Circumstances where input tax is not allowed

A registered person shall not be allowed to deduct or claim input tax, if it is paid in respect of the following goods or services:

1) Goods or services not used in production of taxable supplies:

A registered person shall not be entitled to claim input tax on goods or services, which have not been used in manufacturing of taxable supplies.

2) Goods on which extra tax is charged:

The Federal Government may levy & collect extra tax upto 16% of the value of specified goods.

3) Exempted goods:

Tax credit for input tax is not allowed for exempted goods.

4) Goods on which sales tax has not been paid by supplier:

The input tax credit is not claimed in respect of those goods or services on which sales tax has not been deposited in the Government treasury by the supplier.

For example: Purchases from non-registered person.

5) Payment of input tax on fake invoices:

The input tax credit is not allowed in respect of payment of input tax on fake invoices.

6) Person failed to furnish required information:

Where a person failed to furnish any detail required by the FBR in respect of goods purchased shall not claim input tax credit.

7) Activity in respect of which turnover tax or fixed tax is charged:

A person who is engaged in an activity in respect of which turnover tax or fixed tax is charged is not entitled to claim a credit for input tax.

8) Non-availability of tax invoices:

The registered person may not claim input tax in the absence of tax invoices.

9) Supply received from a person who has paid fixed amount of tax:

Where a registered person has received taxable supply from a person who pays fixed amount of tax, such registered person is not entitled to claim input tax credit.

Exemption [13]

1) Goods specified in the Sixth Schedule:

Goods specified in the Sixth Schedule by the Federal Government are exempt from sales tax under the Sales Tax Act, 1990.

2) Authority of the Federal Government regarding exemption:

The Federal Government may, by notification in the Special Gazette, exempt any taxable supplies made or import of supply of any goods or class of goods, from the whole or any part of the tax chargeable under the Sales Tax Act, 1990, subject to the conditions and limitations specified therein.

3) Authority of the Federal Board of Revenue regarding exemption:

The Federal Board of Revenue may, by special order in each case stating the reasons, exempt any import or supply of goods of such description or class, as may be specified from the payment of the whole or any part of the tax chargeable under the Sales Tax Act, 1990.

Debit and credit note [9]

Where a registered person has issued a tax invoice in respect of a supply made by him and as a result of cancellation of supply or return of goods or a change in the nature of supply or change in the value of the supply or some such event the amount shown in the tax invoice or the return needs to be modified, the registered person may, subject to such conditions and limitations as the Federal Board of Revenue may impose, issue a debit or credit note and make corresponding adjustment against output tax in the return.

Refund of input tax [10]

(1) If the input tax paid by a registered person on taxable purchases made during a tax period exceeds the output tax on account of zero rated local supplies or export made during that tax period, the excess amount of input tax shall be refunded to the registered person not later than forty-five days of filing of refund claim in such manner and subject to such conditions as the Federal Board of Revenue may, by notification in the official Gazette specify:

Provided that in case of excess input tax against supplies other than zero-rated or exports, such excess input tax may be carried forward to the next tax period, alongwith the input tax as is not adjustable in terms of sub-section (1) of section 8B, and shall be treated as input tax for that period and the Federal Board of Revenue may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, prescribe the procedure for refund of such excess input tax;

Provided further that the Federal Board of Revenue may, from such date and subject to such conditions and restrictions as it may impose, by notification in the official Gazette, direct that refund of input tax against exports shall be paid along with duty drawback at the rates notified in the said notification.

(2) If a registered person is liable to pay any tax, default surcharge or penalty payable under any law administered by the Federal Board of Revenue, the refund of input tax shall be made after adjustment of unpaid outstanding amount of tax or, as the case may, default surcharge and penalty.

(3) Where there is reason to believe that a person has claimed input tax credit or refund which was not admissible to him, the proceedings against him shall be completed within sixty days. For the purposes of enquiry or audit or investigation regarding admissibility of the refund claim, the period of sixty days may be extended up to one hundred and twenty days by an officer not below the rank of an Additional Collector of Sales Tax and the Federal Board of Revenue may, for reasons to be recorded in written, extend the aforesaid period which shall in no case exceed nine months.

Assessment of Tax [11]

(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an officer of Sales Tax shall, after a notice to show cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with section 33 and 34:

Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return alongwith default surcharge and penalty, the notice to show cause and the order of assessment shall abate.

(2) Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under the Sales Tax Act, 1990 for reasons other than those specified in sub-section (1), an officer of Sales Tax shall make an assessment of sales tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with section 33 and 34.

(4) No order under this section shall be made by an officer of Sales Tax unless a notice to show cause is given within five years to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard:

Provided that order under this section shall be made within one hundred and twenty days of issuance of show cause notice or within such extended period as the Collector may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed one hundred and twenty days.

(5) Notwithstanding anything in sub-section (1), where a registered person fails to file a return, an officer of Sales Tax Department, not below the rank of Assistant Collector, shall subject to such conditions as specified by the Central Board of Revenue, determine the minimum tax liability of the registered person.

Short paid amounts recoverable without notice [11A]

Notwithstanding any of the provisions of the Sales Tax Act, 1990, where a registered person pays the amount of tax less than the tax due as indicated in his return, the short paid amount of tax along with default surcharge shall be recovered from such person by stopping removal of any goods from his business premises and through attachment of his business bank accounts, without giving him a show cause notice and without prejudice to any other action prescribed under section 48 of the Sales Tax Act, 1990 or the rules made thereunder:

Provided that no penalty under section 33 of the Sales Tax Act, 1990 shall be imposed unless a show cause notice is given to such person.

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