MR. ZAFAR IQBAL, MEMBER (TECHNICAL).--(1).This order will dispose of the eleven Sales Tax Appeals Nos. H-265/07, H-266/07, H-267/07, H-268/07, H-269/07, H-270/07, H-271/07, H-272/07, H- 273/07, H/274/07 & H-275/07.
2. The brief facts of the case are that the Assistant Collector, Sales Tax (Collection & Enforcement), Hyderabad reported that M/s. Al-Noor Sugar Mills, Ltd., Moro during the period from November, 2000 to June, 2001, supplied sugar to various unregistered persons without payment of further tax @ 3%, as required under section 3(1 -A) of the Sales Tax Act, 1990.
By doing so, it was alleged that the registered person had contravened the provisions of section 3(1-A) of the Sales Tax Act, 1990 read with section 6 ibid, punishable under section 33(2)(cc) of the Sales Tax Act, 1990. The unpaid amount of 'Further Tax' Rs. 9410475/- was also recoverable in terms of section 36 of the Sales Tax Act, 1990 along with additional tax computable under section 34 ibid of the Sales Tax Act, 1990.
M/s. Al-Noor Sugar Mills Limited, Moro were accordingly served with a show cause notice wherein it was asked that as to why, the aforementioned unpaid amount of 'further tax' be not recovered from the appellant along with additional tax accrued due to nonpayment of tax due, and as to why penal action be not taken against them under the provision of law. The appellant denied the said charges but the respondent did not agree with their point of view and passed the impugned order, hence these appeals.
3. The learned counsel appearing for all the appellants in these cases has put forth the following contentions:~
(a) (i) the orders-in-original in all these appeals are barred by limitation prescribed under the proviso to section 36(3) of the Sales Tax Act, 1990 (hereafter: the "1990 Act"). It was further submitted that in none of the eleven appeals in question any extension of time was granted by the Collector as envisaged in the proviso to section 36(3). The learned counsel has submitted the following chart to establish the maimer in which ONOs in all these appeals , have become barred by limitation:- 1 2 3 4 5 6 7 8 S. No.Name of the Appellant Show- Cause Notice dated Order in Original dated Order of Tribunal dated Order in renewal dated Time barred before 1st order
Tribunal Time barred in terms of order in remand
1. M/s. Habib Sugar Mills Ltd.
H-265/07 09-2-02 07/03 dt 31-3-033-09-03 70/07 dt 24-5-07325 Days 1574 Days
2. M/s. Faran Sugar Mills Ltd.
H-266/07 09-2-02 07/03 dt 31-3-033-09-03 70/07 dt 24-5-07327 Days 1821 Days
3. M/s. Ansari Sugar Mills Ltd.
H- 267/07 25-05-01 07/03 dt 31-3-033-09-03 70/07 dt 24-5-07578 Days 1615 Days
4. M/s. Sakrand Sugar Mills Ltd.
H-268/07 28-05-01 07/03 dt 31-3-033-09-03 70/07 dt 24-5-07578 Days 1615 Days
5. M/s. Larr Sugar Mills Ltd. H- 269/07 25-2-02 18/03 dt 26-4-033-09-03 62/06 dt 30-9-06309 Days 1583 Days
6. M/s. Larr Sugar Mills Ltd. H- 270/07 25-2-02 19/03 dt 26-4-033-09-03 70/07 dt 24-5-07335 Days 1785 Days
7. M/s. Al-Noor Sugar Mills Ltd.
H-271/07 25-2-02 19/03 dt 31-3-0319/03 dt 31-3-0370/07 dt 24-5-07332 Days 1783 Days
8. M/s. Al-Noor Sugar Mills Ltd.
H-272/07 25-2-02 07/03 dt 26-4-033-09-03 70/07 dt 24-5-07332 Days 1785 Days
9. M/s. Sakrand Sugar Mills Ltd.
H-273/07 25-2-02 19/03 dt 26-4-033-09-03 70/07 dt 24-5-07335 Days 1785 Days
10. M/s. Ansari Sugar Mills Ltd.
H-274/07 25-2-02 19/03 dt 3-09-03 70/07 dt 24-5-07335 Days 1785 Days
11. M/s.Shahmurad Sugar Mills Ltd.
H-275/07 25-2-02 19/03 dt 26-4-033-09-03 70/07 dt 24-5-07332 Days 1782 Days
(ii) in support of his contention on the touchstone of time bar the learned counsel has placed reliance on M/s. Pace International vs. Secretary decided by Federal Tax Ombudsman PTCL 2005 CL 836, CBR vs. Pace International decided by the President of Pakistan PTCL 2005 CL 841 in the case of SS Oil Mills Ltd. v Secretary GST 2005 CL 592 against CST vs. Hilal Tanneries PLD 1976 Lah.
