COMMISSIONER INLAND REVENUE, SPECIAL ZONE, R.T.O., MULTAN VS ARAIN FIBERS LTD., 2017 PTD-LAHORE-HIGH-COURT-LAHORE 675 (2016)

Sales Tax Act (VII of 1990)---

----Ss.33, 34 & 47---Sales Tax Rules, 2002, R.6 (3)---Notification No. S.R.O. 1271(I)/96, dated 10-11-1996---Reference---Instalments of duty---Promissory estoppel---Authorities alleged that taxpayer was not entitled to claim adjustment or refund of input tax in respect of such purchases unless he had paid the amount of additional tax or penalty---Validity---Nobody could be allowed to approbate and reprobate in the same breath---After allowing instalments without making it conditional to payment of additional tax and penalty, vested right was created in favour of taxpayer on the theory of 'promissory estoppel' and doctrine of vested rights---Authorities could not be allowed to go against its own conduct and representations/concessions---Once the taxpayer had discharged its liability by way of depositing principal amount of sales tax within the time frame in installments, nothing remained payable as an additional amount on the account of any additional tax/default surcharge and penalty---High Court declined to interfere in the order passed by Appellate Tribunal Inland Revenue and proposed questions were decided against the authorities---Reference was dismissed in circumstances.

Messrs Bawani Violen Textile Mills v. Commissioner of Income Tax PLD 1967 Kar. 688 ref.

Messrs Syed Bhais v. Chairman, C.B.R. and others 2001 CLC 1445 rel.

M. Tariq Rasheed Qamar for Applicant.

Mian Muhammad Shahid Riaz for Respondent.

ORDER

This single order shall decide instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("Act"), along with following connected case, as common questions of law and facts are involved in these cases:--

S.T.R. No.08 of 2014 titled Commissioner Inland Revenue, Special Zone, RTO, Multan. v. M/s. Arain Mills Ltd.

2.The following questions of law, asserted to have arisen out of the order dated 18.12.2013 passed by Appellate Tribunal Inland Revenue of Pakistan, Camp at Multan ("Appellate Tribunal"), are proposed in the instant reference application, for our opinion:--

i).Whether on the facts and in the circumstances of the case, the learned ATIR was justified to ignore rule 6(3) read with S.R.O. 1271(I)/96 dated 10.11.1996 which provides that a registered person shall not be entitled to claim adjustment or refund of input tax in respect of such purchases unless he pays the amount of additional tax or penalty chargeable on such late remittance under sections 33 and 34 of Sales Tax Act, 1990?

ii).Whether an executive order issued by the Board to facilitate the Registered Person to deposit the tax in instalments overrides the provisions of Sections 33 and 34 of the Sales Tax Act, 1990 and gives immunity to the taxpayer/Registered Person from chargeability of penalty and default surcharge?

iii).Whether on the facts and in the circumstances of the case, ATIR was justified in not considering the element of tax fraud as defined under section 2(37) of Sales Tax Act, 1990, committed by the respondent to evade the legitimate sales tax, the burden of proof of which is on the respondent in terms of Section 2(37) ibid?

3.Brief facts of the case are that the respondent/taxpayer was served with a Show-Cause Notice ("SCN") alleging therein that respondent failed to pay sales tax amounting to Rs.1,54,81,897/- against the purchase of cotton lint and wrongly adjusted the same as input tax from tax years 07/2001 to 04/2004, therefore, an amount of Rs.1,54,81,897/- was recoverable along with additional tax. The said SCN was contested by respondent, however, order-in-original was passed by the Collector (Adjudication) against respondent. Feeling aggrieved, respondent filed appeal before learned Appellate Tribunal, who vide order dated 18.12.2013, allowed the appeal. Through instant reference application, the aforesaid order dated 18.12.2013 has been assailed.

4.Learned counsel for applicant-department submits that learned Appellate Tribunal was not justified to ignore rule 6 (3) read with S.R.O. 1271(I)/96 dated 10.11.1996, which provides that a registered person shall not be entitled to claim adjustment or refund of input tax in respect of such purchases unless he pays the amount of additional tax or penalty chargeable on such late remittance under Sections 33 and 34 of the Act. He adds that the executive order issued by the Board was only to facilitate the registered person to deposit the tax in instalments, which does not, in any manner, override the provisions of Sections 33 and 34 of the Act, and does not give immunity to the taxpayer/registered person from chargeability of penalty and default surcharge. He further submits that impugned order is not sustainable in the eye of law, in circumstances.

5.On the other hand, learned counsel for respondent/taxpayer defends the impugned order and submits that applicant department has failed to point out any illegality or legal infirmity in the impugned order, thus, the same is liable to be upheld.

6.Arguments heard. Available record perused.

