TARIQ SALEEM SHEIKH, J. --- Through this reference application under Section 47 of the Sales Tax Act, 1990 (the "Act"), the Department has urged that the following questions of law arise out of order dated 29.09.2010 passed by the Appellate Tribunal Inland Revenue, Lahore Bench (the "Appellate Tribunal") which require determination by this Court:--
(i) Whether the learned Appellate Tribunal was justified to completely ignore SRO No. 578(1)/1998, dated 12.06.1998 issued under Section 18(1)(b) of the Sales Tax Act, 1990?
(ii) Whether the learned Appellate Tribunal was justified to place reliance on Hon'ble Peshawar High Court's judgment 2005 PTD 2012 which is not on all fours with the case in hand?
(iii)Whether the learned Appellate Tribunal was justified to place reliance on CBR's letter dated 21.12.2005 which does not to the period under review covered by SRO 578(1)/1998, dated 12.06.1998?
2. The Respondent was charged for claiming inadmissible input tax adjustment for the period 2003-2004 on three counts: first, on the purchase invoices of POL products, i.e., High Spread Diesel, secondly, on building material (angle iron, bars, channels, flat bars and MS Sheet/steel plates) and thirdly, on miscellaneous materials, including helmets, goggles, shoes, hammers, UPS, hoodlights, sodium lights, gut-door lights, rain coats, bulbs, vacuum cleaners, telephone DB, safety shoes, Motorola, mercury lights, fiber glass sheets, silica gel, video recorder, paints, and wires, cables and batteries which were used for purposes other than for the manufacture of taxable goods, i.e. cement. The Respondent was called upon to show-cause as to why the short paid sales tax may not be recovered from it under Section 36(1) of the Act along with additional tax and penalty. The Adjudicating Officer, vide Order-in-Original dated 29.12.2006 adjudged that Rs. 3,202,749/- as sales tax along with additional tax and penalty were recoverable from the Respondent in the instant case. The order was upheld by the Collector (Appeals) but the Appellate Tribunal set it aside in second appeal. Hence, this reference by the Department against the Appellate Tribunal's Order dated 29.09.2010.
3. Clauses (a) & (b) of Section 8(1) of the Act ordain:---
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 or services used or to be used for any purpose other than for taxable supplies made or to be made by him;
(b) any other goods or services which the Federal Government may, by a notification in the official Gazette specify.
4. The Federal Government issued notification SRO 578(1)/98, dated 12.06.1998 which provided that the goods mentioned therein acquired otherwise than as stock-in-trade by a registered person would be the goods in respect of which input tax shall not be claimed.
5. It is pertinent to note that sub-section (1) of Section 8 states with the words "notwithstanding" which means that it is non-obstante clause and gives it an overriding effect over other provisions of the Act, including Section 7, which entitles a registered person to deduct input tax from output tax.
6. In "Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others" (PTCL 2001 CL. 509), the Hon'ble Supreme Court of Pakistan observed that the term "stock-in-trade" has neither been defined in the Act nor in the Rules framed thereunder. As such, one has to resort to the dictionary meaning.
7. Building materials and POL products are specifically mentioned at Serial Nos. 2 and 11 respectively of SRO 578(1)/98. As such, input tax cannot be claimed in respect thereof (unless they constitute stock-in-trade) although one may argue in certain cases that they were used for the purpose of making a taxable supply.
8. It may not be out of place to observe that a lot of uncertainty surrounded the issue as to whether diesel was entitled to be considered as stock-in-trade in terms of SRO 578(1)/98 or not. In "M/s. Rupali Polyester Ltd. v. Deputy Collector Sales Tax & others", (STA No. 457/2002, decided on 17.11.2015), a learned Division Bench of this Court thoroughly examined this issue and held:--- "7. , We are, however, not constrained to'refer to the case-law cited in favour or against the issue whether diesel is comprised within the term stock-in-trade or not. We may begin by pointing out that the term stock-in-trade has not been defined in the Notification nor has it been defined in the Act. It is not a term of art and has not acquired a specialized meaning nor has it been conclusively defined by the superior Courts from which guidance can be sought. However, we may not go further than look at clarification dated 12.02.2008 issued by the Federal Board of Revenue (FBR) and which precisely deals with the issue whether diesel is included in the term stock in trade or not. The following portion of the clarification is relevant for our purposes:--- `1.I am directed to refer to the subject noted above and to say that under SRO 578(1)/98, dated 12.06.1998, input adjustment on certain items including diesel was not allowed, unless the same were used as stock-in-trade. The department initiated certain cases of recovery against units who had claimed input tax adjustment on diesel used for generation of electricity for subsequent use in the manufacture of taxable supplies.
'2. In some cases the relief has already been allowed where ADRC's held that diesel is stock-in- trade for general of electric power. Several other cases still remain pending. The Board is pleased to -hold that the diesel used in fuel in generation of electric power is to be considered -as stock-in- trade in terms of SRO 578(1)/98 and input adjustment was admissible on the same if it was used in generation of taxable electric power or the power so generated was used in the manufacture of taxable goods.'
"8.It is clear from a reading of the portion of the clarification reproduced above that the FBR itself issued a clarification in respect of the issue whether diesel was included within the meaning of the term stock-in-trade or not and whether the registered persons were entitled to claim refund of input tax in respect of such goods. The FBR is the highest body in the matter of taxation in the country and any clarification issued by it is entitled to the utmost respect as also that any clarification issued by FBR is binding on the functionaries who act under the FBR."
9. It was also observed by this. Court in the afore-mentioned judgment that a clarification of the nature that the FBR issued on 12.02.2008 is retrospective in operation and is applicable to pending cases. The Appellate Tribunal has not considered this clarification while passing order dated 29.09.2010.
10.So far as the miscellaneous items hereinabove are concerned, there is no doubt that input tax is admissible unless they fall within the exceptions of Section 8, more particularly clauses (a) & (b) of sub-section (1) thereof. However, it would be generally a question of fact as to whether the goods have been used for the purpose of making a taxable supply. The term "purpose" used in Section 8(1)(a) has a very wide application and, as pointed out by a learned Division Bench of the Peshawar High Court in "Collector of Sales Tax v. Dhan Fibre Limited" (2005 PTD 2012), input tax would be admissible in respect of anything which directly contributes to the production of taxable supplies. We would, therefore, allow the reference application and remand the matter on this score to the Commissioner Inland Revenue to decide it afresh in the light of the foregoing observations.
11.In view of the forgoing, we answer the proposed questions in the "negative", i.e. against the Respondent, and allow this application.
Office shall send a copy of this judgment to the Appellate Tribunal Inland Revenue under the Seal of this Court as per law.