655 and Nagina Silk Mills vs. 1TO PLD 1963 SC 322 and orders of Tribunal in (963) VIU Taxation 79, PTCL 1993 CL. 532, SCMR 1898 in the case of Federation of Pakistan v. Ibrahim Textile Mills Ltd. And in (1993) 3 WIR 153 (Privy Council) in Idly Bank Export Finance v. Commissioner of Inland Revenue;
(b) the very show cause notices and the ONOs are illegal and liable to be vacation because the same are in violation of law as interpreted by the Sindh High Court in the case of M/s Matiari Sugar Mills Ltd. And others vs. Federation of Pakistan, reported as PTCL 2002 CL. 597 and Mirpurkhas Sugar Mills Ltd. And others (i.e. CPs Nos. D-123 of 2001 and others);
(c) it is alleged that the proceedings pertaining under section 3(1-A) were stayed by the CBR vide its letter bearing No. C. No. 2(2)SS(Legal)/2001, dated 1.4.2002. The issuance of show cause notices and the passing of the ONOs were attacked on the ground that they violated the stay granted by the CBR and hence were against section 72 of the Act 1990 and were ab-initio devoid of lawful jurisdiction;
(d) the reports/contravention reports by officers of the Executive Collectorate {i.e. Below the Collectors' rank) recommending initiation of action by the Adjudication Collectorate were illegal since no notices were issued prior to the formulation of the said reports/recommendations. In respect of all the appeals the contravention reports, if any, were never confronted to the Appellants. As such the entire exercise is in breach of natural justice and void;
(e) in respect of the actions which were taken < upon some audit reports, it is submitted that they were never confronted to the appellants. Furthermore, in most of the cases no show cause notice or hearing was given or conducted before the finalization of the audit reports. As such the entire action is also in breach of natural justice;
(f) it was further argued that the entire procedure adopted in the audit, preparation of the contravention reports so also the adjudication proceedings were against the Qanoon-e-Shahadat Order, 1984 which were applicable to such proceedings. In this regard reliance was placed on Rani v. CWT (1992) 66 Taxation 89 (Lah.) and (1997) 76 Taxation 111 (Trib.);
(g) the power of audit available under the 1990 Act are specified in section 32-A and 32-AA thereof.
The first power pertains to audit by a firm of Chartered Accountants/Cost Accountants, however, the same is only subject to the sanction of the CBR. The second power of audit is in relation to retailers. It is submitted that none of the appellants are retailers, hence the power under section 32-AA was not available for the purposes of audit, while no sanction by the CBR was available and intact no Chartered Accountants/Cost Accountants were appointed u/s 32-A for the purposes of conducting the audit. As such all the so called audits, upon which the show cause notice and ONOs are based, are void ab initio and of no legal effect;
(h) It is further contend by the learned counsel for the appellants that the power of audit envisaged under section 25 of the 1990 Act has also been abused in the present cases. It was submitted that the said section 25 relates to access to records and documents, which could be obtained by an officer of sales tax. Under section 25(2) an officer of sales tax may conduct an audit only where there is any information or sufficient evidence of tax fraud or evasion of tax, the Collector may authorize an officer not below the rank of Assistant Collector to conduct inquiry/investigation u/s
38. Collaterally, u/s 25(3) it is an Assistant Collector (Audit) who is empowered to issue audit observations. In the present cases the audit observations/reports having been issued by auditors without any written permission of the Collector which on their very face were illegal and rendered all subsequent actions void. Also it is submitted that no audit could have been conducted by an officer below the rank of Assistant Collector u/s 25(4) the audits could only be performed by the Assistant Collector (Audit), which were not done;
(i) the learned adjudication authorities have relied upon the audit observations/reports so also contravention reports in a mechanical manner, without any independent application of mind, which renders the entire exercise to be completely without jurisdiction. In this regard the learned counsel has placed reliance upon Mustafa Prestressed Pipes v. CIT1990 PTD 974, (1988) 58 Taxation 176 (Trib.) 1995 PTD (Trib.) 580, B.S. Industries vs. Deputy Registrar PLD 1969 Dacca 451, Fayyaz H.
