Here:

var sparks : Transform;
var ammo : int = 100;
var fireRate : float = 0.2;
private var nextFire : float = 0.0;

function Update () {
    if(Input.Getbutton("Fire1") && Time.time > nextFire) {
         nextFire = Time.time + fireRate;
         fire();
    }
}

function fire() {
    var range = Mathf.Infinity;
    var ray = Camera.main.ScreenPointToRay (Input.mousePosition);
    var hit : RaycastHit;

    if (Physics.Raycast (ray, hit, range)) {
// --------------------------------------------------------------
        Instantiate(sparks, hit.point, Quaternion.LookRotation(hit.normal)); 
// --------------------------------------------------------------
    }
}

:)

Instantiate requres a special rotation structure called a Quaternion be used to describe it's starting rotation. Quaternion.LookRotation() does basically what you intended by figuring out what rotation is requried to look at a point in space when standing at (0,0,0).

Instantiate takes three parameters, the object, the position and the rotation. The rotation has to be a quaternion. Is there a reason you're using the normal from hit? Otherwise switch it to Quaternion.identity or the desired Quaternion.Euler(x, y, z).