2004 PLP (Trib (PTD)

Dates of hearing: 17th September and 8th October, 2003. S. M. KAZIMI, MEMBER (TECHNICAL).‑This judgment disposes of the appeal filed by, Messrs Tri‑Pack Films Ltd., Hattar Industrial Estate, against the Order‑in‑Original No.28 of 2003, dated 10‑7‑2003 (dispatched on 28‑7‑2003) passed by the learned Additional Collector (Adjudication), Peshawar.

2. Briefly, the facts of the case are that on receipt of Audit observation No.30 from the Audit officers of the Directorate General of Audit, Revenue Receipts (DGARR) stating that during the test check of record of Messrs Tri‑Pack Films (Pvt.) Ltd.; (Regn. No.5‑7‑3705‑001‑82), for the year 2001‑2002, it was observed that the said registered person had made inadmissible input tax adjustment of Rs.3,719,898 involved on the purchase of spare parts (as listed in the annex to the said Audit observation) for the maintenance of plant and machinery of the mills. The Additional Collector of Sales Tax (Adjudication), Peshawar, accordingly, issued a Notice C. No.ST (Adj) Addl: C/08/03/476, dated 16‑5‑2003 requiring Messrs Tri‑Pack Films (Pvt.) Ltd. to show cause why the aforesaid amount of sales tax of Rs.3,719,898 should not be recovered from them alongwith the additional tax due under section 34 and also why penalty should not be imposed upon them under section 33(2)(cc) of the Act. After hearing Mr. Khurram Akbar Khan, A.C.A., on behalf of Messrs Tri- Pack Films (Pvt.) Ltd., and Mr. Ismail Bangash, Auditor from the Sales Tax Collectorate, the learned Additional Collector (Adjudication) decided the case vide his impugned Order‑in‑Original No. 28 of 2003 holding that the offence charged was established in terms of S.R.O. 987(1)/99, dated 30‑8‑1999 and C.B.R.'s Letter No.2(77)ST/97(Vo1.II), dated 28‑3‑2002 and, therefore, the demand of sales tax of Rs.3, 719,898, alongwith the additional tax due in terms of section 34, was confirmed. A penalty equivalent to 3 % of the amount of the tax involved was imposed upon Messrs Tri‑Pack Films (Pvt.) Ltd. under section 33(2)(cc) of the Act. Hence this appeal.

3. During the course of hearing before us, the learned representative of the appellants placed reliance on the Honourable Supreme Court of Pakistan's judgment, dated 4‑3‑1999 in Civil Appeal No.929 (1999 PTD 1892), paragraphs 8,9 and 13 of which held as hereunder:‑‑ "(8) At this juncture, a reference to Notification No. S.R.O. 1111 (I)/90, dated 1‑11‑1990 will be necessary as it has bearing upon the issue. The said notification reads as under:‑‑ "No. S.R.O. 1111(1)/90.‑‑‑In exercise of the 'powers conferred by clause (b) of subsection (1) of section 8 of the Sales 'fax (Amendment) Act, 1990, the Federal Government is‑pleased to specify that the following goods acquired otherwise than any stock‑in‑trade by a registered person to be goods in respect of which input tax shall not be claimed, namely, (i) vehicle; (ii) building material; (iii) stationery; (iv) office equipment, furniture, fixture and furnishing; (v) electricity and gas pipe appliances." "(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 strength of imagination, the accessories or spare parts for the running and maintenance of the part 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. "(13) Having come to the conclusion that the accessories and spare parts having not been included by the Federal Government under section 8(1)(b) of the Act, the appellant was entitled to claim adjustment of the input tax and therefore, the impugned show cause notice issued to the appellant is without lawful authority and jurisdiction. Resultantly, this appeal is allowed and the impugned show‑cause notice is hereby declared to have been issued without lawful authority and jurisdiction. The costs to be borne out by the parties."

