VALUE OF SUPPLY WHERE PAYMENT IS PARTLY MADE IN CASH AND PARTLY IN KIND

VALUE OF SUPPLY WHERE PAYMENT IS PARTLY MADE IN CASH AND PARTLY IN KIND <!--[if gte mso 10]> VALUE OF SUPPLY WHERE PAYMENT IS PARTLY MADE IN CASH AND PARTLY IN KIND By Akhtar Javed, Advocate, Lahore In terms of section 3(1) of the Sales Tax Act, 1990, sales tax is charged and paid at the standard rate of 15% of the value of taxable supply made in Pakistan. The term "value of supply" has been defined in section 2(46) of the Act which means "the consideration in money, including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax." 2. In terms of Serial No. (i) of the proviso to clause (a) of section 2(46) "in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of the supply excluding the amount of tax". 3. Section 73 of the Act further provides that in case, the payment in certain transaction exceeds Rs.50,000, that has to be made through crossed cheque drawn on a bank, or by a crossed bank draft or pay order or any other banking instrument showing transfer of payment from the business account of the seller. 4. In cases where the payments are made partly in cash and partly in kind, a question had arisen whether or not the payment should be made through the manner prescribed in section 73 even if it is less than Rs.50,000. A reference was made to C.B.R. by Messrs Toyota Rawal Motors. C.B.R. vide its Letter C. No. 3(36)STP/99(Pt-I) dated 17-9-2002 has ruled that in terms of the provisions referred to in para. 2 above, the payment can be made in kind provided that: (i) Goods received in kind represent taxable goods under the Act. (ii) Goods received in kind as consideration are adequately reflected in the books of accounts with reference to sales tax invoice number and date; and (iii) the balance/remaining amount even of less than Rs.50,000 is transferred from the business account of the buyer to the business account of seller through banking instrument, as mentioned in section 73 of the Act. 5. The above referred ruling of C.B.R. provides that only the taxable goods can be received in kind against some payment which is perhaps not the spirit of law. A person supplying taxable goods can receive the payment in kind which may be either taxable or exempt goods. No provisions of the Act bind a registered person to receive the payment in kind only through taxable goods. For example the manufacturer of polypropylene bags wants to receive the payment against his supplies of PP bags from the manufacturers of poultry feed. The manufacturer of poultry feed can make the payment in kind by supplying the poultry feed to its supplier of PP bags. The poultry feed is exempt from sales tax and in the light of C.B.R.'s ruling contained in its above referred letter, such transaction will not be accepted by the sales tax authorities. 6. Further while supplying the exempt goods i.e., poultry feed, the manufacturer will not issue a sales tax invoice as the supply of poultry feed is exempt. The supply and receipt of the poultry feed will be reflected in the books of account of the supplier and the buyer but no reference of sales tax invoice number and date will be mentioned in the books of account. 7. Section 73 of the Act provides that payment in respect of any transaction exceeding Rs.50,000 has to be made through specified manner whereas C.B.R. in its said letter has ruled that in case payment is partly made in kind and partly in cash, the balance payment made in cash has to be made through specified manner even it is less than Rs.50,000. In my opinion, this is also against the express provisions of section 73 of the Act as the said provisions require only those transactions to be made through specified manners where the payment exceeds Rs.50,000.