Buyers, sellers jointly responsible for payment of unpaid tax

KARACHI: Federal Board of Revenue (FBR) has held responsible buyers and sellers in a supply chain where payment of tax is not deposited into the national kitty.

The FBR issued Sales Tax Act, 1990 updated till June 30, 2019 incorporating changes brought through Finance Act, 2019. The FBR has made responsible registered suppliers and recipients of the supply where amount of tax has not been paid.

This has been explained in the Section 8A of the Sales Tax Act, 1990.

Section 8A: Joint and several liability of registered persons in supply chain where tax unpaid.

Where a registered person receiving a taxable supply from another registered person is in the knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of that supply or any previous or subsequent supply of the goods supplied would go unpaid, of which the burden to prove shall be on the department such person as well as the person making the taxable supply shall be jointly and severally liable for payment of such unpaid amount of tax.

Provided that the Board may by notification in the official gazette, exempt any transaction or transactions from the provisions of this section.

Section 8: Tax credit not allowed

Sub-Section (1): Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on –

(a) the goods or services used or to be used for any purpose other for taxable supplies made or to be made by him;

(b) any other goods or services which the Federal Government may, by a notification in the official Gazette, specify;

(c) the goods under sub-section (5) of section 3:

(ca) the goods or services in respect of which sales tax has not been deposited in the Government treasury by the respective supplier;

(caa) purchases, in respect of which a discrepancy is indicated by CREST or input tax of which is not verifiable in the supply chain;

(d) fake invoices;

(e) purchases made by such registered person, in case he fails to furnish the information required by the Board through a notification issued under sub-section (5) of section 26;

(f) goods and services not related to the taxable supplies made by the registered person.

(g) goods and services acquired for personal or non-business consumption;

(h) goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings, pipes, wires and cables, but excluding pre-fabricated buildings and such goods acquired for sale or re-sale or for direct use in the production or manufacture of taxable goods;

(i) vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969), parts of such vehicles, electrical and gas appliances, furniture furnishings, office equipment (excluding electronic cash registers), but excluding such goods acquired for sale or re-sale;

(j) services in respect of which input tax adjustment is barred under the respective provincial sales tax law;
(k) import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7 percent under Eighth Schedule to this Act;

(l) from the date to be notified by the Board, such goods and services which, at the time of filing of return by the buyer, have not been declared by the supplier in his return or he has not paid amount of tax due as indicated in his return; and
(m) the input goods attributable to supplies made to un-registered person, on pro-rata basis, for which sale invoices do not bear the NIC number or NTN as the case may be, of the recipient as stipulated in section 23.

Sub-Section (2): If a registered person deals in taxable and non-taxable supplies, he can reclaim only such proportion of the input tax as is attributable to taxable supplies in such manner as may be specified by the Board.

Sub-Section (3): No person other than a registered person shall make any deduction or reclaim input tax in respect of taxable supplies made or to be made by him.

Sub-Section (5): Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of this section, no input tax credit shall be allowed to the persons who paid fixed tax under any provisions of this Act as it existed at any time prior to the first day of December, 1998.

Sub-Section (6): Notwithstanding anything contained in any other law for the time being in force or any provision of this Act, Board, with the approval of the Federal Minister-in-charge, may, by notification in the official Gazette, specify any goods or class of goods which a registered person cannot supply to any person who is not registered under this Act.

Section 8B: Adjustable input tax

Sub-Section (1): Notwithstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period:

Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or Capital goods:

Provided further that the Board may by notification in the official Gazette, exclude any person or class of persons from the purview of sub-section (1).

Sub-Section (2): A registered person, subject to sub-section (1), may be allowed adjustment or refund of input tax not allowed under sub-section (1) subject to the following conditions, namely:–

(i) in the case of registered persons, whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing a statement along with annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed under sub-section (1) above; or

(ii) in case of other registered persons, subject to the conditions and restrictions as may be specified by the Board by notification in the official Gazette.

Sub-Section (3): The adjustment or refund of input tax mentioned in sub-sections (2), if any, shall be made on yearly basis in the second month following the end of the financial year of the registered person.

Sub-Section (4): Notwithstanding anything contained in sub-sections (1) and (2), the Board may, by notification in the official Gazette, prescribe any other limit of input tax adjustment for any person or class of persons.

Sub-Section (5): Any auditor found guilty of misconduct in furnishing the certificate mentioned in sub-section (2) shall be referred to the Council for disciplinary action under section 20D of Chartered Accountants, Ordinance, 1961 (X of 1961).

Sub-Section (6): In case a Tier-1 retailer does not integrate his retail outlet in the manner as prescribed under sub-section (9A) of section 3, during a tax period or part thereof, the adjustable input tax for whole of that tax period shall be reduced by 15 percent.

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