To facilitate companies engaged in manufacture of food items, the Federal Board of Revenue (FBR) has allowed extension in time limit for issuance of 'credit notes' to companies manufacturing perishable food items with expiry date. In this connection, the FBR has issued a Sales Tax General Order (STGO) 70 of 2012 here on Monday.
The Board has been approached by National Food Limited through Shekha & Mufti Chartered Accountants with the request that food industry largely deals with perishable items having an expiry term of 2-3 years from the date of manufacture resulting in return of goods around the date of expiry as the item become unfit for consumption. The companies have to accept the rejected stock as a business practice and refund price of such goods including sales tax. However, they face hardship because they are not able to make corresponding adjustment in sales tax returns in view of stipulation of section of the Sales Tax Act, 1990 read with Rule 22 of Sales Tax Rules, 2006 which provide for issuance of credit or debit notes within 180 days of the relevant supply. This period is further extendable by 180 days by the Commissioner. However, even this period has been contested to be not sufficient in case of food items.
With a view to mitigating the hardship faced by such companies, the Board, in exercise of powers conferred under section 74 of the Sales Tax Act, 1990, has allowed that in case of companies manufacturing perishable food items having an expiry date; if such items are returned on account of becoming unfit for consumption and are then destroyed in accordance within procedure and conditions stipulated in Rule 23 of Sales Tax Rules, 2006, the corresponding Credit Notes may be issued within the tax period in which goods are so destroyed, Sales Tax General Order added.
When contacted, experts said that under Rule 22 of Sales Tax Rules, 2006, the buyer shall not be entitled to claim input tax in respect of the supply which has been cancelled or returned to the supplier or in respect of which the amount of tax was reduced. Where the buyer has already claimed input tax credit in respect of such supplies, he shall reduce or increase the amount of input tax by the corresponding amount as mentioned in the Debit Note or Credit Note, as the case may be, in the return for the period in which the respective note was issued. Where the supplier has already accounted for the output tax in the sales tax return for the supplies against which Debit Note was issued subsequently, he may increase or reduce the amount of output tax by the corresponding amount as mentioned in the Debit Note, in the return for the period in which the respective note was issued.