EXEMPTION FROM FURTHER TAX @ 3% TO SUPPLIERS OF YARN

EXEMPTION FROM FURTHER TAX @ 3% TO SUPPLIERS OF YARN <!--[if gte mso 10]> EXEMPTION FROM FURTHER TAX @ 3% TO SUPPLIERS OF YARN By Mr. Akhtar Javed, Advocate, Lahore In terms of subsection (1) of section 3 of the Sales Tax Act, 1990, a further tax @ 3% is charged when taxable supplies are made in Pakistan to a person not to registered under the Act. 2. Section 73 of the Act further provides that the registered person shall be entitled to adjustment of input tax, or refund, repayment or drawback or zero rating only if he makes the payment for a sum exceeding Rs.50,000 through a crossed cheque drawn on a bank or by a crossed bank draft or pay order or any other banking instrument showing transfer of payment in favour of seller from the business account of the buyer. The proviso to section 73 restricts the registered person that in case of transaction on credit, the payment should be transferred in the prescribed manner within 120 days of the issuance of tax invoice. 3. During the course of audit of safes tax record of various textile units supplying yarn, it had been observed by the auditors of the Sales Tax Department that the payments received from the buyers did not reflect the transfer from the business bank account of the buyer to the business bank account of the seller. A number of contravention cases has been framed so far. 4. After having a series of meeting with office-bearers of APTMA, Federal Government has framed "Special Procedure for Manufacturers- cum-Suppliers of Spun Yarn Rule, 2002" notified vide S.R.O. 996(I)/2002 dated 30-12-2002. These Rules are applicable to spun yarn of all sorts whether spun from cotton or any other natural or man-made material or any blends thereof supplied by such members of APTMA who are duly certified by the Association. Under these Rules, the exemption from further tax on supply of spun yarn has been granted subject to certain conditions. 5. In case, spun yarn is supplied against crossed cheque or any other banking instrument showing transfer of payment in the bank account of seller from the bank account of buyer, the manufacturer-cum- supplier is required to furnish the information to the Collector of Sales Tax in the format prescribed in Annex-A to the said Rules by 15th day of the following month. The aforesaid information is required to be furnished in hard copy alongwith soft copy in Excel format. 6. In case, the manufacturer-cum-supplier cannot provide the information as required in above paragraph, his supplies shall be deemed to have been made to unregistered person. In such a case, he will also not be required to charge further tax subject to the condition, the manufacturer-cum-supplier is required to furnish the information to the Collector of Sales Tax in the format prescribed in Annex-B to the said Rules by 15th day of the following month. The aforesaid information is required to be furnished in hard copy alongwith soft copy in Excel format. In such a case, the manufacturer is required to issue sales tax invoices and will give all the particulars of the buyer except his sales tax registration number because the buyer is not a registered person in such a case. 7. In case, the supplies between 1-7-2001 up to 30-12-2002 had been made without receipt of sale proceeds through banking instrument showing transfer of payment from bank account of the buyer to the bank account of the supplier of spun yarn, the manufacturer is also required to furnish the information in respect of supplies made between 1-7-2001 to 30-6-2002 by 30-4-2003 in the format prescribed in Annex-C to the said Rules and in respect of supplies made between 1-7-2002 to 31-12-2002 by 28-2-2003. The information in respect of both these periods is required to be furnished in hard copy alongwith soft copy in Excel format. 8. In case the manufacturer-cum-supplier fulfils the aforesaid requirements, the Federal Government or Central Board of Revenue shall neither initiate any adverse action for non-compliance of section 73 nor charge or recover further tax on supplies prior to 30-12-2002. However, the aforesaid exemption from payment of further tax is not available to such members of APTMA against whom contravention reports have already been initiated for non-payment of further tax but issuing flying invoices. 9. The aforesaid Rules shall remain enforce from 1-1-2003 to 30-4-2003. By introducing these rules, an attempt has been made to curb the issuance of flying invoices. In case, the manufacturer of spun yarn is not required to pay further tax, he will have no temptation to avoid further tax @ 3% so the invoices will be issued to non-registered persons @ 15% and these invoices will not be used by the wholesalers/weavers who were involved in the business of purchasing flying invoices. C.B.R. has been given to understand that by giving exemption from further tax, the phenomenon of flying invoices will stop. It has been agreed between C.B.R. and APTMA that after lapse of 4 months, the position will be reviewed and in case positive results are obtained, the exemption from further tax will continue.