Auction of used/secondhand vehicles: Confusion erupts over chargeability of ST

Two conflicting clarifications issued by the Federal Board of Revenue (FBR) on chargeability of sales tax on auction of used/secondhand vehicles has created confusion among the field formations, which immediately sought guidance whether sales tax is applicable on such vehicles or not.
Sources told Business Recorder here on Thursday that the Board had granted exemption of sales tax on auction of used/secondhand vehicles on the strength of S No 6 of Table-2 of the Sixth Schedule read with Section 8(1)(b) of the Sales Tax Act, 1990 On the other hand, second clarification of the Board has given an impression that sales tax is to be collected by government departments/ autonomous bodies. The FBR should clarify whether sales tax is applicable on auction of used vehicles by federal/ provincial departments, public sector organisations and autonomous bodies.
The issue has been raised when Frontier Corps Headquarters Peshawar has requested tax authorities to clarify that the organisation has planned auction different categories of vehicles. The tax department should confirm that sales tax, income tax, withholding tax or any other taxes leviable for auction of vehicles are required to be recovered from the contractors or otherwise. If so, intimate present rates of taxes for further process as soon as possible to the said organisation, it added.
According to the Chief Commissioner Regional Tax Office (RTO) Faisalabad, Inspector General, Frontier Corps, Khyber Pakhtunkhwa has requested for clarification regarding chargeability of sales tax and income tax on open auction of used registered vehicles.
The section 236A read with Division-VIII of Part-IV of the First Schedule to the Income Tax Ordinance, 2001 is very clear wherein advance tax @ 1% is to be collected by the withholding agent at the time of sale by auction.
However, there are two conflicting clarifications issued by the FBR regarding chargeability of sales tax on auction of used/second hand vehicle vide its letter C No 3(72)STP/97(Pt.-2) dated 02.08.2006 and CNo 3(72)ST-L&P/97(Pt II) dated 11.01.2007 (copies of both letters are attached). through its letter dated 02.08.2006, Board has granted exemption of sales tax on auction of used/second hand vehicles on the strength of S No 6 of Table-2 of the Sixth Schedule read with Section 8(1)(b) of the Sales Tax Act, 1990 On the other hand Board's letter dated 11.01.2007 give an impression that sales tax is to be collected by government departments/autonomous bodies
The RTO is of the opinion that auction/supply of used/second hand registered vehicles by government departments, public sector organisations and autonomous bodies should be chargeable to sales tax as the provisions of S.No 6 of Table-2 of the Sixth Schedule read with Section 8(1)(b) of the Sales Tax Act, 1990 is applicable to supply of fixed assets by registered persons against which input tax adjustment is not available to them Since these withholding agents do not qualify to be registered persons for sales tax purposes, therefore their supplies/auctions of fixed assets including vehicles should be chargeable to sates tax. In this way chargeability/withholding of sales tax/income tax would be in harmony as far as auction by government departments, public sector Organisations and autonomous bodies are concerned. Board is requested to confirm whether transfer/ auction of used vehicles by government departments or otherwise, RTO added. Board's letter C.No 3(72)STP/97(Pt-2) Dated 02.08.2006 said that Serial No 6 of the Table-2 of the Sixth Schedule to the Sales Tax Act, 1990 provides sales tax exemption on supply or disposal of fixed assets against which input tax adjustment is not available under notification issued in terms of clause (b) of sub-section (1) of Section 8 of the Sales Tax Act, 1990. The notification SRO 490(1)/2004 dated 12.06.2006 issued under the aforesaid provisions bars adjustment of input tax on vehicles falling in Chapter-87 of the First Schedule to the Customs Act, 1969. Therefore, Sales Tax on such vehicles, if sold or auctioned otherwise than as stock-in-trade, will not be payable.
Board's letter 3(72)ST-L&P/97(Pt-II) dated 11.01.2007 said: The Board's guidance has been sought on payment of refunds in cases where a person has deposited sales tax on transfer of old and used vehicles which is in excess of the amount stipulated in repealed SRO 522(1)/2005 dated 5.6.2006 or in cases where the government departments/autonomous bodies have collected excess sales tax than due on the auction/sale of vehicles.
The Board is of the view that in such cases, the buyer may get the application for refund endorsed by the auctioning department and the same may be deposited in the concerned Collectorate alongwith the original challan and a certificate from the auctioning department regarding sale/auction of vehicle to the applicant. The Collectorate shall process the claim and sanction the same subject to admissibility, including applicability of section 66 of the Sales Tax Act, 1990 and a crossed cheque for admissible amount shall be issued in the name of the applicant and forwarded to the auctioning department for payment to buyer so that they can record the fact of the refund with them. The entries showing refund shall also be made on the original payment challan so that refund can be claimed.