SALES
TAX CIRCULAR NO. 1 OF 1991,
DATE
27th FEBRUARY, 1991
SUBJECT:-- LEVY OF SALES TAX ON TUBULAR PLASTIC PACKING FILM—CLARIFICATION REGARDING.
A question regarding chargeability of sales tax on tubular plastic
packing film used in the manufacture of polyethylene bags has been raised by the
Plastic Manufacturers Association, Lahore. The Association is of the view that
since the end product is exempt from sales tax, levy of tax on tubular plastic
film, which is a processed raw material of polyethylene bags is not justified.
2.
The issue in question is :--
(i)
whether the manufacture of polyethylene bags from plastic granules to the
finished stage is a continuous process;
(ii)
where such intermediary items used in the manufacture of exempt goods are
chargeable to sales tax.
3.
Tubular plastic packing film is manufactured from plastic granules and
the same is further used in the production of polyethylene bags. Inquiry made in
this matter has revealed that tubular packing film is manufactured and is then
subjected to other processes to produce bags. Further these are judicial
pronouncement to the effect that if intermediary items are “capable of being
weighed, scaled, packed and shifted to independent section for storage and sale
these retard the continuity of the manufacturing process of the end product”.
Tubular packing film is not only capable of being weighed, packed and sold but
is being sold by a number of manufacturers on payment of sales tax. The process
of manufacture of plastic bags thus cannot be treated as a
continuous process.
4.
Tubular plastic film has not been exempted from sales tax. It is being
produced and marketed by a number of manufacturers on payment of sales tax. Its
use in the manufacture of plastic bags within the same business premises falls
within the ambit of supply as defined in section 2(22) of the Sales Tax
(Amendment) Act, 1990 and the same is accordingly chargeable to sales tax under
the law.
(Mr. Muhammad Yahya)
Second
Secretary (S.T.-Tar-I)