Qadri v. Administrator Lahore PLD 1972 Lahore 316, Shahzad Ahmed Corporation v. FOP 2005 PTD 23, Zeb Traders v. FOP, 2004 PTD 369, N.P. Water Proof v. FOP 2004 PTD 2952 and Indian Eastern.
Newspaper Society v. CIT (1979) 119 1TR 996;
(j) The very show cause notices are illegal and without jurisdiction since the same having been issued u/s 36 of the 1990 Act are vague for want of necessary particulars. The said show cause notices also do not mention as to which category of section 36 the cases fall under. These appears to be at best notices for collection of demands which did not exist. Reliance in this regard is placed on Assistant Collector (Customs) v. Khyber Electric Lamps PTCL 2002 CL. 1; D.G. Khan Cement Co.
Ltd. v. Collector of Customs, Sales Tax and Central Excise PTCL 2003 CL. 362; Atlas Tyre v. Additional Collector (Adjudication) PTCL 2003 CL. 728 and Caltex Oil v. Collector, Central Excise PTCL 2004 CL. 494;
(k) It is further submitted that the levy u/s. 3(1-A) is only imposed where supplies are not made to registered persons. The term "registered person" is defined u/s 2(25) to mean persons registered or liable to be registered under the Act. It is submitted that all supplies in the present cases have been made to person either actually registered or liable to be registered under the Act, hence all supplies are to be construed as having been made to registered persons, which would thus not attract the levy of section 3(1-A). In this respect reliance is placed on Matiari Sugar Mills Ltd. v. FOP PTCL 2002 CL. 597, Mirpurkhas Sugar Mills & others v. FOP CPs Nos. D-l23 of 2001 and others (unreported), Bilal & Co. v. The Appellate Tribunal 2004 PTD 557, Waqas & Co. v. Customs, Central Excise and Sales Tax Appellate Tribunal 2003 PTD 2100, Phalia Sugar Mills Ltd. v. Collector Sales Tax, Writ Petition No. 21776 of 2001, decided by the Lahore High Court on 19-2-2002, CA No. 54/2002 dated 7.5.2003, decided by the Multan Bench of the Lahore High Court and Fatima Sugar Mills Ltd. v. Collector GST 2003 CL 413 and the order of the Honourable Supreme Court in the case of Matiari Sugar Mills Ltd* and others dated 1.3.2006;
(1) It is further pointed out that it is not in controversy that sales have been made mostly through cheques (i) to verifiable parties;
(ii) and if some parties have not given their detailed addresses the sales have been made through verifiable brokers who are liable to registration u/s 2(47) of Sales Tax Act;
(iii) if the registration had not been obtained by those liable to registration the department ought to have compulsorily registered them u/s 19 which was available until the Finance Act, 2004 and ought to have imposed penalties for failure to obtain registration;
(iv) in not registering the purchasers compulsorily under the Sales Tax Act, the department itself is at fault and the appellants who have paid their full tax liability are being made scapegoats for no fault of their own;
(m) it is submitted that the approach of the revenue is inconsistent. The sales have been accepted for the purpose of section 3(1-A) of the Sales Tax Act and parties fund verifiable. However, these very sales and the parties are questioned as unverifiable in the context of S. 3(1-A);
(n) the appellants have not collected any tax and passed on the burden to the end consumers in relation to the tax u/s. 3(1-A) since genuinely they did not believe to be so liable. The belief on the part of the appellants in further support by the very many orders passed by the various High Courts in their respective benches in Karachi, Lahore and Peshawar. Even the Honourable Supreme Court while passing the order dated 1.3.2006 did not give any finding on the interpretation of section 3(1- A). As such any attempt to collect tax from the appellants would be confiscatory and expropriatory in nature. In this regard reliance is place upon Govt, of Pakistan vs. Muhammad Ashraf PLD 1993 SC 176 Elahi Cotton v. FOP PTCL 1997 CL. 260 and Northern Bottling Co. v. FOP 2004 PTD 2267;
(o) it was also urged that amendment made in the Sales Tax Act with the Finance Act, 2004 whereby section 3(1-A) of the Sales Tax Act has been removed from the statute book. The nature of the provision as amended has been highlighted by the Finance Minister in his budget speech which reads as under:- "127. Abolishing further tax of 3%:-In order to remove a major trade distorting measure, it is proposed to abolish further tax, as it was an important factor in giving rise to "flying invoices" which subsequently contributed to inadmissible refund payments. Though, this levy contributes approximately Rs. 9 billion annually its removal will encourage growth in textiles, steel, chemical, cement, beverage and a were range of consumer items which would be freed from this additional burden. Moreover, it will directly contributed in reducing inadmissible refund claims and payments".
