SALES TAX RULING NO. 01/2005

Government of Pakistan (Revenue Division) Central Board of Revenue [Sales Tax & Federal Excise Wing] *****

C. No.5/8-STB/2005. Islamabad, the 17th August 2005.

TO:

The Collector, Large taxpayers’ unit (LTU), Karachi/Lahore

The Collector, (Enforcement) / (Hdqrs.) / (Audit), Sales Tax House, Karachi.

The Collector, Collectorate of Sales Tax & Federal Excise, Lahore/Faisalabad/Gujranwala/Rawalpindi/Peshawar.

The Collector, Customs, Sales Tax & Federal Excise, Hyderabad/Quetta/Multan.

SUBJECT: CLARIFICATION REGARDING SALES TAX ZERO-RATING UNDER SRO 527(I)/2005 DATED 06.06.2005.

I am directed to refer to the subject cited above and to say that several registered persons have approached the Board seeking clarification on following issues concerning the subject notification, viz.

(i) whether or not zero-rating is available to particular raw materials, components and sub-components used by them in the manufacture of capital goods;

(ii) the Customs authorities are refusing release of such raw materials, components and sub-components as are imported by them for use in the manufacturing of capital goods on the ground that since the capital goods manufactured there-from carry statutory rate of customs duty that is higher than 5% ad valorem, the same are not entitled to sales tax zero-rating at import stage; and

(iii) they have been refused zero-rating on import of parts, components and sub-components on the ground that imports made by such manufacturers are not regulated by any survey-related notification issued under section 19 of the Customs Act, 1969. Hence, zero- rating thereon becomes inadmissible by condition (b) of SRO 527(I)/2005.

02. These issues have been examined in the Board. With regard to the first issue, the Board is pleased to clarify that under SRO 527(I)/2005 dated 06.06.2005, the raw materials, components, sub-components and parts, as are imported or purchased locally for use in the manufacturing of capital goods shall be charged to sales tax @ zero percent, provided that the person procuring or importing zero-rated raw materials, components, etc. is registered as a manufacturer of capital goods and such raw materials, components, sub-components and parts are imported or purchased exclusively for use in the manufacture of such capital goods. The Collectors, are therefore, advised to ensure that the importer/buyer is a bona fide manufacturer of capital goods and that the inputs imported/purchased by him are exclusively used in the manufacture of capital goods.

03. As regards the second issue, it is clarified that the parts, components, sub-components and raw material used in the manufacture of plant & machinery (capital goods), supply of which is zero-rated under SRO 530(I)/2005, shall qualify for zero- rating of sales tax on import as well as on local supply stages in terms of SRO 527(I)/2005, whether or not the import of such plant & machinery as is manufactured there-from carries statutory rate of more than 5% or is not regulated by any concessionary notification of customs. 04. Regarding the third issue, the Board is pleased to clarify that condition (b) of SRO 527(I)/2005 dated 06.06.2005 shall apply in those cases only where import is regulated through any concessionary or survey-related notification issued under section 19 of the Customs Act, 1969. However, if import is not regulated by any such notification, the same shall still be charged to sales tax @ zero percent, if it otherwise qualifies for sales tax zero-rating under SRO 527(I)/2005. In other words, condition (b) of the said notification shall not apply in case of those manufacturers of plant & machinery whose quantitative requirements are not determined by Form “S”.

05. The Collectors are advised to give necessary guidance to the officers working under their control accordingly.

06. This ruling is issued in supercession of all previous clarifications concerning SRO 527(I)/2005 dated 06.06.2005 issued by the Board from time to time.

(Wajid Ali) Secretary (ST & FE-Budget)

Copy to:

All Collectors of Customs for information and necessary action.

(Wajid Ali) Secretary (ST & FE-Budget)