Section 8: Explanation Required

[A380]

Can anyone explain Section 8 (a).

Reproduction of Subsection.
<font color="blue"><i>Section

8. Tax credit not allowed.--

(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on --

(a) the goods used or to be used for any purpose other than ("for the manufacture or production of taxable goods or" omitted by Finance Act, 2007) for taxable supplies made or to be made by him; </i> </font id="blue">

Does omission of "FOR THE MANUFACTURE OR PRODUCTION", means any expense other than manufacturing and production such as courier, hotel stay, general repairs all can be used to claim input tax.

Kindly explain.
Asad

[kamranACA]

Dear,


You should have made it clear in your post that in which Law's context you are raising this query i.e. Sales Tax Act 1990.

Input tax on goods used or to be used for taxable supplies made or to be made by a registered person is admissible under the Sales Tax Act, 1990.

Section 8 interalia was used to impose restrictions on input tax to be claimed by the registered persons. So many SROs had been issued in past for this purpose providing lists of the items on which input tax was not allowed under section 8. Further, the sals tax department had been rejcting claims in past on certain items including those which you have mentioned in your post. Sales tax on utility bills pertaining to administrative blocks was not allowed. There are so many other examples.

A specific reference for entitlement of a registered person to reclaim or deduct input tax paid on goods used "for the manufacture or production of taxable goods" was also included in section 8 which has been omitted through Finance Act, 2007.

The department in the past had taken very narrow view on allowing the input tax because of this reference and contended that input tax on only those goods was allowable which were directly related to manufacture or production of taxable goods.

This amendment would mitigate the chances of that restrictive application of law.

However, in my view this would again create confusions and notifications/circulars providing guidance may be required in upcoming days as the department has always remained reluctant in allowing such inputs and habits have been developed which will take time in getting corrected.


Best regards,



KAMRAN.

[unseendemon]

mr kamran has provided the practical knowledge.

this section is regularly examined. basically, you cannot claim input on items that are not used exclusively for making taxable supplies. a very crude example (from the exam paper no less P, assuming a company manufactures widgets, input tax paid on a box of tissue papers cannot be claimed since it not used in manufacturing.

hence your contention is incorrect,

"Does omission of "FOR THE MANUFACTURE OR PRODUCTION", means any expense other than manufacturing and production such as courier, hotel stay, general repairs all can be used to claim input tax."

its the other way around.

[kamranACA]

Dears,

It had been a very old discussion and no comments came from Asad on my post.

What I feel the exclusion of those words should give rise to a right to claim the input sales tax on items mentioned by him.

However, I guess department would never be filled with gentlemen having any positive approach and they will modify the facts in their favor.

Regardless of whatever law has so far mentioned or amended, if we go on the very essence of the sales tax (VAT) system the items for which any body is end-consumer should not be reckoned for claiming input tax. Just like if I purchase something for my home usage I become end-consumer. So I am not eligible to claim input tax on such consumption. Likewise, whoever is end-consumer of whatever (even the manufactureres) and in essense does not consume such items for adding value to its products should be treated as end-consumer's consumption and no input should be allowed.

The last paragraph is my own view and has nothing to do with the law prevelant.

Regards,


KAMRAN.