Sales Tax Act (III of 1951)‑‑

‑‑‑‑Ss. 3, 12, 12‑A, 34 & 49 (1)(a)‑‑‑Demand/imposition of additional tax penalty without issuance of show‑cause notice‑‑‑Validity‑‑‑No additional tax could be levied without issuance of show‑cause notice‑‑ Mere observation in the order that in case of failure to pay tax, provisions of S.12‑A of Sales Tax Act, 1951 would be enforced, would not amount to confronting assessee with intention to levy additional tax‑‑‑Such intention had to be specifically stated in show‑cause notice, otherwise assessee would be deemed to have been condemned unheard.

Collector Central Excise and Land Customs v. Rahim Din 1987 SCMR 1840 rel.

Ms. Sana Minhas for Appellant.

Raja M. Iqbal for Respondents.

Date of hearing: 29th January, 2004.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---This appeal is directed that the order, dated 3‑10‑2002 passed by the learned Customs, Excise and Sales Tax Appellate Tribunal Karachi Bench‑I. The appellant has formulated eight questions of law allegedly arising out of the order of Tribunal. However, we are of the opinion that following, question only arises out of the order of Tribunal.

"Whether in the facts and circumstances of the case the Customs, Excise and Sales Appellate Tribunal was justified in holding that the Additional Tax can be recovered without issuance of show‑cause notice?"

Briefly stated the relevant facts are that, the appellant is engaged in the manufacture of storage batteries. On 22‑10‑1988, the appellant received a show‑cause notice from Assistant Collector Central Excise and Land Customs, SITE Division Karachi which reads as follows:‑‑‑

SHOW‑CAUSE NOTICE

Whereas it has been reported to the undersigned by the Superintendent, Central Excise and Land Customs, Baldia Circle, Karachi that Messrs Exide Pakistan (Pvt.) Limited, (formerly Chloride Pakistan Limited), A-15 Hill Street, SITE Karachi manufactured and consumed a quantity of 44,47,000 kgs. Lead oxide valued at Rs. 5,14,68,333 involving Sales Tax amounting to Rs. 64,33,541.62 for the manufacture of storage battery from 23 May 1983 to 22‑5‑1988 without obtaining proper Central Excise Licence and paying Sales Tax chargeable thereon as per details attached.

Messrs Exide Pakistan (Pvt.) Limited, (Formerly Chloride Pakistan Limited), have thus contravened the C.E. Rules 9, 52, 52A 53, 174, 236, 237, 238 and 226 of C.E. Rules 1944 read with section 3(4) of Sales Tax Act, 1951 punishable under Rules 210 and 226 of C.E Rules 1944 read with section 3(4) or Sales Tax Act, 1951.

Messrs Exide Pakistan (Pvt.) Limited (formerly Chloride Pakistan Limited), are therefore, called upon to show‑cause within 10 days of the receipt of this notice as to why Sales Tax amounting to Rs.64,31,541.62 should not be recovered from tinder Rule 10 of C E. Rules, 1944.

Hearing in the case has been fixed for 2-11-1998 at 11-30 a.m. when they or their representative should appear before the undersigned on the said date and time for heating in the office located at ......... S.I.T.E. Fire Brigade S.I.T.E., Karachi and to produce evidence and witnesses if any, in support of the defence. In case nobody appears at the time of hearing ex parte decision shall be taken on the basis of the evidence available on record."

