FMC UNITED PVT. LTD. through Company Secretary VS FEDERATION OF PAKISTAN through Secretary of Finance
2011 P T D 346
[Lahore High Court]
Before Muhammad Farrukh Irfan Khan, J
Messrs FMC UNITED PVT. LTD. through Company Secretary
Versus
FEDERATION OF PAKISTAN through Secretary of Finance and 3 others
Writ Petition No. 660 of 2007, decided on 29/10/2010.
Sales Tax Act (VII of 1990)---
----Ss. 7, 7-A, 8 & 10(1)---S.R.O. 645(I)/2006, dated 21-6-2006--Constitution of Pakistan, Art.199---Constitutional petition---Refund or set off of input tax paid on the purchase of other items used in the manufacture of pesticides---Scope---Taxpayer is allowed to deduct the input tax paid or payable during the tax period, from the output tax that is due from him in respect of that period, and in case his tax is more than the tax due, then he becomes entitled to refund the same under S. 10(1) of the Sales Tax Act, 1990---When provisions of Ss.7, 7A, 8 and 10(1) of the Act and S.R.O. 645(I)/2006 were read in juxta position, it becomes clear that registered person covered under S.R.O. 645(I)/2006 is to pay the final tax due on "fixed value addition" and not on "minimum value addition", therefore, the taxpayer would not be entitled to any such refund or set off of input tax paid by the taxpayer in relation to purchase of further goods and services used in further value addition undertaken by the tax payer under S.7, Sales Tax Act, 1990---Question of adjustment of input tax and consequently refund of the taxpayer under the regime of S.R.O.645(I)/2006 is not tenable---Liability under S. R. O.645(I)/2006 should be considered to be a final tax liability---Order accordingly.
Sajid Mehmood Sheikh for Petitioner.
Mrs. Amna Warsi for Respondents.
ORDER
MUHAMMAD FARRUKH IRFAN KHAN, J.---Petitioner assails the orders dated 18-12-2006 and 20-12-2006 passed by respondents Nos.2 and 4 and seeks refund of input tax amounting to Rs.2,940,747 paid on the purchase of other items used in the manufacture of Pesticides.
2. Briefly the facts of the case as put forth in the petition are that the petitioner company deals in the business of manufacture, packaging, importing and sale of agriculture and horticulture pesticides, end-use pesticides, insecticides, super phosphate, dips, sprays, vermifuge, fungicides and all kinds of products and byproducts in connection thereto. Section 7-A of the Sales Tax Act, 1990 (hereinafter referred to as "the Act") introduces the concept of Fixed Value Addition wherein the Federal Government may fix the minimum value addition of any item and charge sales tax accordingly. Pursuant to the said section, S.R.O. 645(I)/06 has been issued by respondent No. 1, wherein sales tax on local supply of Pesticides is to be charged at the import stage on finished pesticides and the active ingredients of pesticides on the basis of Fixed Value Addition of 15% in addition to the tax leviable on imports under subsection (1)(b) of section 3 of the Act. The said notification further states that no sales tax shall be charged on further stages of supply of Pesticides whether imported or locally manufactured."
3. The learned counsel for the petitioner contends that the respondents have failed to appreciate that in the present case there is taxable supply being made from the import stage till first local supply as the notification itself clearly states that the sales tax leviable on local supplies of the pesticides shall be charged at the import stage under the aforesaid fixed value addition and there is only the change in time of the payment of sales tax. Therefore, input tax paid in the process of taxable supply is liable to be refunded to the petitioner. That section 8(2) of the Act has been misapplied to the case of the petitioner; that the respondents erred in law while assuming that the first supply under the notification is not a taxable supply; that the petitioner's case is not covered under section 8(2) of the Act; that mere change in timing of the payment off sales tax under the fixed value addition mechanism does not change the nature of supply and it remains taxable; that once sales tax is charged on a transaction the supply becomes a taxable supply and the benefits of sections 7 and 8 of the Act become fully applicable; that input tax paid on items used for the manufacture of pesticides is refundable; that adjustment is not permissible because the entire sales tax has already been paid at import stage, therefore, input tax paid by the petitioner' is refundable; that the petitioner paid input tax on the purchase of other items which became part and parcel of the finished pesticides and out put tax is paid at the import stage prior to start of manufacturing process, therefore, the petitioner is entitled to refund of input tax paid on other items used in manufacturing of pesticides; that determination of tax is to be done on the basis of deduction of input tax from output tax and any goods that are used in the manufacture of the taxable supply are entitled to deduction of input tax paid; that the petitioner has been taxed twice on other goods which is not permissible under law, therefore, the petitioner is entitled to refund of Rs.2,940,747 paid during the period starting June, 2006 to November, 2006.
