The Supreme Court has upheld the levy of sales tax on the sale of fixed assets, scrap, etc by the registered persons/concerns/companies. A full bench of the apex court gave an authoritative ruling on 23 appeals filed by CBR, and set aside the judgement of Lahore High Court, which had exempted such assets from sales tax.
The operative part of the Supreme Court judgement said: "Since the assessee while furnishing accounts have to mention the income from the sale of the goods, machinery, may be vehicles used in the business and the consideration/price of which is still to be used in the taxable activity/in the business, may be, by purchasing a new item in place of the old one by using the assets in enhancing, promoting, advancing in development of the business/taxable activity.
"It follows that sales tax would be applicable in respect of taxable supply made during the course of a business activity. It also follows that it is immaterial whether the supplier is in the business of the relevant goods or not so involved but the sale of these items and the utilisation of these sale consideration in the business activity is definitely to be considered in the course of or in furtherance of the business/taxable activity.
"Looking it from a different angle whenever there is a taxable activity, sales tax will have to be levied and if any exemption ie the supply is not liable to the levy of the sales tax, is claimed then it is for the person so pleads to show that the same is covered under the exemption clauses.
"There is no legal provision excluding the sale of old plant and machinery, vehicles or scrap from the purview of taxable supply. These goods were purchased by the respondents (registered persons) in the course of their taxable activity, their sale cannot be considered as a transaction which is divorced from their normal business and that the said goods are business assets of the respondents (registered persons) and both their purchase and sale is a part of their normal business activity."
"Section 7 of the Sales Tax Act, which is a beneficiary section, entitles a registered person to deduct input tax from output tax. However, Section 8 provides certain eventualities and the powers of the federal government through a notification in the official gazette, specify the goods under which the input tax is not available and in this respect the federal government while exercising powers under the Section 8 issued notification prescribing the goods on which the adjustment of input tax was disallowed.
"This may be in order to forestall the possible misuse of the input adjustment against the procurement of such goods which are not direct constituent/ingredients of the finished goods or which have multiple usage as well and also in line with the provisions of Section 8 that the goods were used not for the purpose of manufacture or production of taxable goods or taxable supplies.
"The refusal of input tax adjustment within the purview of the legal provision or legally competent notifications do not absolve the assets from the settled /due liability."