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Revenue Board cancels ruling for input tax adjustment

ISLAMABAD (November 18 2002) : While withdrawing certain concessions of using banking instruments for payments against the purchase of taxable goods of over Rs 50,000, the Central Board of Revenue (CBR) has made it mandatory for the business community to actually transfer the amount of payment from buyer's bank account to the seller's account within 120 days to avail input tax adjustment/refund under section 73 of the Sales Tax Act, 1990, says a sales tax ruling 68/2002 issued on Sunday.

According to the order, the amount is required to be transferred in cash from buyer's account to the seller's account within 120 days of the issuance of tax invoice. Mere issuance of cheque/draft in the name of seller would not serve the requirement of section 73 now.

Previously, the tax authorities gave relaxation to the taxpayers that transfer could be made through other banking instruments within 120 days to be encashed later, binding the authority to pay input tax. If a bank draft or a pay order is issued within 120 days from the business account of buyer in favour of seller, input tax/refund will remain available irrespective of the fact whether the amount in cash was deposited, the earlier ruling said.

Now, the CBR has taken away these concessions on the plea that the sales tax department has wrongly issued a decision (implication of section 73 of December 28, 2001) last year in violation of Sales Tax Act, 1990.

The CBR was unaware of the fact that the tax authorities had given these concessions against the provisions of Sales Tax Act, 1990 till collectors pointed out that the authorities should immediately withdraw these concessions contrary to the provision of section 73.

The CBR's previous erroneous ruling was widely used by the industrial units but as the new orders do not say 'with immediate effect' it gives an indication that CBR would not open the cases where businessmen had enjoyed concession under STP clarification 2001.

The CBR's wrongly issued clarification of 2001, which is no more applicable from Monday, was as under:

“The Board is pleased to clarify that if a banking instrument has been issued within 120 days but encashed later, input tax should not be denied. Section 73 refers to 'transfer of the payment in favour of the seller from the business account of the buyer'. The section does not require deposit of sales tax in the account of the supplier within 120 days.

Thus, if a bank draft or a pay order is issued within 120 days from the business account of the buyer in favour of seller, input tax/refund will remain available irrespective of the fact whether the amount was deposited. However, it must be ensured that the amount is ultimately deposited in the seller's account and the cheque/bank draft/pay order is not cancelled”.

The CBR has conveyed to all collectors of sales tax to immediately withdraw the above-mentioned clarification of 2001 and verify actual transfer of payment from buyer's bank account to the seller's bank account within 120 days as per provision of section 73 of the Sales Tax Act.

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