Apparently no demand for payment of additional tax under section 12‑A of the Sales Tax Act, 1951 was made in the above show -cause notice. The appellant submitted explanation which was not accepted and order‑in‑original was passed on 6‑7‑1989, wherein the Assistant Collector held that. Sales Tax amounting to Rs.64,33,541.62 was recoverable under Rule 10 of the Central Excise Rules, 1944. The appellant was directed to deposit this amount within 15 days. It was further directed that in case of failure to deposit the above amount the provisions of section 12‑A of the Sales Tax Act, 1951 will be enforced. The appellant being aggrieved, preferred appeal before the Collector (Appeals), Customs, Central Excise and Sales Tax, Southern Zone Karachi. The appeal was allowed on 7‑11‑1989, and the case was remanded to the adjudicating officer for de novo consideration. The demand was set aside. The issue was already subject‑matter of petition before the High Court and thereafter was taken up in appeal, before the Hon'ble Supreme Court of Pakistan. The appeal was ultimately dismissed by the Hon'ble Supreme Court on 11‑1‑1999. Thereafter Assistant Collector Sales Tax (West) Karachi issued a notice for the payment of Government dues amounting to Rs.64,33,542 alongwith additional tax due thereon under Sales Tax Act, 1951/1990. On 24‑2‑1999 demand for recovery of sales tax under section 48(1)(a) of the Sales Tax Act, 1990 was issued. The appellant informed the Collector of Sales Tax on 25‑2‑1999 that the sales tax amounting to Rs.64,33,542 was deposited on 25‑2‑1999. After receipt of the letter from the appellant the embargo placed was lifted and the demand of sales tax notice was withdrawn on 12‑3‑1999. Subsequently on 21‑6‑2000, the Superintendent Sale Tax and Central Excise (West) Karachi, issued a notice to the appellant asking to deposit the additional tax at Rs.6,56,44,996 under section 34 of the Sales Tax Act, 1990. The appellant replied that no show‑cause notice was served on them in respect of the additional tax and the issue pertaining to the additional tax was not the subject‑matter of appeal before the Hon'ble Supreme Court, which was confined to the payment of sales tax only, which has been duly paid on 25‑2‑1999. It was further contended that the demand of additional tax in pursuance of the judgment of Hon'ble Supreme Court was totally, uncalled for. It. was further contended that the order‑in‑original, dated 6‑7‑1989 directing to pay sale tax was set, aside by Collector (Appeals) vide order, dated 7‑11‑1989 and the matter was remanded for fresh consideration but no fresh order was passed by the adjudicating authority and therefore, no additional tax could be demanded on the basis of order‑in‑original, which was set aside. It was further urged that additional tax could not be recovered as in the show‑cause notice, dated 22-10‑1988, no demand for payment of additional tax was made and no explanation was called. It was further contended that in addition to the inclusion of issue pertaining to the additional tax in the show‑cause notice the condition precedent for demand of additional tax is to establish the failure of an assessee to pay the tax due, deliberately and intentionally. Reliance in this regard was placed, on several judgments of the superior Courts. It was contended that the additional tax is in the nature of penalty and consequently is not payable merely for non‑payment of sale tax but is consequential on non payment of tax with intention to evade the same. It was maintained that the issue pertaining to the payment of sales tax on account of consumption of lead, was a contentious issue and there was no order of the competent authority in field for payment of the same, and as soon as the matter was settled by the Hon'ble Supreme Court, the sale tax payable was paid. After receiving the above reply, the hearing of the case, remanded vide order, dated 7‑11‑1989 was fixed on 12‑7‑2000 and the Order‑in‑Original was passed on 10‑4‑2001. The Adjudicating Officer did not accept the contention that no additional tax was leviable without issuance of show‑cause notice in this behalf. He observed that, the appellant had already filed Constitution Petition before the High Court of Sindh, before the issuance of show‑cause notice, dated 22‑10‑1988 contending that the sales tax was not payable on the lead consumed by the appellant and after dismissal of the petition had taken the matter in appeal before the Supreme Court. According to the adjudicating officer, the Supreme Court upheld the viewpoint of the department pertaining to the chargeability of tax and thus the Hon'ble Supreme Court has impliedly decided the issue involved in the show cause notice. It was further held that, in terms of section 12A of the Sales Tax Act, 1951, the additional tax was leviable in case an assessee fails to pay the tax as required under section 12 read with section 3 of the Sales Tax Act, 1951 and the provisions of section 12‑A would automatically be attracted. It was opined that the leviability of the additional tax is a supplemental provision invoked upon non‑payment of sales tax. Thus, according to the adjudicating officer, the imposition of additional tax was automatic and consequential to the non‑payment of tax under section 12 read with section 3 of the Sales Tax Act, 1951 and no show‑cause notice was required to be issued. It was, observed that in the Order‑in‑Original, dated 6‑7‑1989 (which was set aside), the adjudicating officer had levied additional tax under section 12‑A and thus the appellant was bound to deposit the principal amount of sales tax as well as, the additional tax imposed under section 12‑A of the Sales Tax Act, 1951 (wrongly written as Sales Tax Act, 1990 in para. 6 of the Order‑in‑Original). The adjudicating officer further held that non payment of sales tax till the decision by the Supreme Court amounted to deliberate misinterpretation of the law and therefore, remission from payment of additional tax was not available on the ground that the samewas done due to difference of opinion on the point of law. The adjudicating officer ultimately held that, the show‑cause notice was considered by the Hon'ble Supreme Court and therefore, the appellant was required to pay the sales tax as well as the additional tax.

