DATED 21ST NOVEMBER, 1996

SUBJECT: LEVY OF SALES TAX ON BUSINESS OR NON-BUSINESS USE OF GOODS PRODUCED IN THE COURSE OF BUSINESS.

The definition of “supply” under section 2(33)(a) of the Sales Tax Act, 1990 provides that “putting to private, business or non-business use of goods produced or manufactured in the course of business” amounts to supply. The definition of “taxable supply” means a supply of taxable goods.

2. Some questions have raised about the tax liability on the in-house use of cotton seed to produce oil cake and cotton seed oil and poultry feed to produce poultry birds.

3. In each of these cases of in-house use , the definition of supply under section 2(33)(a) is attracted. It is of no consequence that any cotton ginner-cum-oil expeller did not make any sale of cotton seed but used it to produce cake and oil: or the poultry feed was not sold but used in-house to produce poultry birds. In each case there was a “supply” of cotton seed and poultry feed as per the aforesaid definition. Also in each case the goods used in-house for production or manufacture of exempt goods.

4. It is clarified that where in such situations, the goods to be produced are not exempt from sales tax, no sales tax is payable except on the supply of final product.

5. The purpose of this Circular is to bring the correct position, which has been always so, to the notice of all concerned.

( Mr. Ahad Nawaz )

Secretary (STP)