S. Tax. A-325/PB of 2001. decided on 1st June, 2002. VS S. Tax. A-325/PB of 2001. decided on 1st June, 2002., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2407 (2002)

(a) Sales Tax Act (VII of 1990)‑

‑‑‑‑Ss.66 & 8‑‑‑S.R.0.578(1)/98, dated 12‑6‑1998, S.No.4‑‑‑C.B.R. Letter C.No.3(17)STP/99 (Pt.III) dated 21‑10‑1999‑‑‑Refund to be claimed within one year‑‑‑Tax credit not allowed‑‑‑Electric appliances‑‑ Split type air‑conditioners of 2.5 tones‑‑‑Input tax credit‑‑‑Claim of refund, rejection of‑‑‑Validity‑‑‑Split type air‑conditioners of 2.5 tones each had been installed in the mills Laboratory meant for testing and quality control‑‑‑Air‑conditioners were electric appliances specified at Sr.No.(4) of the Notification No.S.R.O. 578(I)/98 dated 12‑6‑1998; were not of a special type; were of ordinary capacity (2.5 tones) mostly used by domestic consumers; were not used directly for production or with any machinery in the productions line of the mills and were installed in the laboratory‑‑‑Such air‑conditioners were not stock‑in trade‑‑‑Rejection of refund claim of sales tax on such air‑conditioners was conformed by the Appellate Tribunal.

PTCL 2002 CL 80 rel.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.66 & 8‑‑‑S.R.O. 578(I)/98 dated 12‑6‑1998, S.No.4‑‑‑C.B.R. Letter C.No.3(17)STP/99 (Pt.III) dated 21‑10‑1999‑‑‑C.B.R. Letter No.2(77)/STP/95, dated 19‑10‑1999‑‑‑Refund to be claimed within one year‑‑‑Tax credit not allowed‑‑‑Electric appliances‑‑‑Heavy duty high voltage wire and cable‑‑‑Input tax credit‑‑‑Claim of refund‑rejection of‑ Validity‑‑‑Such heavy duty high voltage cables, if of 440 volts and above and used for transmission of electrical power from power house to transformer and on the production plant, were eligible for input tax credit being acquisition of stock‑in‑trade like the machinery itself Appellate Tribunal remanded the case of refund on high voltage cables to the Assistant Collector of Sales Tax (Refund) for decision de novo and sanction of refund, if otherwise due, admissible and in order, after satisfying himself that these cables were really high voltage cables and not the ordinary type of cables used for buildings and ordinary electrical fitting and have actually been installed for transmission of electrical power needed by the plant and machinery installed in the factory for production of taxable goods‑‑‑Order wasmodified to such extent by the Tribunal.

PTCL 2001 CL 509 and Appeal No.STA/1972/LB of 2001 rel.

Usman Gul, Manager (Accounts) for Appellant.

Alam Zaib Khan; Senior Auditor and Al‑Haj Gul, D.R. for Respondents.

Date of hearing : 28th May, 2002.

JUDGMENT

S.M. KAZIMI, MEMBER (TECHNICAL).‑‑‑‑This judgment disposes of the appeal filed by Messrs Gadoon Textile Mills (Pvt.) Limited, Gadoon, against the order‑in‑original No. 7 of 2001 dated 20‑10‑2001 (dispatched on 29‑10‑2001) passed by the Deputy Collector of Sales Tax (Refund), Peshawar.

2. Briefly, the facts of the case are that vide their Letter No.Nil dated 21‑12‑2000, Messrs Gadoon Textile Mills (Pvt.) Ltd., Gadoon Amazai. filed a refund claim for Rs.1,754,624 under section 66 of the Sales Tax Act, 1990, as the same were paid against 15 tax invoices of various suppliers for the period from 15‑3‑2000. Since the input tax credit on such goods was not admissible under Notification No.S.R.O. 578(1)/98 dated 12‑6‑1998, the Deputy Collector of Sales Tax (Refund), Peshawar, issued a Notice C.No.ST/Refund/U.S.66/GTM/458, dated 14‑3‑2001 requiring Messrs Gadoon Textile Mills (Pvt.) Ltd. to show cause why the refund claim should not be rejected as, inadmissible. The Deputy Collector, vide his letter, dated 29‑6‑2001, also directed Mr. Purdil Khan, Deputy Superintendent of Sales Tax, Gadoon, to verify the party's claim that the goods (on which refund of input tax is claimed) in question have been installed for use as integral part of plant and machinery for taxable goods. The said Deputy Superintendent submitted his Report C.No. 846 dated 16‑7‑2001 confirming that he found the said goods in the factory on 14‑7‑2001 duly installed and functional in the mills as integral part of the plant and machinery manufacturing textile goods. On perusal of this report and after hearing the Claimant's representative, the Deputy Collector sanctioned refund of Rs.906,330 on taxable purchase of transformers, LT Panels and U.P.S. and rejected the portion of the refund claim amounting to Rs.848,294 being the tax on High Voltage Cables and Split Type Air‑Conditioners as not admissible under S..R.O.578(I)/98 dated 12‑6‑1998. Hence this appeal.

