Section 7 of Sales Tax Act, 1990 has defined determination of tax liability for supplies made by registered persons.
The Federal Board of Revenue (FBR) issued the Sales Tax Act, 1990 updated up to June 30, 2021. The Act incorporated amendments brought through Finance Act, 2021.
Following is the text of section 7 of Sales Tax Act, 1990:
7. Determination of tax liability. – (1) Subject to the provisions of section 8 and 8B, for the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, subject to the provisions of section 73, be entitled to deduct input tax paid or payable during the tax period for the purpose of taxable supplies made, or to be made, by himfrom the output tax excluding the amount of further tax under sub-section (1A) of section 3. That is due from him in respect of that tax period and to make such other adjustments as are specified in Section 9:
Provided that where a registered person did not deduct input tax within the relevant period, he may claim such tax in the return for any of the six succeeding tax periods.
(2) A registered person shall not be entitled to deduct input tax from output tax unless,-
(i) in case of a claim for input tax in respect of a taxable supply made, he holds a tax invoice in his name and bearing his registration number in respect of such supply, or in case of supply of electricity or gas, a bill bearing his registration number and the address where the connection is installed:
Provided that from the date to be notified by the Board in this respect, in addition to above, if the supplier has not declared such supply in his return or he has not paid amount of tax due as indicated in his return;
(ii) in case of goods imported into Pakistan, he holds bill of entry or goods declaration in his name and showing his sales tax registration number, duly cleared by the customs under section 79, section 81 or section 104 of the Customs Act, 1969 (IV of 1969);
(iii) in case of goods purchased in auction, he holds a treasury challan, in his name and bearing his registration number, showing payment of sales tax;
(3) Notwithstanding anything in sub-sections (1) and (2), Board, with the approval of the Federal Minister-in-charge, may, by a special order, subject to such conditions, limitations or restrictions as may be specified therein allow a registered person to deduct input tax paid by him from the output tax determined or to be determined as due from him under this Act.
(4) Notwithstanding anything contained in this Act or rules made there under, the Federal Government may, by notification in the official Gazette, subject to such conditions, limitations or restrictions as may be specified therein, allow a registered person or class of persons to deduct such amount of input tax from the output tax as may be specified in the said notification.
(5) Notwithstanding anything contained in this Act or the rules made thereunder, the Board, by notification in the official Gazette, may impose restrictions on wastage of material on which input tax has been claimed in respect of the goods or class of goods.
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