TALAAT QAYUM QURESHI, J.---Through this single judgment we intend to decide S.A.Os. Nos. 7, 9 to 12 of 2003 as common questions of law and facts are involved in all the appeals.
2. Messrs Dhan Fibres, a "registered person" with the Sales Tax Department claimed re-fund under section 8 of the Sales Tax Act (hereinafter referred to as the Act) for the period from 30-12-1997 to, 10-6-1998 on the purchase of spares as component parts of machinery and lubricants used in manufacturing of Textile. It was pointed out during the course of audit by DRRA Lahore that Messrs Dhan Fibre's claim for input Tax Credit for the period from 30-12-1997 to 10-6-1998 was inadmissible under the provisions of S.R.O. 1307(1)/97, dated 20-12-1997. Show-cause notices were issued, which were duly replied but the Adjudicating Officer directed the respondent to pay the Sales Tax along with the additional Tax for the said period. Being not contended with the said order respondent filed appeal before the Collector Customs Central Excise and Sales Tax (Appeals) Northern Zone Rawalpindi, which was dismissed, therefore, a second appeal was filed before the Customs Excise and Sales Tax Appellate Tribunal Peshawar Bench, which was allowed. Being not contented with the judgment/order of the Tribunal the appellant has filed the appeals in hand , which were admitted to regular hearing to consider the following questions:--
(1) Whether as per facts and in the circumstances of the case, a registered person is entitled to reclaim the input tax of goods which are not direct constituent and integral part of the taxable goods in terms of S.R.O. 1307(1)/97, dated 20-12-1997?
(2) Whether as per facts and in the circumstances of the case, the respondent can reclaim input tax credit on the import and purchase of machinery spare parts and lubricants, which are not direct constituent and integral part of the textile yarn/end product?
(3) Whether as per facts and in the circumstances of the case, "the Tribunal" has correctly interpreted the provision of clause (b) of subsection (I) of section 8 read with section 2 and 10 of the Sales Tax Act, 1990 (hereinafter referred to as "the Act") read with Central Board of Revenue, Islamabad's Letter C. No.2(77) STP/95/Pt, dated 20-7-1998?
3. Mr. Abdur Rauf Rohaila, Advocate, the learned counsel representing the appellants argued that, under S.R.O. 1307(1)/97, dated 20-12-1997, the respondent was not entitled to claim input tax on the goods which are not direct and integral part of taxable goods. The purchase of spares and component parts of machinery as well as lubricants cannot be termed as integral part of textile yarn.
4. It was further argued that the order and judgment of the Tribunal is not based on the correct appreciation to law applicable to the cases in hand, whereas. Adjudicating Officer and Collector Customs Central Excise and Sales Tax (Appeals) Northern Zone Rawalpindi has properly appreciated the law and their judgments/orders were in accordance with the provisions of law.
5. It was further argued that S.R.O. 1307(I)/97, dated 20-12-1997 remained in field for the period from 20-12-1997 to 22-6-1998 under which registered person could not claim input tax on parts and lubricants which were not integral part of textile yarn and the provisions of Notification S.R.O.
579(I)/97, dated 22-6-1998 could not be made applicable retrospectively.
6. On the other hand Barrister Qasim Ali Chauhan, the learned counsel representing the respondents, argued that no issue of law has been raised in the appeals in hand, therefore, the appeals need dismissal under section 47 of the Act.
7. It was also argued that the component parts of machinery and lubricants were integral parts of the machinery used for manufacturing of textile yarn, therefore, the respondent was entitled to claim input tax on the same and the Tribunal has properly appreciated this position. The judgment/order of the Tribunal needs no interference. Reliance in this regard was placed on the following reported judgments:-- 2002 PTD (Trib.) 475; 2002 PTD (Trib.) 111 and PTCL 2002 CL 150.
9. We have heard the learned counsel for the parties and perused the available record.
10. In substance the question that requires consideration in these appeals is as to whether the "registered person" is entitled to reclaim the input tax of goods i.e. Component part of machinery and lubricants for the period from 20-12-1997 to 22-6-1998 and whether the same are integral part of textile yarn/end product i.e. Taxable goods.
11. Tax liability is determined under section 7 of the Act, which is reproduced hereunder:-- "(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall subject to the provisions of section 73, be entitled to deduct input tax paid (during the tax 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.
