FBR clarification

An apropos of news item appeared in some sections of the press with respect to availability of input tax credit or refund of input tax paid on packing materials used by the five export-oriented sectors ie textile, leather, sports goods, surgical instruments and carpets.
It has been stated in the news item that the condition in SRO 1125(I)/2011 dated 31.12.2011, as amended by SRO 491(I)/2016 dated 30.06.2016, that no input tax credit or refund shall be allowed on packing material, is applicable only to persons making local supplies and not to the exporters.
The position as mentioned in aforesaid news article is not legally correct. SRO 1125(I)/2011 dated 31.12.2011 has been issued for the benefit of five major export sectors. Prior to amendment by SRO 491(I)/2016 dated 30.06.2016, this notification allowed purchase of inputs at a reduced rate of 3%. However, keeping in view the demands from export industry, it was agreed to zero-rate the inputs. In return, the industry agreed to forego the input tax credit or refund paid on packing materials.
As a consequence, through the amendment made by SRO 491(I)/2016, the purchase and import of a large number of raw materials and input including fuels was allowed at the zero-rate. However, this facility was subject to certain conditions as agreed with the industry including disallowance of input tax credit paid on packing materials.
From a legal point of view, it may be emphasised that under clause (b) of section 8(1) of the Sales Tax Act, 1990, the Federal Government has powers to disallow input tax credit or adjustment on any items. SRO 1125(I)/2011 dated 31.12.2011 utilises the said power to disallow input tax adjustment or refund of input tax paid on packing materials. Further, as per condition (ii), the said SRO is applicable to following five sectors namely:
(a) spinning stage onwards, in case of textile sector;
(b) production of PTA or MEG, in case of synthetic sector;
(c) regular manufacturing, in case of carpets and jute products;
(d) tannery onwards, in case of leather sector; and
(e) organised manufacturing in case of surgical and sports goods.
Accordingly, any sales tax registered person falling in any of the five sectors given above, availing facility of zero-rating under aforesaid notification, shall not be entitled to claim input tax credit or refund of packing materials, even if such person is an exporter.
However, it may be clarified that the bar on claiming input tax credit or refund against packing materials is applicable to five specified sectors only and exporters outside these sectors can claim the input tax paid on packing material as per law.-PR