SC rules generators producing taxable supplies not ‘stock in trade’

ISLAMABAD: The Supreme Court has held that generators and generating sets imported and installed with plant and machinery for the purpose of generating energy and producing taxable supplies cannot be termed as “stock in trade. ” A five-member Supreme Court bench, in a judgment authored by Justice Aqeel Ahmed Abbasi, observed: “The conclusion drawn in the Attock Cement Pakistan Ltd case to this effect is erroneous in law and fact. ” READ ALSO: Diesel engines for generators from US, Europe: New customs values set to check under-invoicing A three-member bench in Attock Cement Pakistan Ltd. vs. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and others(1999 PTD 1892) had held that machinery, including generators imported, installed, and used in the manufacturing process, would be considered plant and machinery and therefore fall within the definition of “stock in trade. ” Justice Abbasi wrote: “The rule laid down in the Attock Cement case, particularly its conclusion that plant and machinery would be construed as ‘stock in trade’, is legally incorrect. ” He further observed that the conclusion in the case was based on an over-extension of general dictionary meanings, erroneously conflating industrial apparatus with circulating capital. The five-member bench heard the petition of the Commissioner Inland Revenue (Legal), Islamabad, against a Peshawar High Court (PHC) judgment dated January 23, 2014. The judgment stated that the PHC’s reliance on the Attock Cement case, while treating generators installed for the purpose of generating energy for use in manufacturing taxable supplies as “stock in trade”, was misplaced and contrary to law. It further observed that “stock in trade” is neither defined under the Sales Tax Act, 1990 nor the Sales Tax Rules, 2006, nor in any dictionary in a figurative sense. The judgment added that the Peshawar High Court, while interpreting SRO 578(I)/98, erred in treating generators and generating sets as “stock in trade” and failed to consider the effect of the amendment made through SRO 677(I)/2000 as to whether it was prospective or otherwise. Justice Abbasi wrote: “Since we have held that the generator imported by the respondent (M/s Syntronics Ltd, Khyber Pakhtunkhwa) does not fall within the definition of ‘stock in trade’, we, while disagreeing with the reasoning of the Peshawar High Court, hold that input tax adjustment was available to the respondent in respect of the sales tax paid at the import stage against output tax. ” The court did not agree with the findings of the tax authorities and the Customs, Excise and Sales Tax Appellate Tribunal, which had held that SRO 677(I)/2000 was prospective in nature and could not be applied retrospectively. The judgment declared that the amending SRO 677(I)/2000 dated 28 September 2000, which provides a benefit to importers of generators of 250 KVA and above installed for generating energy used in manufacturing taxable supplies, is curative and clarificatory in nature. It removes the anomaly between industrial and ordinary generators and is therefore applicable retrospectively. It held that the findings of the tax authorities and the tribunal treating the amendment as prospective were erroneous in law and fact. According to the facts of the case, the respondent imported a Caterpillar diesel generator weighing 14. 3 MT, model 3512 TA, falling under Chapter 85 of the First Schedule to the Customs Act, 1969, with an output capacity of 1150 KVA and a total CNF value of USD 128, 500. The respondent paid sales tax of Rs1. 020 million at the time of clearance, which was later adjusted in its monthly tax returns. The judgment noted that the generator was imported for generating energy for manufacturing taxable supplies (cement) and therefore fell outside the exclusion provided at Serial No. 6 of the amended SRO 578(I)/98 dated 12 June 1998. Accordingly, the importer was entitled to claim input tax adjustment of the amount paid as sales tax at the import stage. Copyright Business Recorder, 2026

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