Sugar is a commodity for use of common man including children and there was a great hue and cry on section 3 (1-A) of the Sales Tax Act. If the words of the Finance Minister reproduced above are properly scanned and examined in correct prospective, the repealing amendment is absolutely remedial in nature. Accordingly, the amendment will apply to all the proceedings in the assessm ents and/or appeals which were pending at the time of repeal. It is submitted that the legal principle of remedial and curative legislation has been approved by the authoritative judgments and legal treatises in particular in CST v. M/s. Kruddsons Ltd. PLD 1974 SC 180, CITv.
Olympia PTCL 1988 CL. 277, CITv. Shahnawaz Ltd. 1993 SCMR 73 and Dawood Cotton Mills v. CITPTCL 2000 CL. 182;
(p) it was next submitted that all the appeals are supported by affidavits and in none of the cases any counter affidavit has been filed by the Respondents. The facts submitted by the Appellants are therefore not capable of being held in dispute. Reliance in this respect is placed on 1990 PTD (Trib.)
1042, (1962) 46 ITR 1, (1974) 94 ITR 1, 1993 PTD (Trib.) 960/964; (1978) 114 ITR 19 and 1993 SCMR 662;
(q) Penalty and additional tax have been proposed without any reasons or proof of independent mens rea. There are no mala fides, willful or contumacious default. No penalty or additional tax could be imposed on the recommendations of an auditor or Assistant Collector on any alleged default. The matter being of interpretation, no penalty/additional tax can be levied. Reliance is place on D. G. Khan Cement Company Ltd. & others v. FOP 2004 SCMR 456, Nestle Milk Pak Ltd. v.
Additional Collector (Adjudication), Multan PTCL 2001 CL 627, CST Faisalabad v. M/s. Coca Cola Beverages Pakistan Ltd., Faisalabad 2005 PTD 1984, CST v. Kashif Enterprises, Faisalabad 2005 PTD 1978, CST Faisalabad V. M/s. Faruq Traders, Jhawarian 2005 PTD 1953, M/s. Millat Tractors Ltd., Lahore v. CST Lahore 2005 PTD 1445, Ghandhara Nissan Diesel Ltd. v. Sales Tax Department & others 2004 PTD 2771;
(r) it was submitted that the two benches of this very Tribunal in their two orders had remanded the case at the request of DR to decide the contention of the Appellants in accordance with law.
