COLLECTOR CUSTOMS, LAHORE VS REHMAN BEVERAGES, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 1599 (2005)

Sales Tax Act (VII of 1990)---

----Ss.33(2)(cc) & 34---Late payment of amount of sales tax collected by supplier---Penalty and additional tax imposed on supplier for such failure was set aside by Appellate Tribunal on the ground of financial stringency pleaded by supplier and for he not being a habitual offender---Validity---Amount collected by supplier as a Collecting Agent of Revenue would be a trust with him---Receiving an amount in trust and withholding same for reasons absolutely personal to supplier could not be condoned---Principles.

In VAT based system of taxation, the supplier acts only as a Collecting agent for the Revenue. He adjusts every payment on account of sales tax that he makes while receiving supplies in the very next month of the purchase. Thereafter whatever he collects on behalf of the Department as an agent is a trust with him. To receive an amount in trust and plead financial stringency is neither factually acceptable nor it is legally allowable in terms of sections 33 and 34 of Sales Tax Act, 1990. These provisions for levy of additional tax and penalties are obviously harsher than the comparable provision available in other taxing statutes. The reason simply being that in VAT based system, a maker or supplier receives sales tax on behalf of the Revenue and the balance after adjustment of the amounts already paid by him while receiving supplies belongs to the Revenue the moment it is received. To withhold and use the amount belonging to the Revenue is not acceptable on any touchstone of logic and reason. If a registered person does so, then he is liable to pay the additional tax as well as penalty which in fact, is the cost of the amount withheld by him. In sales tax regime, the retention or with-holding of the amount received as sales tax, the question of default not being deliberate or the offender not being habitual defaulter does not arise at all. Receiving an amount as an agent of the Revenue and withholding the same for the reason, which is absolutely personal to the taxpayer cannot be seen or condoned in a light vein.

In the present case, the order making direction for levy of additional tax and penalty is fully supported by said provisions of Act, 1990. High Court accepted appeals and set aside impugned orders in circumstances.

D.G. Khan Cement Co. Ltd. and others v. Federation of Pakistan and others (2004) 90 Tax 1 (SC Pak.) and Additional Collector Sales Tax, Lahore v. Messrs Rupali Polyester Ltd., Lahore 2005 PTD 2412 distinguished.

A. Kasim Malik for Appellant.

Shahbaz Butt for Respondents.

Date of hearing: 8th December, 2005.

JUDGMENT

NASIM SIKANDAR, J.---This order will dispose of C.As. Nos.9, 10 and 11 of 1999 filed by the Revenue-appellant against the respondent, Messrs Rehman Beverages, Lahore.

2. The respondent was charged to have failed in depositing the sales tax for the periods 7-1-1997, 8-1-1997 and 9-1-1997 respectively amounting to Rs.33,19,332, Rs.37,97,154 and Rs.36,89,676. On issuance of show-cause notice in that regard by the department appellant, the respondent taxpayer pleaded financial stringency resulting in making tat,: payments. The Adjudicating Authority, however, found the default to be deliberate. Therefore, the respondent was ordered to pay additional tax to be calculated subsequently with reference to section 34 (Additional Tax) and also to pay penalties for the three periods at Rs.1,65,967, Rs.1,89,858 and Rs.1,84,484 under section 33 (General Penalties) of the Sales Tax Act, 1990.

3. The respondent taxpayer failed in first appeal while a Division Bench of the Customs, Excise and Sales Tax Appellate Tribunal, Lahore by way of the impugned order allowed the appeals for the aforesaid three periods. The operative part of the impugned order of the learned Tribunal as contained in para.5 reads as under:---

"5. We feel the balance of the tax paid after the due date was considerably large which after all they paid up in the succeeding 4-5 months. The delay though culpable was not too inordinate. There was no evidence of the appellants being habitual defaulters. Financial stringency pleaded by them was not an unusual phenomenon and hence burdening them with the added liability of the additional tax and the penalty would be highly unjust."

4. Learned counsel for the appellant-Revenue claims that the Tribunal misinterpreted the mandatory provisions of sections 33 and 34 of the Act. Further that mere claim of the taxpayer of passing through financial stringency was not a legally valid ground to absolve it from liability of payment of additional tax and penalty. Also that there was nothing on record to support: the belief of the Tribunal that the respondent - taxpayer was actually facing financial difficulties.

5. Learned counsel for the respondent-taxpayer in order to support the impugned order places reliance upon a judgment of the Hon'ble Supreme Court of Pakistan in re: D.G. Khan Cement Co. Ltd. and others v. Federation of Pakistan and others (2004) 90 Tax 1 (SC Pak.). and that of this Court in re: Additional Collector Sales Tax, Lahore v. Messrs Rupali Polyester Ltd., Lahore 2005 PTD 2412. Also refers to the findings recorded by one of us (Nasim Sikandar, J.) on 27-1-2005 in S.T.A. No.3 of 2002.

6. Having heard the learned counsel for the parties we will readily agree that the impugned order of the Tribunal, the operative part whereof has been reproduced above, is not a well reasoned order. Particularly in view of the fact that in VAT based system of taxation, the supplier acts only as a Collecting agent for the Revenue: Every payment on account of sales tax that he makes while receiving supplies is adjusted by him in the very next month of the purchase. Thereafter whatever he collects on behalf of the Department as an agent is a trust with him. To receive an amount in trust and plead financial stringency is neither factually acceptable nor it is legally allowable in the countenance of the aforesaid provisions of the Act. These provisions for levy of additional tax and penalties are obviously harsher than the comparable provision available in other taxing statutes. The reason simply being that in VAT based system as noted above a maker or supplier receives sales tax on behalf of the Revenue and the balance after adjustment of the amounts already paid by him while receiving supplies becomes due to the Revenue the moment it is received. To withhold and use the amount belonging to the Revenue is not acceptable on any touchstone of logic and reason. If a registered person does so, then he is liable to pay the additional tax as well as penalty which in fact, is the cost of the amount withheld by him. In sales tax regime, the retention or withholding of the amount received as sales tax, the question of default not being deliberate or the offender not being habitual does not arise at all. Receiving an amount as an agent of the Revenue and withholding the same for the reason, which is absolutely personal to the taxpayer cannot be seen or condoned in a light vein.

7. In the given situation we are of the considered view that the order making direction for levy of additional tax and penalty was fully supported by the aforesaid provisions of the Act. That makes this case distinguishable from those which fell for our consideration in the aforesaid judgments of this Court as also that of the Hon'ble Supreme Court. Accordingly three appeals are allowed and the impugned orders of the Tribunal are set at naught:

S.A.K./C-14/L???????????????????????????????????????????????????????????????????????????????????? Appeals accepted.