4. He argued that sales tax paid on purchase of spares and accessories required for the maintenance of Plant and machinery of registered person is eligible to input tax credit under section 7(1) of the Sales Tax Act, 1990, as these are not mentioned in the negative list of section 8(1) or the notification issued thereunder. In reply to a query, he agreed that the sales tax paid on purchase of spares, accessories and maintenance materials required for maintenance, repairs and reconditioning of the negative list goods covered by section 8(1) or a notification issued thereunder shall not be admissible for input tax credit. He, however, argued that production machinery are not covered by the negative list of the said section 8(l) or any notification issued thereunder and, therefore, spares and accessories shall be admissible for input tax adjustment. He promised to check up the list of spares appended to the Audit observation No.30 of the DGARR and to pay (without contesting) sales tax involved on the procurement of any such spares, accessories or maintenance materials as were procured, even if any, and for use in any goods, vehicles, building equipment, apparatus, appliances, etc., covered by section 8(1) of the Act or a notification issued thereunder. However, they prayed for remission of additional tax and penalty because such incorrect adjustment, even if any, was not for any ulterior or mala fide reasons. . They also prayed for setting aside the impugned order demanding sales tax adjustment on the procurement of such spares, accessories and maintenance materials as were required for the essential maintenance and operation of the production machinery of the registered person. At the end they cited C.B.R.'s Letter C. No.2(1) STP/99, dated 8‑4‑1999, which read as hereunder:‑‑ "I am directed to refer to the subject noted above and to clarify that spares, lubricants for machinery producing taxable goods and textile printing screens producing taxable textile goods are not inadmissible for input tax credit under section 8 of the Sales Tax Act, 1990 read with S.R.O. 578(1)/98, dated 12‑6‑1998 effective from 1‑7‑1998. However, the tax on such inputs, used in non‑taxable activities shall not be admissible for credit, either wholly or proportionately (as the case may be) in terms of Board's C. No. 1(34)/ST.AIU/99, dated 31‑3‑1999.".

5. The learned representatives from the Collectorate opposed the appeal on the ground that spares and accessories are not stock‑in‑trade and, therefore, not entitled to input tax credit when procured alongwith the plant and machinery itself, as ruled by the C.B.R.

6. Having heard the parties and on perusal of record of the cast;, we find ourselves in agreement with the arguments of the appellant. We hold that sales tax paid on identifiable spares, accessories and maintenance materials (e.g. paints, grease, lubricants, tyres, tubes,, batteries, etc.), required essentially to keep the production machinery of a registered person operational, is admissible to input tax credit facility in terms of section 7(1) of the Sales Tax Act, 1990, as these are not covered by section 8(1) of the Act or listed under any notification so issued thereunder. It is not material, in such a situation, whether such spares and accessories are "stock‑in‑trade" or not. We also hold that input tax credit in relation to purchases made of goods (including spares, accessories and maintenance materials like tyres, tubes, batteries; grease lubricants, etc., etc.) shall not be admissible if these are procured for the maintenance, repairs, reconditioning or operation of goods (e.g. vehicles, buildings, office equipments, electrical and gas apparatus. appliances, furnitures, fixtures, etc.) covered by 'section 8(1) of the Act or by a notification issued thereunder. The Adjudicating Officer has misread Notification No. S.R.O. 987(1)/99, dated 30‑8‑1999 because the said notification is for exemption from sales tax on plants and machinery while this case relate to input tax adjustment on spares and accessories procured for maintenance and operation of installed plant and machinery of a registered person. The Adjudicating Officer has also misread the' Notification NO.S.R.O.578(1)/98, dated 12‑6‑1998 read with Honourable Supreme Court's judgment (1999 PTD 1992). The word "stock‑in‑trade" I has been used in the said notification with reference to the goods mentioned in that very notification and implies inapplicability of the salt S.R.O. where the goods specified therein have been acquired by registered person on stock‑in‑trade. For example, taxable vehicle purchased by a registered textiles mill is inadmissible for input tax credit by the said textile mill under that notification but when acquired by registered vehicle dealer/retailer, it shall be treated as stock‑in‑trade of such registered vehicle dealer/retailer and shall be eligible to input tax credit by the said dealer. However, reference to `stock‑in‑trade' is not material if such spares were procured for maintenance and operation of production machinery (not listed in the said Notification No.S.R.O. 578(1)/98, dated 12‑6‑1998) and not for maintenance or operation of any of the goods listed in the said notification. For the reasons given above, we set aside the portion of the impugned order demanding payment of sales tax and additional tax and penalty as is relatable to the appellant's procurement pf the spare parts, accessories and maintenance materials required for the essential operation of the production machinery of the, appellant's factory. We also confirm the portion of the impugned order demanding payment of input sales tax relatable to the procurement, if any, of the spare parts, accessories and maintenance materials required for the maintenance/operation of such goods as are covered by the then provisions of section 8(1) of the Sales Tax Act, 1990, or the S.R.O. 578(1)/98, dated 12‑6‑1998 issued thereunder. The additional tax on such amount of sales tax should also be paid as the opportunity cost of money not paid in time. This additional tax is mandatory under section 34 of the Act. The appellant should check up the list of inputs involved and invoices relating thereto and should calculate the sales tax so incorrectly adjusted, if any, and pay that amount alongwith the amount of additional tax due. The portion of the impugned order relating to imposition of penalty under section 33 is set aside. The impugned order is modified to the extent stated in this paragraph and the appeal stands disposed of accordingly.

7. Inform all concerned.

8. Announced. C.M.A./1061/Tax(Trib.) Order accordingly.