Karachi Tax Bar Association (KTBA) has expressed its grave concern over non-adjustment of input tax on Federal Excise Duty (FED). In a letter sent to the Chairman Federal Board of Revenue (FBR), KTBA said that the Sindh Revenue Board (SRB) issuing notices to registered persons disallowing input tax claimed on account of FED paid on goods and services in sales tax/VAT mode and demanding the payment of adjusted input tax from the taxpayers.
It said that the SRB was of the view that FED paid under the FED Act, 2005 was not claimable as definition of input tax given in section 2 (52) of the Sindh Sales Tax on Services Act, 2011 and did not include FED paid under the FED Act, 2005. However, FED paid on certain goods and services in sales tax mode are governed under section 3 of the Sales Tax Act, 1990.
For this purpose, section 7 of the FED Act, 2005 is relevant which provides that goods specified in the Second Schedule to the FED Act, 2005 and such services as specified by the FBR through SRO, the FED shall be payable in sales tax mode and is allowed to be adjusted against sales tax payable under the Sales Tax Act, 1990.
The section 7 (1) (b) of the FED Act, 2005 which is relevant in the context is reproduced "a registered person shall be entitled to deduct the amount of duty of excise paid or payable by him on such goods or services as are acquired by him during a tax period from the out put tax due from him in respect of that tax period".
The definition of the term 'sales tax mode' given in section 2 (21A) of the FED Act, 2005 is as "sales tax mode" means the manner of collection and payment under the Sales Tax Act; 1990, and rules made there under, of the duties of excise chargeable under this Act specified to be collected and paid as if such duties were tax chargeable under section 3 of the said Act and all the provisions of that Act and rules, notifications, orders and instructions made or issued there under shall, mutatis mutandis, apply to the excise duty so chargeable."
Moreover, it said that since the Sales Tax Act 1990 dealt with charging of sales tax on goods, the implied reason for also including sales tax paid on services in the definition of 'input tax' was to allow the registered person to claim FED paid on services under FED Act, 2005 in sales tax mode as if such excise duty is sales tax under the Sales Tax Act, 1990.
Therefore, sales tax paid under the Sales Tax Act, 1990 is defined as input tax, adjustable against the output tax payable to SRB. The letter said that FED paid in sales tax mode was adjustable against the output tax in the similar manner as it was adjustable against sales to payable to FBR on sale of goods. In view of the above facts, it is quiet clear that adjustment of FED paid in sales tax mode against the output tax payable to SRB is a legitimate right of the registered person which cannot be denied. Keeping this in view, the Bar, therefore, requested the chairman FBR to issue necessary instructions to field officers for the withdrawal of all such notices issued to registered persons.