The department however did not decided the contention raised and proceeded and passed "Orders-in-Original" instead of Order-in-Remand. Thus the department took further time in disposing of the dispute by further encroaching upon die time beyond the provisions of the statutes and finally when the order-in-remand was passed and most of the arguments addressed by the appellants in grounds of appeal and otherwise were arbitrarily ignored;
(s) it is submitted that in fact the power of remand has been abused. The remand did not mean that the remanding authority could have amended and extended the law of limitation. The learned counsel refers to para 5 of the judgment in PTCL 2002 CL. 1 in support which leads as under: ~ "it was urged by the appellants that the learned High Court after finding the notices to be defective and not in accordance with law should have remanded the cases to the Customs Authorities for proceeding in accordance with law, but we do not find any substance in this contention as the period prescribed by law for service of notices has already expired and it would be a futile exercise in remanding the cases to the Customs Authorities. In case of Federation of Pakistan v. Messrs Ibrahim Textile Mills (PTCL 1993 CL. 532), it has been ruled that in case of short levied duties on account of inadvertence, error or misconstruction, section 32(3) of the Act provides that for recovery notice shall be served within six months, if that is not done, like a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable";
(v) The repetition of the same issues couched in the same language and was not and could not have been the of the remand, violating constitutional rights as laid down in 1998 PTD 1014 (Lahore HC) (w) The ration of 3(1-A) in terms of section 2(25) and 2(47) of Sales Tax Act had been decided by the full bench of Tribunal in the case of M/s. Fatima Sugar Mills Ltd. GST 2003 CL 413 is a full bench judgment which was not agitate to High Court and is binding;
(x) The whole exercise and cumbersome proceedings have been undertaken to deprive the appellants of their refunds and additional refunds are based on mala fides; (y) The distinguishing features in 3 Appeals are as under:-
(i) these were already agitated before High Court in Reference Applications Nos. RA 177/178/179 of 2005;
(ii) in Appeal No. 326 the Additional Collector considered sales of June 2001 a twice in ONO 7/2001 and ONO 19/2001;
(iii) Order-in-Original relating to Appeal No. 326/2006 was passed without a notice for hearing to the Appellant in an arbitrary manner;
(iv) in STA 339/2007 (Appeal No. H-269 relating to Larr Sugar Mills Ltd. Deposits and loans were taxed as sales although the sum of Rs. 32,76,163/- was offered and adjusted' in sales in the next year. Thus there was double taxation.
5. The Departmental Representative arguing the appeals submitted as under:-
(a) the limitation prescribed in the proviso to section 36(3) of the 1990 Act was not mandatory but directory in nature;
(b) the CBR's restrictions in imposing a ban on framing order-in-originals seems to have expired when in the year 2002 there was an amendment in section 2(25) of 1990 Act in the definition of "registered person";
(c) The press note of the CBR appearing in the Business Recorder dated 31-1-2001 was restricted for departmental use and the appellants could not employ the said orders as notification for jurisdiction. Besides, there was no embargo restricting the Assistant Collectors from making a reference to the adjudication authority;
(d) the auditors had exercised authority u/s 25 of the 1990 Act and reference to section 32A or 32AA is not relevant. The power to audit was not restricted to retailers. It was also not necessary to obtain Collector's permission since it was a routine audit;
(e) the show cause notices were correctly and properly issued u/s 36 of the 1990 Act;
(f) The departmental representative denied that there was any violation of the Qanoon-e- Shahadat Order, 1984 or any lack of application of mind on the part of the adjudication authority;
(g) It was also contended that section 2(25) and 3(1-A) have been correctly interpreted. The learned departmental representative referred to the judgment of the Supreme Court of Pakistan contained in Civil Appeals Nos. 307-317 of 2001 and 2573 to 2584 of 2001, dated 01-03-2006, whereby the judgments in writ petitions of the Karachi High Court were set aside;
(h) it is contended that the direct purchasers or brokers were bearing no registration certificate, thus they had to be treated as unregistered purchasers. And in that there was nothing wrong in the treatment given by authorities below. It is also submitted that there is no inconsistency in disputing parties in respect of tax u/s 3(1-A) while these had been accepted for section 3(1) of 1990 Act;
(i) Whether the 'amendment in 2004 by way of withdrawal of section 3 (1-A) from the Statute Book was "remedial and curative" has to be decided by the Tribunal and Superior Courts. The adjudication authorities only invoked the same since in the year concerned it was available in the 1990 Act;
(j) It was submitted that the department's reply is submitted on the basis of record and filing of a counter affidavit was not necessary;
(k) It is also submitted that since the default was there, the provisions of penalty and additional tax have been correctly invoked.
6. Rival parties have been heard and case records perused. The contention of the learned counsel for the appellants that the impugned orders are barred by limitation carry weight. The orders/judgments cited by the learned counsel which appeared in para 3(a)(ii) above are direct authorities on the point. The present appeals, can be allowed on the short point that the impugned orders are barred by limitation:
(i) Apart from the limitation issue, the show cause notices in question are not in keeping with the principles enunciated by the Hon'ble Supreme Court in the case of Khyber Lamps (PTCL 2002 CL. 1) which view has been reinforced by the Supreme Court in the case of Caltex Oil (PTCL 2004 CL. 494).
