Messrs CHILTAN GHEE MILLS, QUETTA and others vs DEPUTY COLLECTOR OF SALES TAX (REFUND), CUSTOMS HOUSE, QUETTA and others
The petitioner, a manufacturer of ghee and its packaging tin containers, sought a refund of sales tax paid on raw materials (tin plates) used for manufacturing containers, arguing that since its finished supplies were exempt from sales tax under a specific notification, the input tax paid should be refunded based on the principle of promissory estoppel. The Sales Tax Department, Appellate Tribunal, and the High Court all rejected the claim. Upon petition before the Supreme Court, the core legal question was whether a registered person making exempt supplies is entitled to a refund or adjustment of input tax paid on raw materials under the Sales Tax Act, 1990. The Supreme Court dismissed the petition, holding that under sections 7, 8(1)(a), and 13 of the Sales Tax Act, 1990, input tax adjustment and refund are strictly restricted to 'taxable supplies' and are expressly barred for goods used in making exempt supplies. The Court laid down the principle that tax exemptions do not automatically entail refunds of input tax paid on raw materials unless explicitly provided by statute, and the doctrine of promissory estoppel cannot override clear statutory prohibitions.
- Is a registered person entitled to claim a refund of input tax paid on raw materials used in the manufacture of supplies that are exempt from sales tax?
- Whether the principle of promissory estoppel can be invoked to claim a refund of sales tax paid on raw materials when the final supplies are exempt under the Sales Tax Act, 1990?
- Can input tax adjustment be claimed under section 7 of the Sales Tax Act, 1990, in respect of goods that do not fall within the definition of taxable supplies?
- Section 7, Sales Tax Act 1990
- Section 8(1)(a), Sales Tax Act 1990
- Section 13, Sales Tax Act 1990
' FAISAL ARAB, J.---The petitioner is engaged in the activity of producing 'ghee', which before its marketing is canned in tin containers also manufactured by the petitioner. For the purpose of manufacturing tin containers, the petitioner purchases tin plates. On the purchase of tin plates, sales tax is payable whereas the petitioner mill at the relevant time was exempted from the payment of sales tax on its taxable supplies under S.R.O. 580(1)/91 dated 27.06.1991. For the period during which the petitioner was enjoying tax exemption on its supplies, the petitioner sought refund of the sales tax paid on the purchase of tin plates that were used in the manufacture of tin containers. The reasoning behind such claim was that as its tin containers are exempt from the payment of sales tax under the said S.R.O. No, 580(1)/91 dated 27.06.1991, the sales tax paid on tin plates may be refunded. Taking into consideration the legal position that the sales tax paid on goods that are used in the manufacture of 'exempt supplies' cannot be refunded under section 8(1)
(a) of the Sales Tax Act, 1990, the Sales Tax Department refused to accept the petitioner's claim.
The decision of the Department was challenged by the petitioner in an appeal before the Customs, Excise and Sales Tax Appellate Tribunal, which was dismissed. The same was then challenged in Sales Tax Appeal before the High Court, which too met the same fate. Hence this petition.
2. Sahibzada Muhammad Khan, who is the Managing Director of the petitioner company, appeared in person and argued the case. He submitted that since the tin containers, which the petitioner manufactured during the relevant period, were exempt from sales tax under SRO No,580(I)/91 dated 27.06.1991 then any input tax paid on tin plates used in the manufacture of such tin containers was liable to be refunded as denying such relief would defeat the purpose of granting exemption under the said SRO. In support of his contention, he relied upon the cases of 'Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore etc. (PTCL 2002 CL 115) and Azad Jammu and Kashmir Government v. Spintex Limited (1998 PTD 3200) in order to demonstrate that where exemption is granted then the principle of promissory estoppel is attracted and no tax is to be charged.
3. We have considered the contention of the petitioner mill's Managing Director. Section 7 of the Sales Tax Act provides that for the purposes of determining tax liability in respect of 'taxable supplies', a registered person shall be entitled to deduct input tax paid during the tax period. Such concession is clearly available only when a registered person makes 'taxable supplies' and is not available where the supplies are totally exempt from the sales tax liability. This mandate of the law is further affirmed in section 8(1)(a) of the Act, which provides that notwithstanding anything contained in any other provision of the Act, a registered person shall not be entitled to claim input tax paid on goods A that are used in the making of supplies which have been exempted from the sales tax liability under the provisions of section 13 of the Act. This clearly means that adjustment of input tax only can be claimed in a situation where the goods that have been manufactured or produced fall within the definition of 'taxable supplies'. Where the goods that are to be supplied are exempt from sales tax then the question of seeking refund of the sales tax paid on the purchase of raw material used in the production of exempt supplies does not arise at all. The whole object behind the B provision of section 8(1)(a) of Sales Tax Act, 1990 seems to be that where at any stage, sales tax has been legitimately paid then refund of input tax cannot be claimed where such goods were used in the manufacture of 'exempt supplies'. Thus where a registered person is exempted from the liability of sales tax on its supplies, it does not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be refunded. The Department, therefore, was not liable to refund the same. In view of the legal position as emanating from the plain reading of the provisions of sections 7 and 8 of the Sales Tax Act, 1990, it is evident that there is no promise of the Legislature that the sales tax paid on the goods used in the manufacture of 'exempt supplies' would be liable to be refunded. Reliance placed on the cases of Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore etc. (PTCL 2002 CL 115) and Azad Jammu and Kashmir Government v. Spintex Limited (1998 PTD 3200) is totally misplaced as the same have no application to the present case.
4. For what has been discussed above, we do not find any merit in this petition, which is dismissed and leave is refused.
Cited by 4 cases
- The Commissioner Inland Revenue, Karachi vs Messrs Attock Cement 2023 PTD 320
- Messrs Dewan Sugar Mills Ltd. and others vs Federation Of Pakistan 2021 PTD 1007
- Commissioner, Inland Revenue, Karachi vs Messrs Attock Cement Pakistan 2023 PLJ SC 308, 2023 PCTLR 56
- The Commissioner, Inland Revenue, Karachi vs M/s Attock Cement 2023 SCP 10