4. The learned counsel for the respondents has opposed this petition on the grounds that input tax can only be claimed in respect of goods used for making taxable supply and if a registered person deals in taxable and non taxable supply he can claim only such valuation of the input tax as is attributable to taxable supply as there is no sales tax on supply of pesticides and the final liability of the petitioner is discharged at the import stage under the provisions of S.R.O. No. 645(I)/2006 as such the input tax cannot be adjusted or refunded.
5. Arguments heard. Record perused. In order to adjudicate upon the controversy at hand it is important to consider the provisions of section 7(A)(1) of the Act which are as follows:-
"7A. Levy and collection of tax on specified goods on value addition.---
(1)Notwithstanding anything contained in this Act or the rules made thereunder, the Federal Government may specify, by notification in the official Gazette, that sales tax chargeable on the supply of goods of such description or class shall, with such limitations or restrictions as may be prescribed, be levied and collected on the difference between the value of supply for which the goods are acquired and the value of supply for which the goods, either in the same state or on further manufacture, are supplied.
(2)Notwithstanding anything contained in this Act or the rules made thereunder, the Federal Government may, by notification in the official Gazette, and subject to the conditions, limitations, restrictions and procedure mentioned therein, specify the minimum value addition required to be declared by certain persons or categories of persons, for supply of goods of such description, or class as may be prescribed, and to waive the requirement of audit or scrutiny of records if such minimum value addition is declared.
Section 7(A)(1) deals with the "fixed value addition" scheme, while section 7(A)(2) relates to the "minimum value addition" scheme."
6. S.R.O. No.645(I)/06 has been stated to be issued by respondent No.1 under the provisions of section 7(A) The relevant portion of the said S.R.O. is in the,following terms (1).
"S.R.O.645(I)/2006.---In exercise of the powers conferred by section 7A of the Sales Tax Act,, 1990, read with subsection (6) of section 3 thereof, and in supersession of Notification S.R.O.553(I)/2006 dated the 5th June, 2006 the Federal Government is pleased to direct that the sales tax leviable on local supply of pesticides shall be charged at the import stage on finished pesticides (PCT heading 38.08) and the active ingredients of pesticides mentioned in table below on the basis of fixed value addition of fifteen percent in addition to the tax leviable on import under subsection (1) of section 3 of the said Act and no sales tax shall be charged on further stages of supply of pesticides whether imported or locally manufactured."
7. A plain reading of the said S.R.O. 645(I)/06 provides that import of pesticides under PCT heading 38.08 and active ingredients of pesticides will be subject to a "fixed value addition" of 15% in addition to the tax leviable on import under section 3(1) of the Act and that no sales tax will be charged on further supply of pesticides whether imported or locally manufactured. The said S.R.O. No.645(I)/06 however does not prescribe any condition, limitation or restriction and procedure which the Federal Government was empowered to do under Article 7(A) of the said Act.
8. Admittedly, the petitioner has elected to utilize the special regime of the fixed value addition of fifteen percent (15%) us against the normal sales tax regime.
9. In order to determine the question as to whether the petitioner is eligible to claim the input tax having opted for a special presumptive sales tax regime where the final liability of sales tax is Fixed at 15% in addition to the sales tax charged under section 3(1) of the Act, therefore, no help can be obtained from the said S.R.O. In the absence of any further details given in the S.R.O. No.645(I)/06 the perusal of other S.R.Os. which have been issued under section, 7(A) of the Act has been undertaken by the Court and one detailed S.R.O. 480(I)/2007 dated 9-6-2007 is relevant which provides for The Sales Tax Special Procedures Rules, 2007. Its Chapter X (inserted by S.R.O. 678(I)/2007 dated July 6, 2007 deals with the special procedure for payment of sales tax by the importers. Rules 58-A, C, D and E deal with the procedures to be followed by the importers while Rule 58(B) provides for levy of Sales Tax on account of minimum tax value addition at the rate of 2% of the value of the goods in addition to the tax chargeable under section 3 of the Act. The said subsection further provides that the value addition tax paid at the import stage shall form part of the input tax and the importers shall deduct the same from the output tax due for the tax period for determining his net tax liability. The excess of input tax over output tax shall be carried forward to the next period as provided in section 10 of the Act.
