S.T.A. No. 2412/LB of 2001, decided on 4th May, 2002. Versus S.T.A. No. 2412/LB of 2001, decided on 4th May, 2002.
ZAFAR‑UL‑MAJEED, MEMBER (TECHNICAL).‑‑‑ This appeal has been filed by Messrs Crescent Textile Mills Ltd., Faisalabad against Sales Tax Order‑in‑Original No. 12 of 2001 dated 20‑8‑2001 passed by the Deputy Collector, Sales Tax (Refund), Faisalabad. By this order the learned Deputy Collector has rejected the appellant's refund amounting to Rs. 1,23,256,670 claimed on account of input tax paid on, purchase of furnace oil used in generators for production of electricity during the period October, 1999 to September, 2000.
2. The refund claim has been rejected on the ground that deduction of input tax is not admissible on generators and generating sets in view of SRO 578(1) /98 dated 12‑6‑1998 and since furnace oil was used in generators as a raw material for production of electricity, the appellants were not entitled to claim refund of input tax paid thereon.
3. It has been argued on behalf of that appellants that they are engaged in the production and export of textile and also generate electricity which is consumed in the manufacture of taxable supply. Under sections 7 and 8 of the Sales Tax Act, 1990 they are entitled to the refund of input tax paid on furnace oil which is used for the purpose of making taxable, supplies. Furnace oil has not been included in the negative list of items specified in SRO 578(1)/98; rather while including POL products in the list vide SRO 926(1)/99 dated 16‑6‑1999, furnace oil alongwith lubricants and greases were specifically excluded. The adjudicating officer has, thus, erred in denying the refund by presuming its inadmissibility against the provisions of section 8(1)(a) of the Sales Tax Act.
4. Learned Departmental Representative opposed the appeal but could not come up with a convincing rebuttal of the contentions raised by the appellants.
5. We have considered the submissions made by the appellants. The furnace oil, against which refund of input tax has been claimed by the appellants, was admittedly used in the generators for the production of electricity which was used for the‑ manufacture of textiles. Admittedly, the electrical energy so generated constitutes taxable supply of good classifiable under PCT Heading No. 27.16. Admittedly, the furnace oil is excluded from the list . of items on which input tax adjustment is not admissible as provided in SRO 578(1)/98 dated 12‑6‑1998. The only ground on which the refund has been disallowed by the Department is that generators are included in list of negative items specified in S.R.O. 578(1)/98 and, therefore, furnace oil being a' material used in the generators is also not entitled to input tax adjustment. In order to examine the issue in its proper perspective, it will be useful to reproduce sections 7(1) and 8(1) of the Sales Tax Act, 1990:‑‑‑
"7. Determination of tax liability.‑‑‑(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period; a registered person shall be entitled to deduct input tax paid during the period for the purpose of taxable supplies made, or to' be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9."
"8. Tax credit not allowed.‑‑‑‑(1) Notwithstanding anything contained. in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on‑
(a) the goods used or to be used for any purpose other than for the manufacture or production of taxable goods or for taxable supplies made or to be made by him;
(b) any other goods which the Federal Government may by a notification in the official Gazette, specifying; and
(c) on the goods . . . . under subsections (1A) and (5) of section 3."
6. According to the aforementioned provisions of law, as long as the goods are used for the purpose of making taxable supplies are not included in the list of goods specified in a notification issued under section 8(1)(b) of the Sales Tax Act, i.e. S.R.0.578(1)/98 dated 12‑6‑1998, adjustment/refund of input tax paid thereon remains admissible. Generators and furnace oil being two different items and the later having been specifically excluded from the list of goods specified vide S.R.O. 578(1)/98, we do not see any force in the aforesaid argument of the department and, therefore, hold that furnace oil purchased and , used for generation of .electrical energy, a taxable supply, shall be H entitled to adjustment of input..tax paid thereon. Since exemption from sales tax on electricity was withdrawn with effect from 16‑8‑1999 vide SRO 722(1)/99 dated 16‑9‑1999 and subsequently by amendment in Sixth Schedule to the Sales Tax Act, 1990 vide Finance Ordinance, 2000, the appellants were well within their right to claim refund of input tax paid on furnace oil used for generation of electricity during the period October, 1999 to September, 2000. The Department is accordingly directed to work out the amount of input tax paid on furnace oil used in the generation of electricity after necessary verification from record and allow refund to the appellants.
7. In view of the foregoing, the impugned order is set aside and the appeal is accepted in the above terms.
C.M.A./M.A.K./352/Tax (Trib.) Appeal accepted.