of record that show-cause notice dated 25.02.2023 pertains to the short payment amounting to Rs.1,048,464/-, which was paid by the appellant prior to passing "the Original Order" . Admittedly there was no amount due at the time of passing "the Original Order" and the assessing officer has charged the appellant with the penalty as well as default surcharge, for late payment of tax due.
8. There is no cavil to the proposition that "mens rea" is the basic ingredient to impose any of the penalties prescribed under the law and it refers to the element of deliberate negligence or willful default which is something more than mere non-compliance of statutory provisions. Words "said officer shall take into consideration the representation made by such person" used in subsection (2) of section 23 above, require the assessing officer to consider in detail the plea taken up by the taxpayer in response to the show-cause notice so that he may assess the existence or non-existence of mens rea behind non-compliance of subject provision(s) of law, which is the necessary ingredient to determine liability on the taxpayer. To establish mens rea Department must bring on record that non-compliance of statutory provision is based on mala fide intentions and same can only be measured from taxpayer's conduct in response to the show-cause notice.
9. Act, 2011 was promulgated with the sole purpose of collection of tax on services, therefore; it does not approve straight away fixation of liability like other statutes, such as; lodging of FIR, rather it requires, under section 23 of the Act, 2011, issuance of show-cause notice prior to determination of any liability upon taxpayer. Wisdom behind insertion of such provision is to provide the taxpayer an opportunity to comply with law. In case the taxpayer responds to such show-cause notice positively and shows his good gesture by complying with law, the case must be closed. Liability upon taxpayer should only be fixed, in case he shows his reluctance and deliberate negligence (mens rea) towards compliance of law.
10. Words "the officer shall make an assessment of sales tax actually payable" require the Assessing officer to assess the amount of tax due before determining the liability. In case there remains no tax payable at the time of passing "the Original Order" , the appellant must not be charged with any of the provision of the Act, 2011 rather the show-cause notice would have been vacated.
11. Record reveals that out of the entire Principal amount has been paid prior to passing "the Original Order" . Appellant's conduct in response to the show-cause notice seems to be of compliant nature and apparently there seems to be no intention on the part of appellant to evade the tax. The Commissioner Appeal was also of the same view, who preferred to delete the penalty impose in terms of serial No.3 under section 43 of the Act, 2011.
12. Per Assistant Commissioner (Unit-30), words "shall" and "whether willfully or otherwise" used in section 44 of the Act, 2011 make the taxpayer liable to pay default surcharge, in case he does not pay tax due or any part thereof in time or in the prescribed manner. Arguments advanced by the Assistant Commissioner (Unit-34) do not sound convincing and it seems that she has gone through the relevant section in isolation instead of in continuation.
13. The appellant has been charged under the provision of section 44 of the Act, 2011. For the ready reference same is reproduced as under;
44. Default Surcharge.- (1) Notwithstanding the provisions of section 23, 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 there under, he shall, in addition to the tax due and any penalty under section 43, pay default surcharge at the rate mentioned below:-
(a)
(b)
14. Bare reading of the above provision shows that in case a tax payer does not pay the tax due or any part thereof in time or in the prescribed manner, whether willfully or otherwise, he shall pay default surcharge in addition to the tax due and any penalty under section 43 of the Act, 2011 at the rate mentioned in clause (a) or (b) of the said section. Words "in addition to the tax due and any penalty under section 43, pay default surcharge at the rate mentioned below" used in section 44 of the Act, 2011 categorically denotes that liability of default surcharge will be coupled with (in addition to) the liability of tax due and any penalty imposed under section 43 of the Act, 2011.
15. It is the matter of record at the time of passing "the Original Order" the assessing officer found no liability of tax due. Furthermore, the Commissioner Appeals found non-existence of mens rea behind late payment of tax, therefore; he preferred to waive penalty imposed in terms of serial No.3 of the Table under section 43 of the Act, 2011. At the time of passing " the Original Order " there existed no liability of tax due, therefore; there remains no justification in imposing the penalty of "default surcharge".
16. In view of the above discussion, I am of the considered view that imposition of default surcharge under section 44 of the Act, 2011 is unjustified, hence; this point is answered in negative.
POINT No.2:
12. In view of the above discussion, instant appeal is hereby allowed. Resultantly, imposition of default surcharge vide "the Original Order" dated 05.07.2023 and its confirmation vide "the first Appellate Order" dated 08.11.2023 stands set-aside. Let the copy of this order be provided to the learned representatives of the parties.
MQ/54/Tax(Trib.) Appeal allowed.
1 The Sindh Sales Tax on Services Act, 2011.