Finance Bill amended: restriction on ST input tax adjustment removed

The Federal Board of Revenue (FBR) has fulfilled a major demand of the business community by withdrawing a budgetary decision pertaining to the restriction on ST input tax adjustment through amended Finance Bill (2014-15). A comparison of the Finance Bill (2014-15) and the amended Finance Bill by tax experts revealed on Wednesday that the proposed amendment for restriction of ST input tax adjustment under section 7 of the Sales Tax Act is not approved.
Hence, it is understood that the parliament has not approved to place restriction under section 7 of Sales Tax Act on input tax adjustment to the extent of input tax directly used in supply of taxable goods. Through amendments in the Finance Bill (2014-15), the FBR has abolished relevant clauses dealing with the restriction on input tax adjustment, tax experts said. According to the details, Finance Bill (2014-2015) seeks to specify domain for input tax credit adjustment through insertion of new sub section 2 in section 7. The entitlement of input tax credit is specifying to the extent of following accounts:-
The goods and services against which input tax is claimed are:
(a) imported or purchased for the purpose of sale or re-sale by the registered person on payment of tax;
(b) used directly as raw material, ingredient, part, component or packing material by the registered person in the manufacture or production of taxable goods;
(c) electricity, natural gas and other fuel consumed directly by the registered person in his declared business premises for the manufacture, production or supply of taxable goods;
(d) plant, machinery and equipment used by the registered person in his declared business premises for the manufacture, production or supply of taxable goods"
Experts said that the proposed amendment was widely criticised by the trade and industry, though similar sort of restriction is already placed in terms of sales tax notification 450(I)/2013 dated 27th July 2013, attempt to make part of the rule under sales tax act through insertion in Finance Bill would not get approval from legislature. The impugned rule is already challenged and pending under litigation in different High Courts.
The tax experts were of the view that the FBR intends to strengthen the law through mandate of the legislature to settle the litigation in their favour. However, the move to insert this amendment faced serious criticism from the trade and industry and eventually the proposed amendment was changed through amendments in the Finance Bill (2014-15).