3. During the course of hearing before us, the learned representative of the appellant Company argued that Notification NO.S.R.O.578(1)/98 is not exhaustive in nature and it simply provides a guideline. He cited Board's Letter L.No.3(17)STP/99(Pt.III) dated 21‑10‑1999 which explains that input tax credit of "the tax paid on points and other raw materials, exclusively used for the mill machinery, can be claimed/adjusted provided that the same is purchased from a registered person against a valid tax invoice. However, paints and other materials used for the (factory) building is not permissible for input adjustment vide item (2) of S.R.O.78(I)/98 dated 12‑6‑1998". He stated that the 2 air‑conditioners are PEL brand of 2.5 tonnes each and are installed in the mills laboratory for testing and quality control. He prayed that the refund of input tax on High Voltage Cables and Split Air‑Conditioners may be allowed ignoring S.R.O. 578(I)/98 as these are used in the factory producing textile goods.

4. The learned representative from the Collectorate pointed out that the Split type air‑conditioners of 2.5 tonnes are common air conditioners included in by the term "electric appliances' and are covered by S.No.(4) of S.R.O. 578(I)/98 and, therefore, no input tax credit or refund can be allowed on these Air‑Conditioners. Similarly, the wires and cables, irrespective of voltage, are included in Serial No.(7) of S.R.O. 578(I)/98 and, therefore, not admissible to input tax credit. He prayed that the appeal may be rejected.

5. Having heard‑the parties and on perusal of the record of the case, we find that section 8(1) of the Sales Tax Act, 1990, reads as hereunder:‑‑

"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 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 officials Gazette, specify; and

(c) the goods under subsections (1 A) and (5) of section 3;

