LTU Karachi units: huge input tax claimed against unregistered persons'' invoices

The Federal Board of Revenue (FBR) has detected registered units falling within the jurisdiction of Large Taxpayer Unit (LTU) Karachi, which claimed input tax adjustment on the invoices of unregistered persons during 2012-13.
Sources told Business Recorder here on Sunday that the FBR has informed the LTU Karachi about huge input tax claimed against invoices of unregistered persons. According to the FBR, during analysis of sales tax returns data, it was found that a number of registered persons falling in LTU Karachi''s jurisdiction have claimed input tax adjustment against invoices of unregistered persons during the current financial year.
The most prominent cases revealed that a leading distribution unit in its sales tax return for tax period, August 2012, claimed input tax adjustment of Rs 21.97 million against supplies of Rs 137.3 million from a bank. The said bank is not registered for sales tax as per FBR database, and its registration profile indicates that it is a non-resident person without any permanent establishment in Pakistan.
Referring to another case, the FBR said that a consumer goods company claimed input tax adjustment of Rs 26.738 million against supplies of value Rs 140.78 million from an individual (supplier), who is not registered for sales tax as per FBR database. The registration profile indicates that income tax returns of the supplier for last 3 years are not available on the integrated tax management system (ITMS). Moreover, further checking of ITMS reveals substantial withholding of tax under section 161 of the Income Tax Ordinance, 2001 by different taxpayers from this supplier who is also using various names. Suppliers of POL products are required to be registered under the Sales Tax Act, 1990 and to charge sales tax on such supplies. Under rule 2(3A) of the Sales Tax Special Procedure (Withholding) Rules, 2007, recipients of advertisement service are required to deduct the full amount of sales tax mentioned in the invoice. However, in case of the said individual, neither the supplier is registered for sales tax, nor the amount of sales tax involved was withheld.
The FBR said the law is quite clear that no input tax adjustment is admissible against invoices issued by an unregistered person.