2003 PLP (Trib (PTD)

2. The appellant's case is that S.R.O. 1307(I)/97, dated 20-12-1997 issued under section 8(1)(b) of the Sales Tax Act, 1990 is in conflict with the provisions of section 7 ibid which allows input tax credit in respect, of a tax period on all goods acquired for the purpose of making taxable supplies and therefore the demand of sales tax and imposition of penalty vide impugned Order-in-Original is without lawful authority. In support of his contention, learned counsel for the appellant quoted Lahore High Court's order in Writ Petition No. 9272 of 1998 and judgment .of Supreme Court in Civil Petitions Nos.1986-L, 1987-L, 1995-L, 1996-L and 2012-L etc. of 1998.

3. Learned departmental representative opposed the appeal pleading that the Supreme Court of Pakistan has upheld S.R.O. 1307(I)/97, dated 20-12-1997 vide its judgment reported as 1999 PTD 2174 and, therefore, the demand raised vide impugned order is lawful.

4. We have considered the arguments advanced by the learned counsel for the appellant. In order to decide the issue raised by the appellant, it will be useful to reproduce relevant sections 7(1) and 8(1)(b) of the Sales Tax Act, 1990. "(7) Determination of tax liability.-(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deducted input tax paid during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustment as are specified in section 9. (8) Tax Credit not allowed.-(Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on- (a)

(b) another goods which the Federal Government may by a, Notification in the official Gazette, specify; and".

5. SRO 1307(I)/97, dated, 20-12-1997 issued under section 8(1)(b) of the. Sales Tax Act disallows input tax credit on all goods which do not form direct consistently or integral part of the taxable goods produced. The Lahore High Court in its judgment in W.P. No. 9272 of 1998 quoted by the appellant's counsel held that the Government had authority to collect tax only on the goods specified in the notification issued under section 8(1)(b) and therefore, S.R.O. 1307(I)/97 was valid to the extent of goods specified in the previous notification, dated 1-7-1996. This judgment knocked down S.R.O 1307(I)/97, on the ground that it did not specify the goods but did not hold section 8(1)(b) or a notification issued thereunder in conflict with the, provisions of section 7(1) of the Sales Tax Act, Hon'ble Supreme Court, however, did not uphold the conclusion drawn in the aforementioned judgment of the High Court and left the issue to be decided by the forum provided under the Act vide its judgment in re: The Central Board of Revenue Islamabad and others v. Sheikh Spinning Mills Ltd., Lahore and others (1999 PTD 2174). On examination of the provisions of sections 7(I) and 8(1)(b) of the Sales Tax Act reproduced hereinbefore and S.R.O. 1307(I)/97 we find that the S.R.O. is not in conflict with any substantive provision of the Sales Tax Act 1990.

6. In view of the foregoing discussion, the impugned order is upheld to the extent of demand of sales tax amounting to Rs.78,094 alongwith additional tax. Penalty of Rs.10,000 is, however, remitted, in view of the circumstances of the case.

7. The appeal is accepted to the above extent and the impugned order is amended accordingly. C.M.A./732/Tax (Trib.) Appeal partly Accepted.