7.The relevant part of impugned order dated 18.12.2013 is reproduced hereunder:-

"7. Rival parties have been heard and the case record examined. We are of the view that when by following substantive provisions of Section 74 of the Sales Tax Act, 1990, the executive authority had granted facility of instalments to the taxpayer in discharging of its statutory liability, then the simultaneous action in terms of Section 73 of the Sales Tax Act, 1990, cannot be taken. Hence, the Order-in-Original dated 31.12.2004 merits annulment.

8. Furthermore, the issue in hand has already been decided by this Tribunal vide S.T.A. No.1488/LB/2009, S.T.A. No.1489/LB/2009 and S.T.A. No.150/LB/2009, the relevant portion of the said orders reproduced here under:--

"4. We have given anxious thought to the arguments advanced by the rival parties and perused the available record. We have observed that liquidity/financial problems since long and in this regard he submitted an application in the office of the Collector to inform their basic problems who, after having sympathized with the appellant issued a letter vide C.No.213/Text. Rec/ST/ 17521 dated 17.11.2004. Cost Accountant, the Collector, Sales Tax, Multan allowed the appellant to pay arrears of Sales tax in instalments. We have noted that in the past, the Collector of Sales Tax accepted the appellant's submission to that extent. We also appreciate this action of the Collector because the whole structure of sales tax, income tax, wealth tax etc., stand on the shoulder of these taxpayers who perform their tax liabilities to run the business of the Government Department. Keeping in view of the aforementioned opinion when the appellant is paying sales tax as per schedule given by the Collector, there seems to be no reason for imposition of the penalty as well as the additional tax."

8.Perusal of above reproduced relevant part of impugned order shows that the applicant-department itself has granted facility of instalments to the taxpayer in discharging of its statutory liability. Keeping in view the aforesaid action of FBR itself, learned Appellate Tribunal came to the conclusion that penalty as well as additional tax is not justifiable.

9.The applicant-department is demanding additional tax and penalty from respondent/taxpayer simply on the ground that there was no specific order regarding waiver of additional tax and penalty in the executive order passed by FBR. Admittedly, there was no specific order passed by FBR that additional tax and penalty should be recovered in instalments along with principal liability of sales tax. The absence of any specific order would go in favour of respondent/taxpayer. In the instant case, the act of competent authority allowing the respondent to pay due sales tax in instalments, connotes that it had waived additional tax and penalty for the period of instalments. Had respondent/taxpayer failed to pay agreed installments, then he could have been burdened with additional tax and penalty, not otherwise. Reference in this regard can be made to Messrs Bawani Violen Textile Mills v. Commissioner of Income-Tax (PLD 1967 Karachi 688), the relevant part of which is reproduced hereunder:--

"12. As stated earlier the most important question for consideration in this case is whether, after the Commissioner had granted instalments to the applicant-company it could be said that the applicant-company had committed default in the payment of the tax and was liable to be penalized under section 46 (1) of the Income-tax Act. On the facts of this case, the order of the Income-tax Officer calling upon the applicant-company to pay the tax assessed by him by a particular date had merged in the order passed by the Commissioner of Income-tax dated the 19th October 1955. After the Commissioner had passed the above order, the order of the Income-tax Officer calling upon the applicant company to pay the tax by a certain date stood annulled and lost its effect. It is in this context that the learned Tribunal should have considered the question of the propriety of imposing penalty on the applicant-company. The attention of the learned Tribunal, however, was not drawn to this aspect of the case."

10.It is self evidently clear that applicant-department, on the one hand, allowed the payment of outstanding liabilities of sales tax in instalments without passing any specific order for payment of additional tax and penalty, whereas on the other hand, it is claiming the same. Applicant-department is taking inconsistent pleas, which is not permissible under the law. Law is settled that nobody can be allowed to approbate and reprobate in the same breath. After allowing instalments without making it conditional to the payment of additional tax and penalty, vested right has been created in favour of respondent/taxpayer on the theory of promissory estoppel and doctrine of vested rights. Reliance in this regard can be placed upon Messrs Syed Bhais v. Chairman, C.B.R. and others (2001 CLC 1445), as the applicant department cannot be allowed to go against its own conduct and representations/concessions. Under the law, once the taxpayer had discharged its liability by way of depositing principal amount of sales tax within the timeframe in instalments, nothing remained payable as an additional amount on account of any additional tax/default surcharge and penalty.

11.Resultantly, our answer to the proposed questions is affirmative i.e. against the applicant-department and in favour of respondent/taxpayer.

12.This Reference Application, along with connected Reference Application, is decided against the applicant-department.

13.Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per Section 47 (5) of the Sales Tax Act, 1990.

MH/C-14/L Reference dismissed.