Softax (Pvt) Limited

Date: May 30, 2013

Sales Tax
Reference:- SRO 450(I)/2013 dated May 27, 2013
Brief
Amendment made in SRO 490(I)/2004 dated June 12, 2004.

Commentary
The subject SRO omitted the word “and” in clause (c) & substituted “;and” with full stop “.” At the end
of clause (d) of the SRO 490(I)/2004. The subject SRO further added the following clauses after clause (d)
in SRO 490(I)/2004.

(e). building materials including cement, bricks, paints, varnishes, distempers etc;
(f) Office equipment and machines (excluding electronic fiscal cash registers), furniture,
structure, fixture and furnishings excluding those directly used in taxable activity;
(g) electrical and gas appliances, pipes, fittings excluding those directly used in taxable
activity;
(h) Wires, cables, ordinary electrical fittings and sanitary fittings, excluding those directly
used in taxable activity; and
(i) Crockery, cutlery, utensils etc., excluding those directly used in taxable activity;

SRO 490(I)/2004 dated June 12, 2004 provided the list of goods in respect of which input tax can’t be
claimed if these goods are purchased by the registered person otherwise than as stock in trade.

Previously SRO 578(I)/98 dated June 12, 1998 was issued wherein a list of eleven goods was provided in
respect of which input tax can’t be claimed if these goods are purchased by the registered person
otherwise than as stock in trade.

SRO 490(I)/2004 dated June 12, 2004 resided the SRO 578(I)/98 and restrict the subject list upto three
items in respect of which input tax can’t be claimed if these goods are purchased by the registered
person otherwise than as stock in trade.

(a) vehicles falling in chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969);
(b) food, beverages, garments, fabrics, etcetera and consumption on entertainment; and
(c) gifts and give-aways.

Then clause (d) was added through SRO 464 of 2007 where sales tax paid on supply of electricity and gas
to residential colonies was not available for credit.

After insertion of further five items [(e) to (i)] in SRO 490(I)/2004 dated June 12, 2004 through the
subject SRO, total nine items [(a) to (i)] are available in respect of which input tax can’t be claimed if
these goods are purchased by the registered person otherwise than as stock in trade.

Newly inserted five items [(e) to (i)] with few amendments are nearly the same as were available in SRO
578(I)/98 which was resided through SRO 490(I)/2004. Goods mentioned in clauses (f) to (i) are excluded
if these goods are directly used in taxable activity. Definition of taxable activity is reproduced as under
for better understanding.

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Phone: 36312148, 36305534. Fax: 36305535. Email: solutions@softax.com.pk
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“Taxable Activity, means any economic activity carried on by a person whether or not for profit, and
includes.

(a) an activity carried on in the form of a business, trade or manufacture;

(b) an activity that involves the supply of goods, the rendering or providing of services, or both to
another person;
(c) a one-off adventure or concern in the nature of a trade; and
(d) anything done or undertaken during the commencement or termination of the economic activity,

but does not include

(a) the activities of an employee providing services in that capacity to an employer;

(b) an activity carried on by an individual as a private recreational pursuit or hobby; and
(c) an activity carried on by a person other than an individual which if carried on by an individual,
would fall within sub-clause (b).

Taxable activity is basically the business activity and if goods mentioned in subject clauses (f) to (i) are
directly used in taxable activity then input tax will be claimed and if these goods are not directly
connected with business activity then input tax can’t be claimed.

Scope and Chargeability of sales tax under section 3 of the Sales Tax Act, 1990 will also support this
concept. Section 3 is reproducing as under for further clarification.

Section 3(1)(a)

“Subject to the provisions of this Act, there shall be charged, levied and paid a tax nown as sales tax at
the rate of sixteen per cent of the value of

(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity
carried on by him; and”

Sales tax will only be charged if taxable supplies made in the course or furtherance of taxable activity. It
means input tax paid on goods purchased will only be charged if these goods are directly used in the
course or furtherance of taxable activity.

So it clear from above discussion that input tax can be claimed on the goods mentioned in subject
clauses (f) to (i) if directly used in taxable activity.

SRO 1307(I)/97 dated December 20, 1997 clearly supported the concept of chargeability of sales tax
which is reproduced as under. This SRO was rescinded by the SRO 578(I)/98 dated June 12, 1998
wherein a list of eleven goods was provided in respect of which input tax can’t be claimed if these goods
are purchased by the registered person otherwise than as stock in trade.

S.R.O.1307 (I)/97.- In exercise of the powers conferred by clause (b) of sub-section (1) of section 8 of the
Sales Tax Act, 1990, and in suppression of its notification No. SRO 556(I)/96 dated the 1st July, 1996, the
Federal Government is pleased to direct that a registered person shall not be entitled to reclaim or
deduct the input tax paid on goods which are not the directly constituent and integral part of the taxable

Softax House, 51/A-2, Lawrance Road, Lahore.

Phone: 36312148, 36305534. Fax: 36305535. Email: solutions@softax.com.pk
Softax (Pvt) Limited
goods produced, manufactured or supplied, during the course, or in the furtherance, of any taxable
activity.

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We can only provide information and not legal advice. If you need legal advice, you may contact
Softax Consulting at 042-36312148, 042-36305534 or consulting@softax.com.pk

Further we accept no responsibility or liability for any losses occasioned as a result of reliance on the
information included in this document.

Softax House, 51/A-2, Lawrance Road, Lahore.

Phone: 36312148, 36305534. Fax: 36305535. Email: solutions@softax.com.pk