ISLAMABAD (August 21 2003) : The Central Board of Revenue (CBR) has failed to check sales tax auditors from framing wrong reports against traders and industrial units.
It is learnt that certain sales tax auditors not only demand unnecessary documents from the traders but also make wrong contravention reports in violation of CBR clarifications and SROs.
Hence, taxpayers have to go through painful adjudication proceedings eventually getting decision in their favour.
A recent case is an example of such harassment where a leading car distributor of Rawalpindi won the case framed by auditors against them through Collectorate of Customs, Sales Tax and Central Excise, Rawalpindi (Adjudication), Rawalpindi.
Details showed that Assistant Collector (Audit), Sales Tax, Rawalpindi, conducted audit of this car distributor of Rawalpindi in 2001 for the period Sept 1999 to November 2000.
The scrutiny of record showed that inadmissible input tax was adjusted to the tune of Rs 12,92,609 in violation of section 7(2) of the Sales Tax Act, 1990.
According to income tax return during July 1, 1999 to June 30, 2000, the unit submitted Rs 28,623,418 whereas it declared sales for the same period of Rs 27,892,273. Difference of amount comes to Rs 7,31,145 and sales tax comes to Rs 95,366, which was recoverable along with 'Additional tax' and penalty under section 33,34 and 36 of the Sales Tax Act, 1990.
Auditors also contested that the unit violated sections 6,7,23,33 and 34 of the Sales Tax Act, 1990.
Accordingly, show-cause notice was served on the unit, but the company denied all charges.
Collectorate of Sales Tax (Adjudication), Rawalpindi noted that the unit adjusted/claimed the input tax on the invoices pertaining to the period December, 1999 and January, 2000 in the irrelevant tax period, in violation of section 7 of Sales Tax Act, 1990.
In the light of the Board's letter of 2003, which says, “At the time of first audit, the auditors should not ask for records/information documents etc, relating to period prior to the registration”.
Furthermore, SRO. 500(I)/2003 has specified that “Persons registered or enrolled before July 1, 2000 are exempted from payment of whole of the amount of Sales Tax and Additional Tax, payable on their supplies made prior to July 1, 2000”.
In this case, adjudication authorities maintained, it was the first audit and supplies in question were made prior to July 1, 2000.
Moreover, there was no sales tax evasion.
Therefore, liability determined against the unit on account of adjustment of input tax, in the irrelevant period, was not payable and charges framed by auditors had no justification.
On the issue of liability calculated by auditor on the basis of difference between income tax and sales tax returns (1999-2000), the unit contested that income tax return was filed on self assessment scheme after enhancing income by 20 percent every year, therefore it cannot be compared with sales tax return.
Moreover, SRO.500 says that “Persons registered or enrolled before 1st July, 2000 are exempted from payment of sales tax/additional tax payable on their supplies made prior to July 1, 2000”.
The difference between its Income and sales tax return is equivalent to 20 percent and the company registered prior to July 1, 2000.
It was regularly paying sales tax since its registration and no mala fide intention of the unit had been proved by the auditors.
Keeping this in view, the collectorate, adjudication dropped all charges against the unit, the order added.