In the present case the show cause notices are vague and defective for want of necessary particulars. The show cause notice do not mention the sub-section of section 36 under which they have been issued. There is no allegation of collusion and deliberate act either. Various authorities cited by learned counsel for the appellants and appearing in para 4(1) are relevant here. Thus the show cause notices and all subsequent proceedings so also the GNOs are vacated;
(ii) in Abida Rashid vs. Secretary PLD 1995 Karachi 587 it was held that the power vested in any authority can only be exercised by the authority, in default whereof, the entire action would be without jurisdiction, void and ab initio and of no legal effect. In Rashid Ahmed vs. The State PLD 1972 SC 271 it was held that where the mandatory condition of exercise of jurisdiction by a Court, Tribunal or Authority was not fulfilled, then the entire proceedings would become illegal and all subsequent orders would be without jurisdiction. This was a case where the sanction for prosecution was not granted by the prescribed authority and it was held that all subsequent actions including cognizance by the Judge were without jurisdiction. On this score the entire action and the. Series of orders were annulled. Equally in Abdul Razzak vs. Muhammad Sharif PLD 1997 Lahore 1 it has been held that where power is given to a do certain thing in a certain way, then that thing must be done in that way or not at all and all other methods of performance not so prescribed are necessarily forbidden. The series of authorities just referred on the point sufficiently clinch issue. The Sales Tax Ruling, which is published in the Business Recorder date 31-10-2001, has not been factually disputed by the learned D. R. It is not the case of the Department that such a Sales Tax Ruling does not exist. In the were of such a factual position we have no other option but to apply the series of binding precedents as cited above which would mean that after the said Sales Tax Ruling all actions initiated by Adjudicating Authorities, without contravention reports, or all actions initiated by the Adjudication Authorities, upon contraventions reports given by officers below the rank of a Collector would be completely coram non judice and void. Similar would be the out come of all subsequent orders based upon such unlawful adjudication proceedings which are thus vacated for yet one more reason;
(iii) the Departmental Representative has not been able to satisfy so as to how the two orders of remand by the Tribunal are acted upon although the counsel of the Appellant appeared before the Additional Collector (Adj.) and requested him to decide the each of the issues.
(iv) on merits, the department seems to have no case since the entire issue is how fully covered by a decision of the full bench of this Tribunal which is reported as Fatima Sugar Mills Ltd. Vs. Collector Sales Tax GST 2003 CL 413. Before discussing the judgment of the full bench of this Tribunal it will be pertinent to briefly narrate the back ground of the controversy. Some of Petitioners, who are appellants here, had called into question the constitutionality/vires of section 3(1-A) of 1990 Act before Sindh High Court at Karachi. When the matter was being argued, the Petitioners before the Sindh High Court dropped the plea of vires of the legislation and sought an interpretation from the Sindh High Court with regards the applicability of S. 3(1-A). The Sindh High Court in its judgment which is reported as Matiari Sugar Mills Ltd. v. FOP PTCL 2002 CL. 597 offered certain ^ interpretation.
The judgment in the cases Matiari Sugar Mills Ltd. And others was followed by another bench of the Sindh High Court i.e. In the cases of Mirpurkhas Sugar Mills Ltd. And others i.e. CPD-123/2001 and others. Against both the orders i.e., Matiari Sugar Mills Ltd. And others and Mirpurkhas Sugar Mills Ltd. And others the respondents preferred Civil Petition for leave to appeal before the learned Apex Court. The Supreme Court while granting leave to appeal suspended the operation of the impugned orders of the High Court. It is important to point out that while granting leave to appeal the main issue before the Apex Court was non availing of alternate remedies. When the appeals before the Supreme Court were still pending, the Full Bench of this Tribunal was called upon to interpret section 3(1-A) of the 1990 Act in the Fatima Sugar Mills Ltd. Case (cited supra). In the Fatima Sugar Mills Ltd. Case this Tribunal took cognizance of the Judgments of the Sindh High Court so also the leave granting orders by the Honourable Supreme Court. However, the Tribunal interpreted the relevant sections, which are mooted herein, irrespective of the opinion expressed by the Sindh High Court. In the said Fatima Sugar Mills Ltd. Case the conclusions reached by this Tribunal are underscored as follows:-
(a) section 3(1-A) was inapplicable' where taxable supplies were made to registered persons;
(b) the term "registered person" was defined in section 2(25) of the 1990 Act to mean a person registered or liable to be registered under the Act;
(c) therefore any person who was liable to be registered under the Act, but was actually not registered, was to be considered as a registered person. And those persons who were liable to be registered under the 1990 Act, were mentioned in section 14;
(d) therefore where supplies were made to persons who were not actually registered but otherwise liable to be registered; the said supplies would have to be considered to have been made to registered persons under the Act and for such transactions section 3(1-A) was totally inapplicable;
(e) as regards supplies made to wholesalers it was also observed that the term "wholesaler" was defined in section 2(47) of 1990 Act which included a dealer. The relevant observations in this regard in the Fatima Sugar Mills case (cited supra) are reproduced herein below:- "15. A perusal of the above would show that as per section 2(47) a wholesaler includes a dealer and, inter alia, means any person who carries on the business of wholesale supply or distribution of foods, directly or indirectly by wholesale for cash, deferred payment or for commission, as such where supplies are made to or through dealers brokers who charge commission, the said transaction would fall within the eventually defined by section 2(47) i.e. Being a wholesale transacting. Section 149(iv) i.e. Being a wholesale transaction. Section 149(iv) of the 1990 Act enlist wholesalers, dealers and distributors to be persons who are liable to be registered under the Act.