(2) A registered person shall not be entitled to deduct input tax from output tax unless:--
(i) In case of a claim for input tax in respect of a taxable supply made in Pakistan, he holds a tax invoice in respect of such supply for which a return is furnished;
(ii) In case of goods imported into Pakistan, he holds the bill of entry duly cleared by the customs under section 79 or section 104 of the Customs Act, 1969 (IV of 1969)."
12. The claim of input tax/tax credit is governed by section 8 of the Act, which is reproduced hereunder for convenience:- "(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, specify and
(c) on the goods under subsections (1A) and (5) of section 3.1.
(2) If a registered person deals in taxable and non-taxable supplies he can reclaim only such proportion of the input tax as is attributable to taxable supplies in such manner as may be specified by the Board.
(3) No person other than a registered person shall make any deduction or reclaim input tax in respect of taxable supplies made or to be made by him.
(4) No person engaged in taxable activity specified in (Section 3-A) shall make any deduction or reclaim input tax, nor shall this tax be creditable as input tax for the taxable activity of any other registered person.
(5) Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of this section, no input tax credit shall be allowed to the persons who paid fixed tax under any provisions of this Act, as it existed at any time prior to the first day of December, 1998.
(6) Notwithstanding anything contained in any other law for the time being in force or any provision of this Act, the Federal Government may, by notification in the official Gazette, specify any goods or class of goods which a registered or enrolled person cannot supply to any person who is not registered or enrolled under this Act.
(7) Notwithstanding anything contained in any of the provisions of this Act, the Federal Government may, by Notification in the official Gazette, specify any goods or class of goods in respect of which the provisions of section 3A shall not apply."
13. It will be pertinent here to reproduce the definition of word "input tax" as defined in subsection
(14) of section 2 of the Act as under:--
(14) "Input tax" in relation to a registered person, means the tax
(a) levied under this Act on the supply of goods received by that person;
(b) levied under this Act on the goods imported, entered and cleared under section 79 or section 104 of the Customs Act, by that person;
(c) levied under the Sales Tax Act, 1990 of Pakistan as adapted in the State of Azad Jammu and Kashmir, on the supply of goods received by that person and shall include duties of excise chargeable under section 3 of the Central Excise Act, 1944 (I of 1944), on such excisable services as are notified by the Federal Government under the third proviso to subsection (1) thereof and on which such duties are charged, levied and paid as if it were a tax payable under section 3 of this Act."
14.. The plain reading of the above mentioned section shows that goods used for a purpose other than production of taxable supplies or the goods specified by the Federal Government have not been qualified A for input tax adjustment or prohibited for claiming the input tax adjustment and restrictions have been imposed by clauses (a) and (b) of subsection (1) of section 8 of the Act.
15. Under section 8(1)(b) Notification No. S.R.O. 1111(1)/90 was issued on 1-11-1990, which remained in force till 29-10-1993, which is reproduced hereunder:-- "No. S.R.O. 1111(I)/90.--In exercise of the powers conferred by clause (b) of subsection (1) of section 8 of the Sales Tax (Amendment) Act, 1990, the Federal Government is pleased to specify that the following goods acquired otherwise than any stock-in-trade by a registered person to be the goods in respect of which input tax shall not be claimed, namely,
(i) vehicles;
(ii) building material; (i.e) stationery;
(iv) office equipment, furniture, fixture and furnishing;
(v) electricity and gas pipe appliances."
16. Under the said Notification the question arose as to whether accessories and parts were required for smooth running of the plants or its upkeep and maintenance falls within the definition of goods and they can be treated as acquisition of plant and machinery, the august Supreme Court of Pakistan in Attock Cement Pakistan Ltd. v. Collector of Customs and Central Excise, Quetta and 4 others 1999 PTD 1892 held:-- "The crucial question arising for determination is whether .The accessories and parts, which are required by the appellant for efficient and smooth running of its plant or its upkeep and maintenance fall within the definition of goods or can they be treated as acquisition of plant and machinery. The answer to this question is very simple. Under the notification referred to above, parts and accessories are not included. Even otherwise, by no stretch of imagination, the accessories or spare parts for the running and maintenance of the plant can be equated with the acquisition of machinery and plant. Such accessories and spare parts are imported under a bill of entry, which is cleared by 'the Customs Department under section 79 or section 104 of the Customs Act and, therefore, not being the plant and machinery itself but being spare parts, under section 7(2)(ii) of the Act the appellants are entitled to deduct the input tax from the output tax."
