CHILTAN GHEE MILLS, QUETTA VS DEPUTY COLLECTOR OF SALES TAX (REFUND), CUSTOMS HOUSE, QUETTA, 2017 PTD-SUPREME-COURT 138 (2016)

(On appeal against the judgment dated 26.05.2011 passed by the High Court of Balochistan, Quetta in Sales Tax Appeal No.3/2004)

Sales Tax Act (VII of 1990)---

----Ss. 7, 8(1)(a) & 13---Sales tax, refund of---Scope---Adjustment of input tax could only be claimed in a situation where the goods that had been manufactured or produced fell within the definition of 'taxable supplies'---Where the goods that were to be supplied were exempt from sales tax then the question of seeking refund of the sales tax paid on the purchase of raw material used in the production of exempt supplies did not arise at all---Where a registered person was exempted from the liability of sales tax on its supplies, it did not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be refunded.

Section 7 of the Sales Tax Act, 1990 provided that for the purposes of determining tax liability in respect of 'taxable supplies', a registered person shall be entitled to deduct input tax paid during the tax period. Such concession was clearly available only when a registered person made 'taxable supplies' but was not available where the supplies were totally exempt from the sales tax liability. Such mandate of the law was further affirmed in section 8(1)(a) of the Sales Tax Act, 1990 which provided that notwithstanding anything contained in any other provision of the Act, a registered person shall not be entitled to claim input tax paid on goods that were used in the making of supplies which had been exempted from the sales tax liability under the provisions of section 13 of the said Act.

Adjustment of input tax could only be claimed in a situation where the goods that had been manufactured or produced fell within the definition of 'taxable supplies'. Where the goods that were to be supplied were exempt from sales tax then the question of seeking refund of the sales tax paid on the purchase of raw material used in the production of exempt supplies did not arise at all. The whole object behind the provision of section 8(1)(a) of Sales Tax Act, 1990 seemed to be that where at any stage sales tax has been legitimately paid then refund of input tax could not be claimed where such goods were used in the manufacture of 'exempt supplies'. Thus where a registered person was exempted from the liability of sales tax on its supplies, it did not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be refunded.

Sahibzada Muhammad Khan, M.D. in person for Petitioners.

Nemo for Respondents.

Date of hearing: 3rd October, 2016.

JUDGMENT

FAISAL ARAB, J.---The petitioner is engaged in the activity of producing 'ghee', which before its marketing is canned in tin containers also manufactured by the petitioner. For the purpose of manufacturing tin containers, the petitioner purchases tin plates. On the purchase of tin plates, sales tax is payable whereas the petitioner mill at the relevant time was exempted from the payment of sales tax on its taxable supplies under S.R.O. 580(I)/91 dated 27.06.1991. For the period during which the petitioner was enjoying tax exemption on its supplies, the petitioner sought refund of the sales tax paid on the purchase of tin plates that were used in the manufacture of tin containers. The reasoning behind such claim was that as its tin containers are exempt from the payment of sales tax under the said S.R.O. No. 580(I)/91 dated 27.06.1991, the sales tax paid on tin plates may be refunded. Taking into consideration the legal position that the sales tax paid on goods that are used in the manufacture of 'exempt supplies' cannot be refunded under section 8(1)(a) of the Sales Tax Act, 1990, the Sales Tax Department refused to accept the petitioner's claim. The decision of the Department was challenged by the petitioner in an appeal before the Customs, Excise and Sales Tax Appellate Tribunal, which was dismissed. The same was then challenged in Sales Tax Appeal before the High Court, which too met the same fate. Hence this petition.

2.Sahibzada Muhammad Khan, who is the Managing Director of the petitioner company, appeared in person and argued the case. He submitted that since the tin containers, which the petitioner manufactured during the relevant period, were exempt from sales tax under SRO No.580(I)/91 dated 27.06.1991 then any input tax paid on tin plates used in the manufacture of such tin containers was liable to be refunded as denying such relief would defeat the purpose of granting exemption under the said SRO. In support of his contention, he relied upon the cases of Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore etc. (PTCL 2002 CL 115 and Azad Jammu and Kashmir Government v. Spintex Limited (1998 PTD 3200) in order to demonstrate that where exemption is granted then the principle of promissory estoppel is attracted and no tax is to be charged.

3.We have considered the contention of the petitioner mill's Managing Director. Section 7 of the Sales Tax Act provides that for the purposes of determining tax liability in respect of 'taxable supplies', a registered person shall be entitled to deduct input tax paid during the tax period. Such concession is clearly available only when a registered person makes `taxable supplies' and is not available where the supplies are totally exempt from the sales tax liability. This mandate of the law is further affirmed in section 8(1)(a) of the Act, which provides that notwithstanding anything contained in any other provision of the Act, a registered person shall not be entitled to claim input tax paid on goods that are used in the making of supplies which have been exempted from the sales tax liability under the provisions of section 13 of the Act. This clearly means that adjustment of input tax only can be claimed in a situation where the goods that have been manufactured or produced fall within the definition of 'taxable supplies'. Where the goods that are to be supplied are exempt from sales tax then the question of seeking refund-of the sales tax paid on the purchase of raw material used in the production of exempt supplies does not arise at all. The whole object behind the provision of section 8(1)(a) of Sales Tax Act, 1990 seems to-be that where at any stage, sales tax has been legitimately paid then refund of input tax cannot be claimed where such goods were used in the manufacture of 'exempt supplies'. Thus where a registered person is exempted from the liability of sales tax on its supplies, it does not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be refunded. The Department, therefore, was not liable to refund the same. In view of the legal position as emanating from the plain reading of the provisions of Sections 7 and 8 of the Sales Tax Act, 1990, it is evident that there is no promise of the Legislature that the sales tax paid on the goods used in the manufacture of 'exempt supplies' would be liable to be refunded. Reliance placed on the cases of Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore etc. (PTCL 2002 CL 115) and Azad Jammu and Kashmir Government v. Spintex Limited (1998 PTD 3200) is totally misplaced as the same have no application to the present case.

4.For what has been discussed above, we do not find any merit in this petition, which is dismissed and leave is refused.

MWA/C-13/SC Petition dismissed.