<p> SALES TAX RULING NO. 01/2005 </p><p>Government of Pakistan (Revenue Division) Central Board of Revenue [Sales Tax & Federal Excise Wing] *****</p><p>C. No.5/8-STB/2005. Islamabad, the 17th August 2005.</p><p>TO:</p><p>The Collector, Large taxpayers’ unit (LTU), Karachi/Lahore</p><p>The Collector, (Enforcement) / (Hdqrs.) / (Audit), Sales Tax House, Karachi.</p><p>The Collector, Collectorate of Sales Tax & Federal Excise, Lahore/Faisalabad/Gujranwala/Rawalpindi/Peshawar.</p><p>The Collector, Customs, Sales Tax & Federal Excise, Hyderabad/Quetta/Multan.</p><p>SUBJECT: CLARIFICATION REGARDING SALES TAX ZERO-RATING UNDER SRO 527(I)/2005 DATED 06.06.2005. </p><p>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. </p><p>(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; </p><p>(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 </p><p>(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. </p><p>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. </p><p>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”. </p><p>05. The Collectors are advised to give necessary guidance to the officers working under their control accordingly. </p><p>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. </p><p>(Wajid Ali) Secretary (ST & FE-Budget)</p><p>Copy to:</p><p>All Collectors of Customs for information and necessary action. </p><p>(Wajid Ali) Secretary (ST & FE-Budget)</p>