6. The Federal Government has issued Notification No. S.R.O. 578(I)/98 dated 12‑6‑1998, under clause (b) subsection (1) of the section 8 of the Sales Tax Act, 1990, specifying the goods acquired otherwise than as stock‑in‑trade by a registered persons to be the goods in respect of which input tax shall not be claimed. Although a subordinate legislation, the said notification, having been validly issued under section 8(1)(b) of 'the Act and being not inconsistent with the provisions thereof has to be read as a part of the said Statute and has the same force of law. It has been held by the Honourable Lahore High Court (PTCL 2002 CL 80) that "once an order is validly made, it partakes the colour and credibility of a statutory instruments. It represents the blend of a sub‑ordinate legislation with the superior legislation which is not separable". Therefore, we do not agree with the appellant's contention that S.R.O. 578(I)/98 dated 12‑6‑1998 is only illustrative and just provides guidelines and need to be acted upon as it is worded. We have no doubt in our mind that Notification No.S.R.O. 578(I)/98 dated 12‑6‑1998 has been validly made in terms of section 8(1)(b) of the Sales Tax Act, 1990, and has to be read as a part of the said Act as such and that whatever goods (acquired otherwise than as stock‑in‑trade) have been specified in the said notification shall not be admissible for input tax credit in terms of the said section 8 of the Sales Tax Act, 1990. However, we have to see whether these goods have been acquired otherwise than a "stock‑in‑trade". For example, "building material" is specified at Serial No.(2) of the notification and ordinary paints for building and furniture are not allowed input tax credit accordingly. However, it has been correctly held by the C.B.R. in its Letter C.No.3(17)STP/99‑Pt. III dated 21‑10‑1999 that input tax paid on special paints used exclusively for the mill machinery can be claimed/adjusted. This is because the machinery is a stock‑in‑trade and has to be painted with special paints to save it from rust, corrosion, damage, etc., and to keep in operational and productions worthy. In this case, under appeal before us, split type air‑conditioners of 2.5 tonnes each have been installed in the mills Laboratory meant for testing and quality control. These air‑conditioners are electric appliances specified at Serial No.(4) of the Notification No. S.R.O. 578(I)/98 dated 12‑6‑1998 and also these air‑conditioners are not of a special type, are of ordinary capacity (2.5 tonnes) mostly used by domestic consumers, are not used directly for production or with any machinery in the production line of the mills and are installed in the laboratory. Had these air‑conditioners been of industrial type (say, each of 10 tonnes and above on the analogy of admissibility of input tax credit on industrial type generators and generating sets of 250 KVA and above as at Serial No.6 of the notification) used for controlling temperature and humidity in the production hall where machineries are installed. we could have considered the admissibility of input tax credit as these were used exclusively for production and, therefore, are stock‑in‑trade. These PEL brand split type air‑conditioners, of 2.5 tonnes each are common air conditioners and not exclusively used for production or for machineries of production. These are not stock‑in‑trade and on the other hand, are covered by Serial No.(4) of the Notification No. S.R.O. 578(I)/98I dated 12‑6.1998 and, therefore, we confirm the impugned order to the, extent of rejection of refund claim of sales tax of Rs.6,091 (Rs.2700+3391) on these air‑conditioners supplied by Messrs PEL Appliances Ltd. As regards High Voltage Cables, it has been explained by Mr. Pur Dil Khan, Deputy Superintendent a in his Letter C.No.846 dated 16‑7‑2001 addressed to the Assistant Collector of Sales Tax (Refund); that these High Voltage Cables were found to have been "installed by the unit as from powerhouse to transformer and then to production hall". This report indicates that the appellants have an industrial type powerhouse and generating electrical energy used for production of goods. There is no doubt that Serial No.(7) of S.R.O. 578(I)/98 dated 12‑6‑1998 disallows input tax credit on "wires & cables and ordinary electrical fittings". However, this entry suggests that input tax credit on normal voltage (say of voltage less than 440V) wires and cables, as are not of heavy duty type, for electrification in building are to he disallowed. If we allow input tax credit on machinery operated by electric power and also on transformers and L.T. panels, we cannot deny input tax credit on High Voltage Cables (of 440 volts and above) for smooth and non‑fluctuating transmission of electrical energy from power house to transformer and on to the panels and points connecting to the plant and machinery operated by power for production of taxable goods. Without such high voltage cables, the electrically operated production machinery cannot be operated save at breakdowns, losses, interruptions and damages. We are conscious of the fact that the words "stock‑in- trade" have not been defined in the Sales Tax Act, 1990. The C.B.R., vide its Letter C.No.2(77)/STP/95 dated 19‑10‑1999, has clarified that "stock‑in‑trade" shall mean goods and commodities which are purchased for sales or for conversion into finished products. In its judgment dated 4‑3‑1999 in Civil Appeal No.929 of 1995 in Attock Cement (Pak.) v. Collector of Customs (1999 PTD 1892), the Honourable Supreme Court of Pakistan has looked into the various dictionary meaning of "stock‑in‑trade" and has held that while accessories and spare parts for the maintenance and running of a plant cannot be termed as stock‑in‑trade, the plant and machinery would be construed as stock‑in‑trade. The said judgment by the Honourable Supreme Court is a very significant one in the sense that a fixed asset (being not a variable asset in economic terms) like plant and machinery is to be treated as a stock‑in‑trade once it is procured, installed and operated by a registered person for manufactured or production of taxable goods. We have no doubt in our mind that high voltage wires and cables (as distinct from ordinary wires and cables used for non -industrial domestic electrification in buildings and fittings) are neither parts nor accessories of plants and machinery but are independent stock- in‑trade and essential for the requisite transmission of electricity from a power house to the transformers and on to the plant and machinery manufacturing taxable goods. These high voltage cables shall be admissible to input tax credit on and after 16th August, 1999, when generation and supply of electricity became sales taxable, irrespective of the fact whether this electricity is supplied on payment of tax or consumed in house by the registered person for production of taxable goods in his own unit. Therefore, like the plant and machinery, these high voltage cables shall also be a part of stocks‑in‑trade of the registered person for production of taxable goods. In a similar case in Appeal No.STA/1972/LB of 2001, the Lahore Bench II of this Tribunal passed the judgment dated 27‑11‑2002 holding the acquisition of wires and cables (other than ordinary Wires and Cables) for production and transmission of electrical energy is covered by the terms "stock‑in- trade" and input tax credit is admissible. However; when the wastes and scraps of such inputs are sold by such mills in the future. such input tax adjusted wastes and scraps shall consequentially be liable to sales tax as leviable on these wastes and scraps. With the aforesaid observations, we, hold that such heavy duty high‑voltage cables, if of 440 volts and above and used for transmission of electrical power from powerhouse to transformer and on to the production plant, are eligible for input tax credit being acquisition of stock‑in‑trade like the machinery itself. We, therefore, remand the case of refund on high voltage cables to the Assistant Collector of Sales Tax (Refund), Peshawar, for decision de novo and sanction of refund, if otherwise due, admissible and in order, after satisfying himself that these cables are really high voltage cables and not the ordinary type cables used for buildings and ordinary electrical fittings and have actually been installed for transmission of electrical power needed by the plant and machinery installed in the factory for production of taxable goods. The impugned order is modified to the above extent only and the appeal stands disposed of accordingly.

7. Inform all concerned.

8. Announced.

C.M.A./M.A.K./370/Tax(Trib.)

Order accordingly.