Versus Ch. Tariq Najib , Khalid Mehmood, D.R. with Faisal

ZAFAR UL MAJEED, MEMBER (TECHNICAL).--- This appeal is directed against Order-in-Appeal No., 935 of 1999, dated 10-11-1999 passed by the Collector, CE & ST (Appeals-II), Lahore.

2. The facts giving rise to this appeal are that the staff of Sales Tax Audit Division, Lahore audited the appellant's sales tax record and observed that during the period from 11/96 to 3/97, it had claimed input tax adjustment of Rs.6,08,073 on account of purchases of cement and tiles valuing Rs.34,08,987 in violation of the provisions of section 8 of the Sales Tax Act, 1990 (hereinafter referred to as "the Act"). The case was adjudicated by the Additional Collector-III of Sales Tax, Lahore vide Order-in-Original No. 63 of 1999, dated 3-5-1999 whereby the appellant was directed to pay aforesaid amount of sales tax, along with additional tax and a penalty of Rs.30,404 being 5% of the amount of tax involved in terms of section 33(7) of the Act. The appellant filed appeal against this order before Collector (Appeals), Lahore which was rejected vide impugned order; hence this second appeal.

3. Through the instant appeal, the appellant has challenged this demand on the ground that the items in question i.e. cement and tiles were used in the factory premises for production of taxable goods and furtherance of taxable activity, and that the appellant was entitled to claim adjustment of input tax paid thereon as the same were not included in the negative list of S.R.O. 556(I)/96, dated 1-7-1996 issued under section 8(1)(b) of the Act. During the course of arguments, learned counsel for the appellant further submitted that building material was duly mentioned in S.R.O. 1111(I)/90, dated 1-11-1990 at S. No. (ii) and 578(I)/98, dated 12-6-1998 at S. No.(2) issued under section 8(1)(b) of the Act but there was no mention of these items in S.R.O. 556(I)/96, dated 1-7-1996, which pertained to the period relevant to this appeal.

According to the learned counsel, it clearly meant that during the currency of notification, dated 1-7-1996, the items relating to building material were excluded from the negative list and, therefore, input tax adjustment against these items was admissible. He also referred to a Letter C. No. IV(2)ST/64/96/PT-7/365, dated 15-2-1997 issued by. the Headquarter Assistant Collector, Sales Tax, Lahore addressed to Messrs Al-Noor Bulbs (Pvt.) Ltd., Lahore whereby it was clarified that registered persons were authorized to claim input tax adjustment of sales tax paid on the purchase of cement to be used for the construction of factory premises including extension thereof provided they were engaged in manufacturing taxable supplies. Copies of the letter as well as aforementioned notifications have been placed on record. Learned D.R., however, opposed the appeal.

4. We have heard the parties and perused the record. The respondents have held the appellant's claim of input tax adjustment inadmissible on the basis of section 8(1)(a) of the Act which provides that a registered person shall not be entitled to claim or deduct input tax paid on the goods used or to be used for any purposes other than for taxable supplies made or to be made by him. According to the respondents, since cement and tiles cannot be considered as having been used for the purpose of taxable goods, the tax paid thereon could not be adjusted. We, however, find considerable force in the appellant's contention that if input tax adjustment was otherwise not admissible against items of building materials, they should not have been included in S.R.O. 1111(I)/90, dated 1-11-1990. These items were later on excluded from the negative list of section 8(1)(b) as the same did not appear in S.R.O. 556 (I)/96, dated 1-7-1996, which was applicable during the relevant period; though prohibition was re-imposed with effect from 12-6-1998 vide S.R.O. 578(I)/98. Same was the case in respect of many other items, such as office equipment, furniture, fixtures and furnishings etc. Clarification, dated 15-2-1997 issued by the Collectorate of Sales Tax, Lahore also lends support to the appellant's case as according to it, input tax credit against building materials was being allowed in similar cases as a practice and there was no reason to deny this facility to the appellant. We are, therefore, of the considered view that the appellant was entitled to claim adjustment of input tax against cement and tiles during the period in question and that there was no restriction in this regard under section 8 of the Act.

5. In view of what has been stated above, we accept the appeal and set aside the impugned order.

H.B.T./157/Tax (Trib.) ???????????????????????????????????????????????????????????? Appeal accepted.