The Central Board of Revenue (CBR) will levy sales tax at the rate of zero-percent on import and local purchase of raw materials, components/sub-components and parts, used in the manufacture of capital goods under SRO 527(I)/2005.
The CBR on Wednesday issued ''Sales Tax Ruling Number 1 of 2005'' to clarify certain issues relating to zero-rating of components/parts for the collectors of customs, collectors of sales tax, port authorities and business community. This will help in prompt clearance of stuck up consignments of components/parts imported under SRO 527(I)/2005.
ACCORDING TO THE RULING: several registered persons had approached the Board seeking clarification on issues dealing with SRO 527(I)/2005.
Business community had raised query about applicability of zero-rating to particular raw materials, components and sub-components used by them in the manufacture of capital goods.
However, Customs officials were refusing release of such raw materials, components and sub-components imported by manufacturers for use in the manufacturing of capital goods on the ground that since the capital goods manufactured therefrom carry statutory rate of customs duty which is higher than 5 percent ad valorem, they are not entitled to zero-rating sales tax at import stage.
The Customs had also refused zero-rating on import of parts, components and sub-components on the ground that imports made by such manufacturers as are not regulated by any survey-related notification issued under section 19 of the Customs Act, 1969. Hence, zero-rating thereon becomes inadmissible by condition (b) of SRO 527(I)/2005, they added.
THESE ISSUES WERE EXAMINED IN THE BOARD: On the first issue, the Board has clarified that under SRO 527(I)/2005, the raw materials, components, sub-components and parts, as are imported or purchased locally for use in the manufacturing of capital goods, shall be charged to sales tax @ zero percent.
This is subject to the condition that the person procuring or importing zero-rated raw materials, components, etc is registered as a manufacturer of capital goods and such raw materials, components, sub-components and parts are imported or purchased exclusively for use in the manufacture of such capital goods.
The collectors, therefore, have been directed to ensure that the importer/buyer is a bona fide manufacturer of capital goods and that the inputs imported/purchased by him are exclusively used in the manufacture of capital goods.
As regards the second issue, it is clarified that the parts, components, sub-components and raw material used in the manufacture of plant/machinery (capital goods), supply of which is zero-rated under SRO 530(I)/2005, shall qualify for zero-rating of sales tax on import as well as on local supply stages in terms of SRO 527(I)/2005, whether or not the import of such plant & machinery as is manufactured therefrom carries statutory rate of more than 5 percent or is not regulated by any concessionary notification of Customs.
Explaining the third issue, the Board has clarified that condition (b) of SRO 527(I)/2005 shall apply in those cases only where import is regulated through any concessionary or survey-related notification issued under section 19 of Customs Act, 1969. However, if import is not regulated by any such notification, the same shall still be charged to sales tax @ zero percent if it otherwise qualifies for sales tax zero-rating under SRO 527(I)/2005.
In other words, condition (b) of the said notification shall not apply in case of those manufacturers of plant & machinery whose quantitative requirements are not determined by Form ''S''.
The Collectors have been advised to give necessary guidance to the officers working under their control accordingly.
This ruling has been issued in supersession of all previous clarifications concerning SRO 527(I)/2005 issued by the Board from time to time.
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