ADJUSTMENT OF INPUT TAX ON GOODS LOST DURING TRANSIT

ADJUSTMENT OF INPUT TAX ON GOODS LOST DURING TRANSIT <!--[if gte mso 10]> ADJUSTMENT OF INPUT TAX ON GOODS LOST DURING TRANSIT By Mr. Akhtar Javed, Advocate, Lahore In the normal course of business, there occurs a certain loss of goods during transit. It is a common phenomenon that during transit there occurs visible as well as invisible loss of cotton supplied by the ginner to a spinning unit. However, the spinner remits the amount of sales tax on total quantity of cotton shown on the invoice issued by the ginner. The spinner takes quantity of cotton in his inventory after deducting the transit loss from the total quantity of the cotton supplied by the ginner and claims adjustment of input tax paid to the ginner pertaining to total quantity bf cotton supplied by him. 2. One such case has been observed when Messrs Shaheen Cotton Ltd. imported a certain quantity of cotton and paid sales tax on the total quantity imported by the company. When the consignment arrived at the mill's premises, it was revealed that the weight of cotton was less than the weight actually shown on the Bill of Entry. The company made an adjustment of the amount of input tax paid on the bill of entry. However, the department made out a case alleging the company that it was entitled to make adjustment of input tax to the extent of that quantity which was actually received by it and was actually used in the manufacture of taxable supplies. 3. Similar is the situation in a number of other industries. In case of ghee manufacturing unit, there occurs a ship shortage up to 1% and the quantity of edible oil imported and subsequently clearly from the port is less by up to 1% because of ship shortages and it is this short quantity, which actually reaches in the ghee manufacturing units. The auditors of DARP raised an objection on the input tax adjustment being claimed by the units on total quantity of edible oil actually imported by them. The auditors were of the view that the ghee units were entitled to claim adjustment of input tax only on the quantity which actually reaches the ghee units. 4. Messrs Pakistan Vanaspati Manufacturers' Association (PVMA) apprehended that these observations will lead to contravention cases. PVMA made a representation to Central Board of Revenue. The issue was examined in C.B.R. and Board vide its Letter C. No. 4/51-STB/98-Pt dated 14-1-2003 has been pleased to advise the Collectors of Sales Tax as (i) allow input adjustment of the amount of sales tax paid at import stage; and (ii) accept the quantity of imported oil as per short shipment/short lading certificate issued by Customs Authorities, which shall also be got re-verified from the issuing Collectorate on a monthly basis. 5. The same ratio also applies to other industries where transit losses occur while transporting the goods from the suppliers to the buyers particularly in the case of transit of cotton from ginner to spinner.