Sales Tax Instructions

Sales Tax Instructions, 2009
U.O.No.1/96-STT/98 Dated 8 th January, 1999.
SUBJECT:- LIABILITY OF SALES TAX ON THE SECURITY MONEY.
Collector of Sales Tax, Faisalabad, has referred to a specific situation (copy enclosed)
where M/s Rafhan Ltd., receive orders from all over the country and also the payment relating
thereto before actual supply of goods by them. The payment so received, is termed as ―security
money‖. Later M/s Rafhan Ltd., supply the goods against a tax invoice and the buyer pays the
invoice value to M/s Rafhan. Next month, if the next order‘s value is more than the previous
month, the buyer adds the differential amount to its already-deposited security money and if the
order is less than the previous month, he receives back the differential amount through
substracting from the already-deposited security money. However, under all circumstances, the
fact remains that M/s Rafhan uses the security money for the furtherance of its business activity.
2. M/s Refhan plead that the amount of ―security-money‖ so received/kept cannot be termed
as consideration as the sale value/price against an invoice, is received from the buyer at a later
date post-supply. Only if the invoice amount is not received from the buyer post-supply, the
equivalent amount is deducted from the security money. M/s Rafhan, therefore, do not pay sales
tax on receipt of amount which they keep terming it as ―security money‖ but using it in the
furtherance of their business activity.
3. A question has arisen whether the ―time of supply‖ in such case shall be deemed to be
the time when the order alongwith payment is received by M/s Rafhan prior to actual supply or the
time when the ordered goods are supplied by M/s Rafhan against the tax invoice (with the
expectation that this invoiced amount shall be sent by the buyer treating the earlier amount as
―Security-money‖ kept with the seller i.e. M/s Rafhan).
4. CBR is of the view that since the amount relating to an order is received by M/s Rafhan
prior to actual physical supply of goods and also because M/s Rafhan are at liberty to use this
amount for their business activity at their discretion, this shall be deemed to be the actual time of
supply under section 2(44) of the Sales Tax Act, 1990 and shall be paid in a manner prescribed
under section 6(2) thereof irrespective of the trade practice that the invoiced amount is remitted
by the buyer again to turn the earlier amount into security deposit or not remitted (thus exhausting
the security money) or remitted with adjustments to take account of further supplies so ordered
upon M/s Rafhan.
5. Since the issue involves interpretation of law, the matter is referred to the Law & Justice
Division for their considered opinion and advice at an early date.
Encl:- (1) As above.
[Issued by the CBR, Islamabad under the signature of Mr. Muhammad Tahir, Secretary
(STT) addressed to Law & Justice Division Islamabad.]
********
ENCLOSURE-II
Reference:- CBR, letter No.1/96-STT/98 Dated 8 th January, 1999.
SUBJECT:- LEVIABILITY OF SALES TAX ON THE SECURITY MONEY.
Section 2(44) of the Sales Tax Act, 1990 is self-explanatory and does not involve
interpretation of any question of law. The issue of ―time of supply‖ is a question of fact depending
on the mode of payment and supply of goods in each transaction. The referring Division is advised
to examine individual cases on facts for the purpose of determining time of supply.-
(Dost Muhamamd Khemta), Joint Secretary
January 25, 1999
Revenue Division (CBR) (Mr. Muhammad Tahir, Secretary (STP) Islamabad.
M/o Law & Justice u.o. No.39/99-Law, dated 16 th February, 1999.