LAHORE: The sales tax department failed to recover the sales tax amount from a taxpayer against obsolete stock that expired and was unfit for consumption.

According to sources, the department had alleged against a taxpayer that it had not deposited an amount of sales tax on obsolete stock on the pretext that the said stock expired and was unfit for consumption.

The department believed the sales tax amount, default surcharge, and penalty were recoverable. The department had observed some discrepancies in sales tax records/information during audit proceedings, i.e., sales invoices, purchase invoices, and annual taxpayer audit accounts for a specific period.

Therefore, the taxpayer was asked to clarify the position regarding such discrepancies. The reply submitted by the taxpayer was found to be devoid of merit, and the discrepancies still need to be solved.

Therefore, a show cause notice was issued to the taxpayer, calling upon the taxpayer to show why the sales tax, as confronted in the notice along with the default surcharge, should not be recovered besides the penalty imposed for law violation.

The taxpayer submitted another reply, but the concerned authority passed an order-in-original after finding it unsatisfactory.

Departmental hearings followed it, and finally, the Commissioner of Appeals held that the input tax claimed and adjusted against the obsolete stock was admissible. He further held that the input tax claimed and adjusted in the supply of exempted goods is also admissible.

The Commissioner Appeals further maintained that a taxpayer is entitled to seek at its discretion either adjustment or refund of input tax for taxable supplies made or to be made by him from the output tax that is due from him in respect of a particular period.

Sources in the tax practitioners said the state, through its revenue dependant, cannot try to retain money like an ordinary individual, which was in the first instance paid to it as a trust till the time it was adjusted or refunded. To hold an amount paid as input tax amounts to confiscation, which the state cannot resort to except in due process of law.

Copyright Business Recorder, 2024