Thus a wholesaler, dealer, and distributor to or through whom supplies are made directly/indirectly or through commission would constitute to be a person liable to be registered and would fall within the scope of a "registered person" as defined in section 2(25) of the 1990 Act. For such transactions section 3(1-A) would not be applicable being supplies made to registered persons";
(f) on further analysis it was also held that the amendments made to section 2(25) of 1990 Act in 2002 also did not make any difference to the above interpretation;
(g) it was also pointed out that the department should not be complacent and should try its level best to broaden the tax base and register the unregistered persons. It is important that the registered tax payer could not be made responsible for any default of the department in failing to register the unregistered persons;
(vi) The above judgment of the full bench of the Tribunal i.e. In Fatima Sugar Mills case, which is binding on the instant Division Bench (and not upset the High Court), is fully applicable to the present appeals. The supplies in the present case are made by the registered persons to or through brokers/dealers, who are liable to be registered under the Act. As such the supplies of the appellants, which are in issue, do not attract section 3(1-A). The department's stance in respect of unverifiability of the sales is equally misconceived. Firstly the dealers in the present case i.e. The brokers, to whom or through whom the present supplies have been made are fully verifiable; and secondly, where the sales for the purposes of S. 3(1) have been accepted to be verifiable, the stance of the Department to term the same sales to be unverifiable, for the purposes of section 3(1-A), will be completely unwarranted, inconsistent and discriminatory and also violative of Article 25 of the Constitution. In the present appeals the payments received on account of sales are predominantly through account payee cheques i.e. Verifiable parties. In any event unverifiability of sales can be no ground for their rejection or a warrant to apply S. 3(1-A). The reasons for this are ^very simple. It is a market reality that a purchaser, who buys from a seller, may or may not leave his address or correct address or whereabouts with the seller, and the seller cannot force the purchaser in this regard except choose to deal with him. In the context of income tax, and while keeping this market reality in the backdrop, unverifiability of sales or purchases has been held to be no ground to reject the trading results (see Avenbee (Private) Ltd. v. ITAT 2002 PTD 407). This market reality does not change for the levy of sales tax. Now coming to S. 3(1-A), suffice would it be to state that the statute does not specify unverifiability of sales to be a precondition for imposition of the levy of further tax u/s 3(1-A). In fact, the only condition necessary to warrant the application of S. 3(1-A) is supplies to unregistered persons. Such supplies may or may not be verifiable. One may think of a myriad of situations where although sales may be verifiable, further tax u/s 3(1-A) would be still leviable. Thus the Respondents in invoking S. 3(1-A) in view the alleged unverifiability of sales (though factually in these appeals sales are verifiable as discussed above) has sought to introduce a condition extraneous to the statute, which renders the entire exercise to be a nullity. In other words, unverifiability of sales is neither a condition nor a justification to warrant the application of S. 3(1-A).
(vii) It is not out of context to state here that S. 73 of the 1990 Act, which deals with the eligibility to claim input adjustments only where payments are made through a crossed banking instrument, is hardly relevant here. Section 73 does not say that if sales are unverifiable further tax u/s 3(1-A) should be imposed. In fact the said S. 73 does not also require the supplies to be verifiable. No input adjustment is being claimed by the appellants in respect of the purchase price received for the final supplies, hence the application of S. 73 in the present circumstances is incorrectly mooted.