Another order, dated 28‑8‑2001 of Collector of Customs, Sales Tax and Central Excise, Karachi, has been placed on record, wherein under similar circumstances the additional tax was not imposed on the ground that the additional tax was not demanded in the show‑cause notice. Reliance was placed in this behalf on the judgment of Hon'ble Supreme Court of Pakistan in the case of the Collector Central Excise and Land Customs v. Rahim Din 1987 SCMR 1840. In this judgment the Hon'ble Supreme Court held that order of adjudication, being ultimately based on a ground which was not mentioned in the show‑cause notice was palpably illegal on the face of it.

The Order‑in‑Original, dated 10‑4‑2001 was assailed before the Customs, Excise and Sales Tax Appellate Tribunal in Sales Tax Appeal No. K‑72 of 2001, which is impugned in this appeal. The main contention before the Tribunal was that, the demand of additional tax was not raised in the show‑cause notice and as such the order leving additional tax was not maintainable in law. The learned Tribunal after narrating the necessary facts, did not accept the contention for the reason that withholding of the Government tax is not permissible under the law and as such the appellants are not entitled to claim any relief on the ground that, as the issue of additional tax was not raised in the show- cause notice hence they are not liable to pay the same. The learned Tribunal further observed that, "this is an act of clear abuse of process of law and does not entitle the appellant to any relief."

We have heard Ms. Sana Minhas, learned counsel for the appellant and Mr. Raja M. Iqbal, learned counsel for the respondents.

The learned counsel for the appellant has reiterated the contention that admittedly the appellant was not confronted with the intention to levy additional tax in the show‑cause notice and consequently, the levy of additional tax was not sustainable in law. She has submitted that admittedly the additional tax is in the nature of penalty which is never imposed automatically. She has submitted that before imposing any additional tax or penalty, the assessee is required to be confronted with (sic) and is entitled to furnish explanation (sic) where non‑payment of tax shall not entail the levy of additional tax or penalty but it is regretted to note that there was failure on the part of assessee to pay the tax meaning thereby the tax was not paid deliberately and intentionally with the purpose of evading tax. She, has submitted that the honest difference of opinion on a point of law does not amount to evasion of tax or failure, on the part of assessee with intention to evade the tax. She has argued that as soon as the question of law was decided by the apex Court the appellant paid the sales tax and thus there was no failure on the part of appellant to pay the tax.

There is sufficient force in the propositions raised by the learned counsel for the appellant and therefore, we specifically asked Mr. Raja M. Iqbal, learned counsel for the respondents if an additional tax can be levied without issuance of a show‑cause notice to which Mr. Raja M. Iqbal replied that the issuance of show‑cause notice before imposition of additional tax or penalty is sine qua non. However, Mr. Raja M. Iqbal did not concede that in this case the appellant was not confronted which the imposition or additional tax. He supported the impugned finding of the Tribunal as well as the Order‑in‑Original, dated 10‑4‑2001, on the ground that, in the first Order‑in‑Original, dated 6‑7‑1989 it was stated that, on failure to pay the sales tax the provisions of section 12‑A of the Sales Tax Act, 1951 will be enforced.

We do not find any substance in the contention of Mr. Raja M. Iqbal. A mere observation in the Order‑in‑Original, (which was set aside) to the effect that in case of failure to pay the sales tax, the provision of section 12‑A of the Sales Tax Act, 1951, will be enforced does not amount to confront the assessee with the intention to levy additional tax. Such intention is required to be specifically stated in the show‑cause notice otherwise an assessee would be deemed to have been condemned unheard. We find that, in similar circumstances the Collector Adjudication has rightly held that, no additional tax can be imposed, by placing reliance on the judgment of Hon'ble Supreme Court in the case of Collector Central Excise and Land Customs v. Rahim Din (Supra), wherein it has been held that order of adjudication was palpably illegal on face of it which was based on a ground which was not mentioned in the show‑cause notice. Respectfully following the law laid down by the Hon'ble Supreme Court in the above case and in view of the fact that Mr. Raja M. Iqbal, learned counsel for the respondents was not able to meet the contention that no additional tax can be levied without issuance of show‑cause notice, it is held that, the learned Customs, Sales Tax and Central Excise Tribunal has this directed in holding that the additional tax was sustainable without issuance of show‑cause notice. The question of law formulated in the opening part of this judgment is answered in negative.

A copy of this judgment be sent to the Customs, Excise and Sales Tax Appellate Tribunal Karachi, under the seal of the Court who shall pass necessary orders to dispose of the case in conformity with this judgment as required under subsection (5) of section 17 of the Sales Tax ‑Act, 1990.

The Appeal is allowed as above.

After hearing the learned Advocates for the parties on 29‑1‑2004, the appeal was allowed by a short order. These are the detailed reasons in support thereof.

S.A.K/E‑29/KAppeal accepted.