C.A. - 1422 - 2019 Section 7 (1) of The Sales Tax Act
C.A. - 1422 - 2019 Section 7 (1) of The Sales Tax Act
C.A. - 1422 - 2019 Section 7 (1) of The Sales Tax Act
(Appellate Jurisdiction)
Present:
Mr. Justice Qazi Faez Isa
Mr. Justice Yahya Afridi
Mr. Justice Jamal Khan Mandokhail
JUDGMENT
(Refund) Karachi, which as per section 66 of the Sales Tax Act, 1990
(‘Sales Tax Act’) are to be filed within one year. In their first claim, the
‘input tax’ for the import of new cement grinding mill machinery (‘new
machinery’). The reason for the belated filing of the claim was stated to be
Tax Act. In the second claim, the respondent-company sought the refund
on the import of spare parts (‘spare parts’) during the period from July
1996 to February 1997. As for the delay in filing this claim, the
‘input tax’ paid on spare parts of machinery under section 7(1) of the
Sales Tax Act. Further, the respondent-company asserted that its right to
adjustment of the ‘input tax’ had not been extinguished by the flux of
time.
Sales Tax Act, the reclaim or deduction of the input tax could not be
allowed as the supply of the good, that is, cement, made by the
under the Finance Act, 1997. As to the commercial production of the new
the Customs, Excise & Sales Tax Appellate Tribunal, Karachi (‘Tribunal’),
which was accepted by the Tribunal vide its order dated 13.09.2004. The
‘input tax’, acquired a right to adjust the same in the ‘output tax’, which
could not be disallowed by the flux of time, and in particular, when the
time restriction for claiming the same within ‘the relevant tax period’ was
only introduced through the Finance Act, 1998 by amending section 7(1)
of the Sales Tax Act, and that this amendment could not be
section 66 of the Sales Tax Act, the Tribunal held that the same was not
while the production and supply of ‘pure slag’ continued before and after
the grant of exemption of sales tax on cement under the Sales Tax Act.
These factual and legal findings of the Tribunal were maintained by the
as the ‘input tax’ was not adjusted in the monthly returns filed by the
claimed under section 66 of the Sales Tax Act, the conditions whereof
were not fulfilled in this case. It was further argued that as cement was
exempt from the sales tax, the respondent-company could neither seek
adjustment/refund of the paid ‘input tax’ under section 7(1) read with
section 10 of the Sales Tax Act, nor could it claim ‘tax credit’ under
section 8(1) of the Sales Tax Act. As for the installation and production of
the new machinery, the learned counsel relying on the findings recorded
that the same had not taken place till November 1997.
relied on the factual finding of the Tribunal that the new machinery was
not only installed but also continued supply of taxable slag during the
period when the cement was exempted from payment of sales tax. It was
adjustment of ‘input tax’, which was only inserted through the Finance
Act, 1998, and thus, could not be applied retrospectively to the claim of
contended that the claim of refund was not made solely under this
section.
Questions of Law
present appeal, contested that the new machinery or the spare parts
Civil Appeal No. 1422 of 2019 5
the term ‘goods’ defined in section 2(12) of the Sales Tax Act. Further, the
parties have been in consonance that ‘input tax’ paid on new machinery
and spare parts at the time of import could be adjusted under section
7(1) of the Sales Tax Act read with section 10(1) thereof, and also that in
certain cases, it may even lead to a claim for ‘tax credit’ under section 8
8. In essence, the dispute between the parties was regarding the time
authority asserted that the adjustment could be claimed in the same tax
period and that too in the monthly returns, while the respondent-
which the input tax was paid. To effectively address the above core
the overall tax regime envisaged under the Sales Tax Act:
Tax Regime
the Sales Tax Act lays down the foundational parameters of the sales tax,
Civil Appeal No. 1422 of 2019 6
which are: firstly, the quantum of the tax is based on the value of the
made chargeable when the goods are imported into Pakistan or when the
any taxable activity carried out by him; and finally, the liability to pay
the tax is on the person importing the goods in respect of the imported
10. In order to cater for and facilitate the value addition of goods made
during the supply chain of production, and to ease the burden of tax on
the supplier, the legislature has introduced in the Sales Tax Act, the
concept of ‘input tax’ 1 and ‘output tax’ 2 , and then provided for the
adjustment of the former at the time of paying the latter. ‘Input tax’ being
the tax paid by the person receiving the supply of goods, while ‘output
tax’ being the tax payable at the time of making the supply of the value-
facility for the adjustment of the ‘input tax’ from the ‘output tax’ payable
at the time of making the supply of the value-added goods. Thus, the
‘input tax’ paid by one supplier on receiving the goods would be the
‘output tax’ of the other, who is supplying the said goods, and the
deducting the already paid ‘input tax’ from the ‘output tax’, deposit the
stage of the supply chain, until the final good is purchased by the final
1
The Sales Tax Act 1990, s 2 (14).