10. Rule 58(C) provides that the excess input tax or output tax which is attributable to the tax paid at import stage shall not be refundable to the registered person in any case. It further provides that if the importer does not claim any refund of excess input tax then he shall not be subjected to the audit except with the permission of the Board.
11. S.R.O. 480 further provides for a minimum value addition of 2% and also provides a restriction on input tax paid at the import stage. However, in case of excess input credit, the importer is allowed to claim the refund of the same provided he may be subjected to audit under the provisions of the Sale Tax Act 1990. Further, the taxpayer in case of value addition of more than 2% is liable to pay the tax due.
12. Whereas S.R.O. No.645(I)/06 does not provide for the minimum value addition rather it provides for the fixed value addition of 15%, which is in the shape of final tax liability and no further tax is liable to be paid by the taxpayer even if his actual value addition is more than 15%. This non-applicability of further sales tax will also be on further stages of supply of pesticides whether imported or locally manufactured. As value addition is fixed, therefore, the input tax credit is of no consequence.
13. In order to further answer the question of the petitioner as to whether a person covered under S.R.O. No.645(I)/06 can be allowed to refund of additional (or excesses) of input tax under the Act, one has to go through the requirements of section 7 of the Act which deals with the determination of tax liability under the Sales Tax law. For convenience sake the said Article is reproduced below--
(7) Determination of tax liability.---(1) Subject to the provisions of section 8B, 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 or payable during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax excluding the amount of further tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9:
Provided that where a registered person did not deduct input tax within the relevant period, he may claim such tax in the return for any of the six succeeding tax periods.
(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, he holds a tax invoice in his name and bearing his registration number in respect of such supply for which a return is furnished;
(ii)in case of goods imported into Pakistan, he holds bill of entry or goods declaration in his name and showing his sales tax registration number, duly cleared by the customs under section 79 or section 104 of the Customs Act, 1969 (IV of 1969);
(iii)in case of goods purchased in auction, he holds a treasury challan, in his name and bearing his registration number, showing payment of sales tax;
(3) Notwithstanding anything in subsections (1) and (2), the Federal Government may, by a special order, subject to such conditions, limitations or restrictions as may be specified therein allow a registered person to deduct input tax paid by him from the output tax determined or to be determined as due from him under this Act.
(4) Notwithstanding anything contained in this Act or rules made thereunder, the Federal Government may, by notification in the official Gazette, subject to such conditions, limitations or restrictions as may be specified therein, allow a registered person or class of persons to deduct such amount of input tax from the output tax as may be specified in the said notification.
14. Section 7 of the Act in a nutshell provides that the taxpayer is allowed to deduct the input tax paid or payable during the tax period from the output tax that is due from him in respect of that period and in case his tax is more than the tax due, then he becomes entitled to refund of the same under section 10(1) of the Act.
15. When provisions of sections 7, 7(A), 8 and 10(1) of the Act and S.R.O. 645(I)/2006 are read in juxta position it becomes quite clear that registered person covered under S.R.O. 645(I)/2006 is to pay the final tax due on fixed value addition and not on "minimum value addition", therefore, the petitioner would not be entitled to any such refund or set off of input tax paid by the petitioner in relation to purchase of further goods and services used in further value addition undertaken by the petitioner under section 7 of the Sales Tax Act, 1990. Further, the question of adjustment of input tax and consequently refund of the petitioner under the regime of S.R.O. 645(I)/2006 is not tenable. The liability under S.R.O. 645(I)/2006 should be considered to be a final tax liability. This being so, this petition fails and the same is dismissed.
M.A.K. /F-51 /LPetition dismissed.