2020 PLP 1641 (PTD)

SHAHID JAMIL KHAN, J.

This and connected appeals are against consolidated judgment dated 24.10.2019 passed by learned Single Judge, whereby, appellant's writ petitions were dismissed.

2. The petitions were to assail vires of Section 8(1)(h) and (i) of the Sales Tax Act, 1990 ("Act of 1990") along with interpretation of these provisions as proposed by respondents to disallow the adjustment of input tax.

3. Mr. Imtiaz Rashid Siddiqui, Advocate arguing for appellant's side did not press to the extent of decision on vires of the provisions. The appellants are aggrieved of the decision touching disallowance input tax adjustment. He explained that principles for adjustment of input tax had already been laid down by learned Division Bench of this Court in the judgment, Coca-Cola Beverages Pakistan Ltd. v. Customs, Excise and Sales Tax Appellate Tribunal and others (2017 PTD 2380), which are binding upon the respondent department. In response, learned Law Officer and Legal Advisors of the respondent department apprised that leave was granted by the Apex Court against the judgment in Coca Cola Beverages' Case, supra, vide order dated 11.12.2018 in Civil Petitions No.3222-L to 3227-L of 2017. The respondent's side, however, could not deny that the question of input tax adjustment, being mixed question of law and facts, has to be determined, at first instance, by the Assessing Officer, which may, thereafter, reach this Court in advisory jurisdiction, after going through the test of appeals under the Statute.

4. Heard. Record perused.

5. We have examined the provisions of Sections 7 and 8 of the Act of 1990. Collective and plain reading of both the Sections (ignoring intermediary phrases imposing conditions or qualifying these provisions) show that Section 7 is 'entitling a registered person to deduct (adjust) input tax, for the purpose of taxable supplies, from the output tax'. The entitlement, to deduct/adjust input tax, is subject to the "purpose of taxable supplies". Conversely, Section 8 is disentitling reclaim or deductions of input tax paid on the goods used for a purpose other than taxable supplies. The deduced basic principle is that input tax paid on goods can be deducted or reclaimed, "only if, such goods are used for the purpose of taxable supplies." Nevertheless, phrase 'any other goods' used in Section 8(1)(b), is creating an exception to the general rule, ibid i.e., adjustment or reclaim can be denied, even if the goods were used for the purpose of supplies, if so specified, through notification in official Gazette. This exception has been endorsed by the Supreme Court of Pakistan in Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others (1999 PTD 1892), relevant excerpt is:- "

9. The crucial question arising for determination is whether the accessories and parts, which are required by the appellant for efficient and smooth running of its plant or its upkeep and maintenance fall within the definition of goods or can they be treated as acquisition of plant and machinery. The answer to this question is very simple. Under the notification referred to above, parts and accessories are not included. Even otherwise, by no stretch of imagination, the accessories or spare parts for the running and maintenance of the plant can be equated with the acquisition of machinery and plant. Such accessories and spare parts are imported under a bill of entry, which is cleared by the Customs Department under section 79 or section 104 of the Customs Act and, therefore, not being the plant and machinery itself but being spare parts, under section 7(2)(ii) of the Act the appellants are entitled to deduct the input tax from the output tax. However, as already discussed above, such deduction is not permissible under section 8 if the Federal Government under a notification includes the accessories and spare parts in the goods within the meaning of section 8(1)(b) of the Act." [Emphasis supplied]

6. To reclaim (refund) and deduct (adjustment) input tax is a right subject to the provision of the Section 8, which disallow it, as a general rule, against goods which are not used for the purpose of taxable supplies. This right, as created by the Section 7, can be refused or denied even against goods used for the purpose of supply, if so specified in the official Gazatte. The controversy, reached before us in appeal, is of interpreting Section 8(1)(h) and (i) differently. The appellant claimed that input tax paid on construction of building and its material was deductible, because this investment improves the quality and efficiency of business and is reflected in taxable supplies. Similar arguments were advanced for the vehicles used for the purpose of business. Learned Single Bench decided against the appellant by holding that these goods have no direct nexus to taxable supply and are not part of supply chain. In our opinion, the question whether the goods, input tax of which is claimed, are used for the purpose of taxable supplies, being factual, is required to be determined, at first instance, through assessment proceedings, on the basis of evidence to be produced by the registered person. We are fortified for our opinion by the judgment in Attock Cement's Case, supra. August Supreme Court was approached against Baluchistan High Court's order of dismissing writ petition against show cause notice. Though the issue of input tax adjustment was addressed directly, after justify it that Appellate Tribunal was not available in the province, yet the principle to have recourse to the remedies under relevant statute was re-enunciated by referring to earlier judgments. Nothing is pleaded before us to show that the statutory remedies were not adequate under the facts and circumstances of these appeals.

7. So far appellant's reliance on the judgment by learned Division Bench is concerned, this Court has restrained itself to opine on that case, as the matter is sub-judice before the Apex Court. Needless to observe that the law laid down by a High Court, unless suspended or overruled by August Supreme Court, holds the field.

8. With the observations, supra, the impugned judgment is modified. This and connected appeals (ICAs Nos.72330, 72348, 73931, 73933, 73935, 73939, 73947, 73951, 74904, 75300, 76141, 76143, 76286, 76509, 76510, 76511, 76285, 76287, 76505, 76507, 76508, 77844, 77848, 77994, 78001 of 2019 and 891, 1120 and 1122 of 2020) are disposed of with the direction that the Assessing/Adjudicating Officer shall interpret the Section 8(1)(h) and (i) on case to case basis after determining, facts of each case, without prejudice to the findings in this regard. SA/N-12/L Order accordingly.