2
ibid, s 2 (20).
Civil Appeal No. 1422 of 2019 7
sales tax.
11. This Court has, in Sheikhoo Sugar Mills v. Govt. of Pakistan3, while
dilating upon adjustment of ‘input tax’ at the time of paying the ‘output
tax’, as mandated under section 7 of the Sales Tax Act, opined that:
Court as well.4 The said judicial view of this Court on the adjustment of
‘input tax’ in the sales tax regime is shared across the border by the
12. In view of the above, we reiterate the view already declared by this
of ‘input tax’ from the ‘output tax’ provided under section 7(1) of the
Sales Tax Act could be availed without any limitation of time, we consider
3
2001 SCMR 1376.
4
Collector of Customs, Sales Tax & Central Excise v M/S Sanghar Sugar Mills Ltd. PTCL 2007 CL. 565, Chiltan Ghee Mills, Quetta
v Deputy Collector of Sales Tax (Refund), Customs House, Quetta 2016 SCMR 2183.
5
AIR 1992 SC 2078.
6
India Agencies (Regd.), Bangalore v Additional Commissioner of Commercial Taxes, Bangalore AIR 2005 SC 1594, Jayam and Co.
v Assistant Commissioner AIR 2016 SC 4443, State of Karnataka v M.K. Agro Tech.(P) Ltd. (2017) 16 SCC 210, ALD Automotive
Pvt. Ltd. v The Commercial Tax Officer AIR 2018 SC 5235.
Civil Appeal No. 1422 of 2019 8
output tax that is due from him in respect of that tax period and to make
such other adjustments as are specified in Section 9.
(Emphasis supplied)
time for adjustment of the ‘input tax’ from the ‘output tax’ payable in
time, that is, a tax period, is with regard to determining the tax liability
of the ‘output tax’ on taxable supplies made by the tax payer during that
period, and does not relate to the period of payment of ‘input tax’ on the
14. For complete understanding, section 7 of the Sales Tax Act cannot
section 6, which stipulates the time and manner of payment of the sales
tax. Sub-section (1) of section 6 caters for goods imported into Pakistan,
while sub-section (2), which is relevant to the issue in hand, provides for
in the official gazette, at the time of filing of the return as provided for
under Chapter V of the Sales Tax Act. This Chapter of the Sales Tax Act
deals with different categories of returns envisaged under the Sales Tax
Act. Returns of the kind related to the present controversy are provided
for in section 26 of the Sales Tax Act, and to appreciate the provisions
contained therein, we are to consider also the definition of the terms ‘tax
period’ and ‘due date’ provided under the Sales Tax Act. For ease of
reference, the said provisions as were prevalent at the relevant time are
cited hereunder:
the supplies made during a tax period, the tax due and paid and such
other information, as may be prescribed:
Section 2(9)
(9) “due date” in relation to the furnishing of a return means the
20th day of the month following the end of the tax period, or such other
date as the Federal Government may; by notification in the official
Gazette, specify;
Section 2(43)
(43) “tax period” means a period of one month or such other period
as the Federal Government may, by notification in the official Gazette,
specify;
monthly return for the ‘tax period’, on the ‘due date’, that is, the 20th of
the month following the end of the tax period, recording therein all
purchases and supplies made during a ‘tax period’, the ‘output tax’ due,
and the actual amount paid after adjustment of the ‘input tax’.
15. Thus, at the relevant period there was no express obligation on the
tax payer to avail the facility of adjustment of ‘input tax’ in the same tax
period in which it was paid. We may also note here that this restriction
was, however, for the first time introduced by inserting the words
‘during the tax period’ after the words, “input tax paid”, in section 7(1)
vide the Finance Act, 1998. More amendments with regard to the time
limit for availing the adjustment facility of ‘input tax’ followed later.
