ITTEHAD CHEMICALS LIMITED, LAHORE vs CUSTOMS, EXCISE AND SALES TAX

NASIM SIKANDAR, J.---In this further appeal under section 47 (Reference to High Court) of the Sales Tax Act, 1990 an order of the Customs, Excise and Sales Tax Appellate Tribunal (for short "The Tribunal"), dated 6-2-2002 is assailed.

2. By way of the order-in-original recorded by the Addl. Collector (Adjudication), Lahore the appellant was found to have claimed inadmissible input tax credit against purchase/import of spares of loaders in violation of S.R.O. 1307(1)/97, dated 20-12-1997. Accordingly a demand of sales tax amounting to Rs.78,094 was raised. Also a personal penalty of Rs.10,000 was imposed upon the appellant. The relevant para. Of the order-in-original, dated 11-7-2001 reads as under:-- "(8) Under section 8(I)(b) of Sales Tax Act, 1990, tax credit is not allowed in case of any goods which the Federal Government may by a Notification in the official Gazette specify, and in exercise of powers conferred by the above provision of law, the Federal Government, through S.R.O. 1307(1)/97, dated 20-12-1997, notified all those goods which did not form an integral part or constituent part of the taxable supply for the above purpose. Hence there seems to be no conflict between the substantive law i.e. Section 8(1)(b) of Sales Tax 1990 which empowers the Federal Government, and S.R.O. 1307(1)/97, dated 20-12-1997 issued by the Federal Government, in exercise of powers conferred by section 8(I)(b) of Sales Tax Act, 1990, disallowing input tax credit to those goods which did not form an integral/constituent part of taxable supplies. Hence S.R.O. 1307(I)/97, dated 20-12- 1997 was a lawfully issued notification which remained in the field from 20-12-1997 to 12-6-4998, when it was superseded by S.R.O. 578(1)/98, dated 12-6-1998."

3. Before the Tribunal the registered person/appellant failed. Through the impugned order the learned Members of the Tribunal disagreed that the aforesaid S.R.O. Was set aside by the Hon'ble Supreme Court of Pakistan in its reported judgment, re: The Central Board of Revenue v. Sheikh Spinning Mills Limited, Lahore and others (1999 PTD 2174). According to them the Hon'ble Supreme Court rather disapproved the judgment of the High Court in which the aforesaid S.R.O. Was knocked down. Further that the aforesaid S.R.O. 1307(I)/97, dated 20-12-1997 was not in any manner conflicting with or ultra vires of the provisions contained in sections 7(1), 8(1)(b) of the Sales Tax Act, 1990. Accordingly, the sales tax demand raised by way of the order-inoriginal was maintained.

However, the personal penalty was remitted altogether.

4. Before us the learned counsel for the registered person/appellant claims that in the order-in- original the classification of spare parts of loader and damper under headings 84.29 and 84.31 of Pakistan Customs Tariff having been accepted, there remained no ground for the Additional Collector (Adjudication) to proceed further with the matter. However, we are of the view that neither this issue was raised before the Tribunal nor it can be said to have arisen out of their order.

It needs to be mentioned that only a question of law mooted before and ruled upon by the Tribunal can be a subject-matter of an appeal before this Court under the provisions of section 47 (Reference to High Court) of the Sales Tax Act, 1990. Even otherwise we are of the view that in the audit observation, dated 20-8-1999 forming basis of show-cause notice the mentioning of PCT heading was only as a matter of reference. The simple statement of fact being that the registered person claimed input tax credit on purchase/import of spare parts of vehicle, which was not permissible under the aforesaid S.R.O. 1307(I)/97, dated 20-12-1997. That S.R.O. At the relevant time read as under:-- "S.R.O. 1307(I)/1997, dated December 20, 1997.---In exercise of the powers conferred by clause (b) of subsection (1) of section 8 of the Sales Tax Act, 1990, and in supersession of its Notification No. S.R.O.

556(I)/96, dated the 1st July, 1996, the Federal Government is pleased to direct that a registered person shall not be entitled to re-claim or deduct the input tax paid on goods which are not the direct constituent and integral part of the taxable goods produced, manufactured or supplied, during the course, or in the furtherance, of any taxable activity."

5. Learned counsel for the appellant is also not correct in suggesting that the aforesaid S.R.O. In any manner was disapproved by the Hon'ble Supreme Court of Pakistan. In the concluding para. Of the judgment of the Hon'ble apex Court in re: The Central Board of Revenue v. Sheikh " Spinning Mills Limited, Lahore and others (Supra) their Lordships observed that the learned Judge in Chamber was not justified in granting a general declaration in respect of the said notification, dated 20-12- 1997 as there was no specific instance of denial by the Department to the registered person to reclaim or deduct the input tax on goods, which were not the direct constituent and integral part of taxable goods, produced, manufactured or supplied. Therefore, the respondents-registered persons were allowed to file appeals before the forums provided under the Sales Tax Act to agitate the question that they were entitled to deduction of input tax in terms of section 7 of the Sales Tax Act, 1990 in respect of the goods, which were used for manufacturing a taxable goods but which had not become integral part of the same.

6. Learned Members of the Tribunal, in our view, rightly concluded that the aforesaid S.R.O. Was not in conflict with the provision of sections 7 and 8 of the Sales Tax Act. We will also agree that after the enforcement of the aforesaid S.R.O. No registered person could claim or deduct input tax paid on goods, which were not the direct constituent and integral part of taxable goods, products, manufacture or supplies. It is admittedly not the case of the registered person that the imported spares in any manner became direct constituent or integral part of the taxable goods, produced, manufactured or supplied by the appellant as a registered person.

7. Therefore, for the aforesaid reasons we will refuse to interfere for the appellant.