A claimant who was engaged in the manufacture and subsequent export of textile products filed application for refund of his input tax. In order to produce these marketable goods he uses different materials. These raw materials are known as inputs which are consumed for the production of marketable goods.
These inputs are procured either from domestic market or imported from abroad. The inputs are subject to payment of sales tax on their import, or domestic purchases. The tax paid on these inputs is known as input tax. Goods supplied to the domestic market suffer sales tax at the time of their supply, and this payment of tax is known as output tax.
The sales tax is imposed on each economic exchange along the manufacturing and distribution chain, and is collected from the seller who is assumed to shift the tax forward to his buyer as an add-on to the sales price. Business procurement is relieved from the tax by granting traders a credit for the tax paid on their purchases, which they can exercise against the tax due on their sales. If the input tax credit exceeds the tax due on sales, the difference is to be refunded.
At the end of a tax period (a month), a business is required to file a sales tax return showing the total volume of sales and the tax due on those sales, from which the tax paid on purchases is deducted to arrive at the tax payable for the business. The input tax in case of exports cannot be adjusted since export sales are zero rated and no output tax is available for making tax adjustment, therefore. input tax paid is claimed through refunds as permissible under Section 66 of the Sales Tax Act. These claims are required to be settled within 90 days. The claims related to input tax paid on inputs consumed are being denied to him by the tax authorities as claimed by an applicant.
Nature of input tax claims and rights of the claimant
-- The refunds of sums originally paid as input tax are returnable because.
-- The refunds are due in the course of trade within the framework of law.
-- Refunds are the property of a trader and are recognised as the income of the trader in his accounts.
-- The payments made in the form of input tax are not gratuitous as these payments are derived from the business relationship that exists between claimant and its customers.
-- The credit method in sales tax is designed to create tax neutrality in relation to decisions made by economic factors, such as capital and labour, and consumer's choice.
-- Tax neutrality neutralises the impact of consumption taxes on economic decisions made by traders, consumers, workers and capital providers.
-- A tax on individual consumption/expenditure leads to equal treatment to society in as much as that each consumer pays tax in accordance with his level of consumption. And there exists a direct relation between the quantity of consumption and the tax incurred by an individual consumer.
-- Where the tax burden varies due to the extent of business integration, businesses that incur a higher tax on their products than their competition will not be able to shift the tax forward, and, to the extent that forward shifting fails, it would become a business tax in violation of the tax's inherent objective and making a product uncompetitive in the market.
(a). Bank account information of the claimant does not exist in sales tax profile.
(b). Jurisdiction not found.
(c). Group code inactive.
(d). Sales tax on services is being treated as -
-- Non-filer
-- Invoice summary not submitted
-- No sales to claimant shown in summary
There is a statutory obligation on the part of the concerned authorities to refund the tax within 90 days and since the same has not been done, the concerned authority stands failed to comply with his statutory obligation.
Where there are technical problems confronted by the computer programme operated by FBR and not being cured by its technicians, the claimant's right is being infringed to which he is entitled to protection under the law.
The procedural requirements laid down vide SRO No 555(I)/2006 are contrary to the commands of Section 66 of the Sales Tax Act, 1990, the statutory provision nowhere authorise the tax authorities to deviate from the statute.
The refund procedure laid down vide SRO No 555(I)/2006 is thus in conflict with Section 66 and 67 of the Sales Tax Act, 1990 and has no legal authority to govern the tax refund cases.
The FBR is imposing an uncalled for penalty on applicant in the form of retaining the money belonging to him/her without due process of law. In the light of section 7, 66, 67 of the Sales Tax Act, the claimant's legitimate expectations of getting refund of input taxes are being denied. The present proceedings involve the loss of claimant's right to earn a livelihood and the situation demands the highest level of fairness, the same is being denied by the state.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi.)