Following proviso was added after subsection (1) of section 7 of the Sales
Provided that the taxpayer may adjust input tax paid on the purchases
in the immediate three preceding tax periods from the output tax
subject to the condition that the taxpayer specifies the reasons for such
delayed input tax adjustment in the revised sales tax return for such
period or in the return for the immediately succeeding tax period.
Civil Appeal No. 1422 of 2019 10
The word “three” in the above proviso was substituted by “twelve” by the
Finance Act, 2005, and the same was substituted by the Finance Act,
Provided that where a registered person did not deduct input tax within
the relevant period, he may claim such tax in the return for any of the
six succeeding tax periods.
16. Given that there was no time limit prescribed for claiming
adjustment of ‘input tax’, as provided under section 7(1) of the Sales Tax
the ‘input tax’ in the monthly return of the tax period in which it paid the
same, or in the subsequent tax periods till the cement was exempted
from payment of the sales tax through the Finance Act, 1997. However,
the respondent-company did not adjust the ‘input tax’ in its monthly
company could seek its refund under the Sales Tax Act.
17. Sections 10 and 66 of the Sales Tax Act deal with refund of tax.
From reading the above provisions, it is clear that refund under section
10 of the Sales Tax Act deals with a situation where the amount of ‘input
period; in such a situation, the excess amount of the paid ‘input tax’ is to
be refunded to the registered person within ninety days of the filing of the
tax return. However, this section is not attracted to the matter at hand,
as the respondent-company had not adjusted the ‘input tax’ against the
‘output tax’ in any of its tax returns, as provided under section 7(1)
18. Section 66 of the Sale Tax Act, on the other hand, provides for
year for preferring such claims. In the present case, the respondent-
company, during the relevant period, was not obliged to pay ‘output tax’
availing the facility of adjustment of the ‘input tax’ afforded under section
7(1) of the Sales Tax Act. This omission, as asserted by the respondent-
‘misunderstanding’ on its part, and would thus come within the purview
Act. In any event, there was no other reason for the respondent-company
for not availing the benefit of the adjustment facility provided under the
law and, instead, to saddle itself with a liability not required by law. The
maintainable under section 66 of the Sales Tax Act, provided it was made
Civil Appeal No. 1422 of 2019 12
company, in its reply to the show cause notice issued for rejection of
their refund claims, maintained that it had not made the said claims
precisely under section 66 of the Sales Tax Act. However, any admission
The present case, which falls within the scope of section 66 of the Sales
Tax Act, was to be dealt with under the said provision of law,
its applications dated 11-6-1997 to any specific provision of the Sale Tax
Act or their stance taken in their reply to the show case notice, as to
19. Our view as to the applicability of section 66 of the Sales Tax Act to
the present case is further fortified by the fact that subsequent to the
amended by the Finance Act, 1998 and the words, “or refund on account
of input adjustment not claimed within the relevant tax period,” were
follows:
mentioned the refund claims of input tax of which adjustment has not
Civil Appeal No. 1422 of 2019 13
been claimed within the relevant tax period, without making any change
in other provisions of the Sale Tax Act on this matter. It, therefore,
follows that the object was to clarify the existing legal position by way of
made in its applications dated 11-06-1997 makes out a case for refund
did not adjust the ‘input tax’ in the ‘output tax’ in the tax returns filed
after import of the new machinery and spare parts. This facility of
company till 1st July 1997, when the taxable supply of cement, was
exempted from payment of sales tax by the Finance Act, 1997. Obviously,
after the said exemption of cement from payment of sales tax, there was
no question of payment of ‘output tax’, and hence ‘input tax’ paid could
21. The period of limitation prescribed for seeking the refund under
section 66 was one year from the date of over-payment of tax that is,
when ‘output tax’ was paid by the registered person without adjusting
tax’ not adjusted in the monthly returns filed during the period of one
Conclusion
22. For the reasons stated above, we find that the Tribunal and the
High Court erred to the extent of not appreciating the correct purport of
the applicable provisions of the Sales Tax Act, and though passed correct
the time of importing the new machinery and the spare parts under
section 66 of the Sale Tax Act, which was not adjusted in its tax returns
filed for the period of one year, that is, from 11.06.1996 till 10.06.1997
Judge
Judge
Judge
Judge
Islamabad
Approved for reporting
Arif