Firms with excessive sales tax refund claims to be audited

ISLAMABAD (February 29 2004): The Central Board of Revenue (CBR) has decided to conduct audit of registered people with low turnover and nominal value-addition but claiming excessive amount of sales tax refund.

These units, instead of claiming due amount of refund in a particular month, 'carry forward' the same to next months.

Sources told Business Recorder here on Saturday that some registered persons have started claiming refund on excess amount carried forward on the ground that their raw materials are chargeable to sales tax at the rate of 20 percent while the finished products manufactured by them are chargeable to tax @ 15 percent.

A thorough analysis of such cases carried out by the CBR showed that certain units report nominal value-addition and low turnover, which does not justify their financial feasibility.

The figures furnished do not give the expenditure on labour, transport, overheads, marketing etc, including profit margin of these units.

On the issue of refund claims, the proviso of section 10(1) of the Sales Tax Act, 1990 is quite clear, which says, “if the excess amount of input tax is not fully covered by the tax payable during a period of one year following the tax period in which the credit first arose, the balance outstanding at the end of that period shall be refunded”.

On the other hand, the claimants seem to be under the impression that if the registered person continuously has carried forward the amount for 12 months, whatever claim was at the end of that period would be refunded.

The CBR observed that the registered persons were not able to understand the factual status in this regard.

The balance excess amount has to be calculated on the principle of 'FIFO' (first-in-first-out). Thus, if an excess amount arises in a particular month, it would be refunded only if it is not fully adjusted within the subsequent 12 months period.

In this connection, the CBR has issued instructions to all collectors of sales tax to forthwith investigate/audit such refund claims of nominal value-addition and not allow refund unless the excess amount is carried forward for a complete 12-month period as required under the law.

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