ISLAMABAD: Sindh High Court (SHC) has quashed penalty and default surcharge imposed by tax department on delayed filing of sales tax return and payment by a petroleum company.

The delay was occurred due to the circular debt issue. On the grounds of Mens Rea, the Department Reference has been dismissed. No penalty or default surcharge is payable by the petroleum company.

According to details, the SHC in case (SSTRA 191 of 2018), the statutory dispute resolution hierarchy recognized that the calamitous liquidity crunch originated with the Federal Government and penal consequences could not be imposed upon entities unable to meet their tax obligations in a timely manner purely on account thereof.

These findings of fact are pertinent hereto and with respect thereof the learned Appellate Tribunal is the final arbiter. Nothing exceptionable has been demonstrated before us to warrant any interference in such regard even otherwise.

The facts common to all references under scrutiny herein are that during the period when the circular debt crisis was at its pinnacle in Pakistan, precipitating a calamitous liquidity crunch, entities in the directly hit petroleum sector filed returns, along with payment of tax, slightly late and consequently show-cause notices were issued thereto, seeking recovery of default surcharge and penalty, since the correct quantum of tax had admittedly been paid.

The show-cause notices culminated in assessment orders, whereby the respondents were found liable for payment of default surcharge and penalty.

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In appeal, the Commissioner Appeals set aside the imposition, holding that there was no cause demonstrated for imposition of default surcharge and/ or penalty.

The said findings were also maintained by the learned Appellate Tribunal Inland Revenue. Aggrieved by the concurrent findings, i.e., that of the Commissioner Appeals and the Appellate Tribunal Inland Revenue, the applicant department has preferred these references.

The Commissioner Appeals observed that the petroleum industry was severely hit by the national calamity of circular debt leading to the marginal delays under scrutiny; however, the payment of the correct quantum of tax demonstrated that there was no wilful default. Reference was made to binding pari materia decisions holding that since the vicious cycle of circular debt was linked to the Federal Government itself, the respondents could not be encumbered with a burden arising as a direct corollary thereof.

The learned Appellate Tribunal Inland Revenue agreed with the foregoing and maintained that there existed no cause to warrant the imposition of default surcharge and penalty upon the respondents and particularized that identical treatment had been given to all similarly placed entities in the petroleum sector.

SHC added that the order has been issued in favour of the respondent/s and against the applicant department. The reference applications stand disposed of in the above terms.

Copyright Business Recorder, 2022

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