M/s. Chiltan Ghee Mills,Quetta and Others. vs Deputy Collector of Sales Tax
The petitioner, a manufacturer of ghee and tin containers, sought a refund of sales tax paid on raw materials (tin plates) used to manufacture tin containers, arguing that because its final product (ghee/containers) was exempt from sales tax under S.R.O. 580(1)/91, the input tax paid on raw materials should be refundable. The Sales Tax Department rejected this claim, citing the prohibition against input tax adjustments for exempt supplies. The Appellate Tribunal and the High Court upheld the Department's decision. The Supreme Court dismissed the petition, holding that under the Sales Tax Act, 1990, input tax adjustment or refund is only available for 'taxable supplies.' The Court clarified that Section 8(1)(a) explicitly prohibits claiming input tax paid on goods used to manufacture supplies that are exempt from sales tax under Section 13. The Court affirmed that an exemption from sales tax on final supplies does not entitle a manufacturer to a refund of input tax paid on raw materials used in the production of those exempt goods.
- Is a registered person entitled to claim a refund of input tax paid on raw materials used in the manufacture of goods that are exempt from sales tax?
- Does the exemption of a final product from sales tax under an S.R.O. automatically entitle the manufacturer to a refund of input tax paid on raw materials?
- Can input tax adjustment be claimed for goods used in the production of exempt supplies under the Sales Tax Act, 1990?
- Section 7, Sales Tax Act 1990
- Section 8(1)(a), Sales Tax Act 1990
- Section 13, Sales Tax Act 1990
JUDGEMENT: ' MR. JUSTICE FAISAL ARBAB__(1). 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(1)/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 <i>Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and Sales Tax Appalled Tribunal, Lahore etc. (PTCL 2002 CL 115) and Azad Jammu and Kashmir Government v. Spintex Limited (1998 PTD 3200) </i> 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 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 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. ***