(viii) There is yet another aspect of the matter. Prior to the Finance Act, 2004, section 19 of the 1990 Act provided for compulsory registration. In the said section it was clearly provided that where a person who required to be registered under the Act did not seek registration, the Collector would compulsory register such person and the said person would be deemed to be registered from the date he became liable for registration. As discussed above, in the Fatima Sugar Mills case it was, inter alia, held that a person was liable to be registered under the Act, but not actually registered, was to be construed as a registered person since under section 2(25) the definition of the term "registered person" included the persons actually registered and those who were liable to be registered. This interpretation is also quite in line with the express provision contained in section 19 (before its omission by the Finance Act, 2004) whereby persons who were liable to be registered and not registered were deemed to have been registered from the date they become liable to be registered. Thus in the present appeals this is another reason for coming to the conclusion that the supplies made by the appellants to the persons not actually registered, were to be construed as supplies made to registered persons since the purchasers even if not so registered were deemed to be registered u/s 19 of the 1990 Act.
(ix) Now it seems that the matter has been fully rectified and remedied by the legislature itself. The Finance Act, 2004 has removed section 3(1-A) from the statute book. It seems that this repeal is not an amendment simpliciter. The then Honourable Finance Minister in his budget speech has found section 3(1 -A) imposing further tax, to be "major trade distorting measure". It was also observed by the Honourable Finance Minister that such a provision contributed to flying invoices and inadmissible refunds. Collaterally, in the Budget Speech it was also observed that the repeal of this section/provision will encourage growth in various areas and would remove the additional burden.
We cannot ignore these far-reaching observations made by the Honourable Finance Minister.
Budget Speeches are reckoned to be an accepted mode for discovering the intention of the legislature. In K.P. Varghese vs. 1TO (1981) 131 ITR 597(SC) the Indian Supreme Court held that although parliamentary debates may be inadmissible for construing a provision of a statute, "the speech made by the mover of the bill, explaining the reason for introducing the bill can be referred for the purposes of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted". Our own Supreme Court in Ellahi Cotton vs. FPO PTCL 1997 CL. 260 referred to the budget speech made by the Finance Minister in order to ascertain the true intention and import of the legislation in question. Even otherwise the section is aimed at penalizing a registered person for dealing with an unregistered person. The fraud is not on the part of a registered person but the same lies with either the department for not bringing into the net the unregistered person or the unregistered person itself for not volunteering to register. The registered person, making the supplies, can hardly be blamed and then taxed for this default of other person, for which, he is not responsible. Thus the provision was unreasonably harsh and unjustly illogical. Furthermore, the entire litigation in respect of section 3(1-A) has considerably abounded and the legislator has now set at rest the entire controversy by repealing the provision itself. Thus in our minds there is no doubt that this repeal by the amending legislation was remedial and curative in nature. Indeed all curative and remedial amending legislations are retrospective and apply to all pending proceedings, assessments and appeals. This principle is fully borne out from the judgments reported as CST vs. Krudsons PLD 1974 SC 180, CITv. Olympia PTCL 1988 CL. 277, which was confirmed by the Apex Court in CTT v. Shahnawaz Ltd. 1993 SCMR 73 and Dawood Cotton Mills v. CTT PTCL 2000 CL. 182. Thus we hold that the repeal of S. 3(1-A) vide the Finance Act, 2004 being remedial and curative, retroactively applies to all the pending adjudications/assessment and appeals, which include the present pending appeals. Section 3(1-A) is thus to be construed as never having existed on the statute book but this is of course only for the purposes of the pending proceedings, assessm ents and appeals/references as held by the Supreme Court in the case of CIT v. Shahnawaz Ltd. 1993 SCMR 73. The appeals are thus allowed on this score as well and hence all the proceedings and orders are vacated on this ground too.
(x) Lastly, there is also no justification to impose any additional tax and penalty as there is no willful default or mala fides on behalf of the appellants. The entire case is at best a matter of interpretation. Accordingly, penalty and additional tax are also hereby remitted.
7. In the light of what has been stated above, the orders in original passed by the Additional Collector (Adjudication) and the order of Collector Appeals passed are set-aside.