2004 SLD 306 Equiv.

Citation: 2004 PTD 1048 = 89 TAX 136 = =

Civil Appeals Nos. 312 to 326 of 2002, decided on 4th December, 2003

LAHORE HIGH COURT

Before Nasim Sikandar and Muhammad Sair Ali, JJ

Shafaqat Mahmood Chohan for Appellant. A. Karim Malik for the Revenue

Messrs BHOLA WEAVING FACTORY

Vs
CUSTOMS, EXCISE AND SALES TAX APPELLATE TRIBUNAL and another

ORDER

Through this consolidated order we intend to dispose of Custom Appeals Nos.312, 313, 314, 315, 316,
317, 318, 319, 320, 321, 322, 323, 324, 325 and 326 of 2002 filed by registered persons against
imposition of penalty as finally reduced by the learned Customs Excise and Sales Tax Appellate Tribunal,
Lahore to Rs.10,000 in case of each appellant by way of their consolidated judgment, dated 3-4-2002.

2. The appellants were charged and finally found to have received different sums of sales tax refunds on
the basis of fake invoices ranging between Rs.2057 in case of Messrs Ramzan Majeed Weaving Factory,
Faisalabad and Rs.7241 in case of Messrs Tayyab Factory, Faisalabad.

3. In the consolidated order-in-original recorded by Deputy Collector (Adjudication) Faisalabad, dated 30-
1-2002 it was observed that the respondents did not contest the charge. Before him it was contended
that claim of these sums of refunds was only on account of lack of knowledge as regards the status of
the suppliers and that if they had an intention to commit tax fraud, they would have claimed heavy
amounts against fake invoices.

4. The Adjudicating Authority however, recorded the following consolidated order against all the
appellants.

"The charges as enumerated in the show-cause notice are, however established.

I, therefore, adjudge an amount of Rs.2049 upon the respondents to be recovered from them alongwith
additional tax under section 34 & 36 of Sales Tax Act, 1990 As the charges are admittedly established,
the undersigned is left with no option but to impose a penalty of Rs.25,000 upon the respondent under
section 33(4a) of the. Act."

5. Learned Tribunal in their order, dated 3-4-2002 noted the claim of the learned counsel for the
appellants that principal amount of tax as well as additional tax had already been paid. The prayer for
remission of penalty in toto was however, declined though the total amount of penalty of Rs.25,000
found to be somewhat harsh. Accordingly, it was directed to be reduced to Rs.10,000 in case of every
appellant.

6. Learned, counsel for the appellants claims that the amount of penalty is still on the higher side as
there was no intention to commit tax fraud on the part of any of the appellants. Secondly, that in view of
S.R.O. 396(I)/2001, dated 18-6-2001 the appellants are entitled to total remission of penalty in each
case.

7. Learned counsel for the Revenue on the other hand claims that the order of' the learned Tribunal in
reducing the amount of penalty from Rs.25,000 to Rs.10,000 is rather beneficial to the appellants. Also
states that the aforesaid S.R.O. relied upon at the bar is not applicable to the case of the appellants
being manufacturers inasmuch as that S.R.O. is available to registered, enrolled or enlisted retailers and
not manufacturers.

8. Having heard the learned counsel for the parties we will agree that the aforesaid S.R.O. is not
applicable to the case of the appellants. However, we will readily agree that the imposition of penalty of
Rs.25,000 and then its reduction to Rs.10,000 by the Tribunal is still on the higher side. We are in
agreement with the contention put forth at the bar that had there been any intention to commit fraud,
the appellants would not have attempted it for as meagre a sum as Rs.2057. The Department as well as
the Tribunal should have allowed the appellants an allowance for absence of mens rea coupled with the
fact that not only they did not contest the charge but also willingly re-paid the refunds alongwith
additional tax.

9. The nature of penalty provisions in taxing statutes and the proceedings held to bring them home are
criminal or at least quasi ­criminal in nature. In such-like proceedings proving of mens rea, in the view
of their Lordships in re Additional Commissioner of Income-tax v. Narayandas Ramkishan 1994 PTD 199
is an essential ingredient. It was held that the Revenue was under a statutory obligation to prove that the
assessee had acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest
or acted in conscious disregard of his obligation. Although the issue before their Lordships was slightly
different from the one before us yet the principle laid applies on all fours to the facts in hand. Their
Lordships were considering the legality of penalty for the late filing of return in the perspective of the
legal provisions requiring an assessee to show reasonable cause for such late filing. The principle that
was laid down by their Lordships needs to be kept in mind by all Revenue Authorities while enforcing
penalty provisions. It is that:

"Levy of penalty is a matter of discretion which must be exercised by the Authorities judiciously on
consideration or relevant circumstances. Penalty should not be imposed merely because it is lawful to
do so. If the offence is of a technical or venial in nature, the Authorities. will be justified in refusing to
levy penalty."

10. Judging the impugned order on this touchstone we are of the view that the purpose of penalty
provisions as also the intended deterrence will be very well-served if the amount of penalty in the case
of every appellant is reduced to a token sum of Rs.250.

11. Appeals allowed in the above terms.