2002 PLP 300 (PTD)

5. It was argued that as per section 3 of the Act sales tax was chargeable on sale of goods if it was made in the course or furtherance of taxable activity. It was contended that since the appellants were engaged in the production and supply of textile products, beverages, dairy products etc. the sale of machinery, vehicles, furniture etc. cannot be treated as a transaction made in the course or furtherance of their taxable activity. The learned counsel took the plea that if the sale of said goods is to constitute a taxable supply it must be shown that it is a part of the normal business activity of the appellants. Since they are not conducting sale of these goods on a fairly regular basis the same cannot be construed as a supply and thus it does not fall within the tax net. A plea was taken that sales tax was not chargeable on transactions described as "sale and lease back" of machinery and other goods since the same was not actually sold by the appellants. The learned counsel referred to the ruling issued by the Ministry of Law and Justice vide its Memorandum, dated 3-6-2000 that the sale of moveable/fixed assets was not chargeable to sales tax if such sale was beyond the normal business activity of a registered person. Another issue was raised that a supply was chargeable to sales tax if it was made either by a manufacturer, importer, distributor or retailer in terms of section 2(41) of the Act and since the goods in question were neither manufactured nor imported by the appellants their sale cannot be treated as a taxable transaction.

6. The learned departmental representative opposed the submissions made on behalf of the appellants and argued that since plant and machinery, vehicles, furniture etc. were sold by the appellants in the course of their business they were required to account for these transactions and pay sales tax thereon.

7. We have given a careful consideration to the submissions made by both the parties. The plea taken by the learned counsel that since the said goods were not sold by the appellants in the course or furtherance of their taxable activity and that sales tax was not chargeable thereon has no merit. The appellants acquired these goods on payment of sales tax and used the same for carrying on their business. They claimed input tax credit on most of these goods in terms of section 7 of the Act. While claiming input tax credit their plea was that since the said goods were required for running their business they were entitled to deduct input tax from the output tax for determining their tax liability. They have not taken a different stance which runs contrary to their earlier assertion. If these goods were purchased by the appellants in the course of their taxable activity their sale cannot be viewed differently as a transaction which is divorced from their normal business. The factual position is that the said goods are business assets of the appellants and both their purchase and sale is a part of their normal business activity. 8; Their contention that since the goods in question were not manufactured by the appellants the same cannot be charged to sales tax has no substance. As per section 3 of the Act sales tax is chargeable on a supply made by a registered person in the course or furtherance of his business. The term "supply" as defined in section 2(33) means sale, lease or other disposition of goods in the course or furtherance of business carried out for consideration. A perusal of the aforesaid legal provisions makes it amply clear that a supply of taxable goods by a registered person in the course of his business is chargeable to sales tax regardless of the consideration whether or not the same are produced by him.

9. In view of the above consideration we hold that:

(i) the sale of plant and machinery, furniture, office equipment etc. is a taxable transaction. The appellants are under a legal obligation to account for these transactions and pay sales tax thereon. (ii) It is not just and fair to charge sales tax on sale of vehicles and such other goods which are not admissible for input tax 1 deduction in terms of section 8(1)(b) of the Act. (iii) Since "sale and lease back" of machinery and other goods is a fictional transaction it does not fall within the purview of the tax net and thus sales tax is not chargeable- thereon. (iv) Since the controversy between the department and the appellants relates to interpretation of different legal provisions the imposition of additional tax and penalty has no justification and the same are accordingly waived.

10. The respondents should work out the liability of the appellants in terms of para. 9 above and take appropriate action for its recovery under the law.

11. The aforesaid appeals are disposed of in terms of paras. 9 and 10 above. C. M. A. /M. A. K./161/Tax(Trib.) Order accordingly.