17. Thereafter another Notification S.R.O. No. 1053(1)/93, dated 30-10-1993 was issued in which the words "stock-in-trade" was used, the august Supreme Court of Pakistan in the above quoted judgment fully elaborated the meaning of the words "stock-in-trade".
8. Yet another Notification No.556(I)/96, dated 1-7-1996 was issued by the C.B.R. Specifying the goods detailed in Column 2 of the table of which a "registered person" could not claim input credit if such goods were purchased by him for use in his registered office or the business premises.
19. Thereafter S.R:O. No. 1307(1)/97 was issued on 20-10-1997 in which it was mentioned that "registered person" shall not be entitled to reclaim or deduct the input tax paid on goods which are not the direct constituent and integral parts of the taxable goods produce.
20. Thereafter on 12-6-1998 yet another S.R.O. No. 578(I) was issued on 12-6-1998 in suppression of Notification S.R.O. No.1307(I)/97, dated 20-12-1997 in which the Federal Government specified the following goods acquired otherwise than a stock, in trade by a registered person to be the goods in respect of which input tax could not be claimed namely:-- "(1) Vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969);
(2) Building materials;
(3) Office equipment (excluding electronic cash registers), furniture, fixture and furnishings;
(4) Electrical and gas appliances;
(5) Telecommunication equipments;
(6) Generators and generating sets;
(7) Wire and cables and ordinary electrical fittings;
(8) Crockery, cutlery and utensils, etceteras;.
(9) Supply of foods, beverages, garments, fabrics, etceteras and consumption on entertainment;
(10) Gifts and give-always."
21. The question as to whether the component parts of machinery and lubricants used in machinery for production of textile yarn was integral part of the end product. Answer to this question is in affirmative. It is by now settled law that anything which directly contributes to the production of a taxable supplies falls within the ambit of section 8 of Sales Tax Act. A similar question came up for hearing in Messrs Muhammad Shafi Tanneries (Pvt.) Ltd. v.
1. The Collector of Customs (Appeals), Karachi.
2. The Additional Collector of Sales Tax (East), Karachi 2002 PTD (Trib.)
111 in which it was held:-- "It must therefore follow as a necessary corollary that if any items of goods were purchased by a taxpayer as being intended for use as "machinery", plant, equipment, tool, spare parts etc. For the production of goods meant for taxable supply, they would be eligible for extension of benefit of input tax adjustment. In this regard it would be worth nothing for reliance the case of Chowgule and Co. Pvt. Ltd. v. Union of India M. Shafi Tanneries v. Collector of Customs (Appeals) reported as AIR 1961 Supreme Court 1013"
22. Similar question came up for hearing in Messrs Sindh Alkalis Ltd. v. The Collector of Customs, C.E. & S. Tax (Appeals) 2002 PTD (Trib.) 475 in which it was held:-- "Thus the upshot of the whole exercise is that accessories and spare parts of plant and machinery whether used as original equipment or as replacement parts for current use have all along enjoyed input tax credit from the very inception of. The Sales Tax Act, 1990 and all attempts to the contrary have been nullity in view of the substantive provisions of law."
23. The perusal of the above quoted sections of law and Notification (SROs) shows that before.
Notification No. 1307(1)/97, dated 20-12-1997 C which remained in field from 20-12-1997 to 22-6- 1998 and after expiry of the said Notification, the input -tax credit was allowed on the machinery spare parts and lubricants. Since it has been held in the above quoted judgment that the machinery spare parts and lubricants are used to facilitate the production/manufacturing of the end product, therefore, the appellants could claim input tax credit on the machinery spare parts and lubricants, even if they are not direct constituent and integral part of the Textile yarn/end product.
We, therefore, do not find merit in the appeals in hand, the same are dismissed. The impugned judgment/order passed by the Customs Excise and Sales Tax Appellate Tribunal is maintained, the Adjudicating Officer is directed to examine the case and decide the re-fund claim of respondents in the light of the above observations. There shall however, be no order as to costs. .