Sales Tax Instructions

B. WHAT IS FLYING INVOICE?
Sales Tax Instructions, 2009
Some registered persons sell their goods to unregistered buyers with sometimes amount of sales
tax inclusive, who are not interested in receiving sales tax invoices against the goods purchased.
The invoices of such goods are then sold by suppliers to the exporters who purchase goods from
unregistered sellers. The invoices so bought are submitted in support of refund claims and always
verified by the respective Collectorates. For example a spinning mill issue flying invoices to the
registered dealers, wholesalers, yarn agents etc. whereas the yarn is actually sold to un-registered
weaver/powerloom, knitting industry etc directly from mills but invoice is issued in the name of
registered dealers. Here the exporters buy fabrics/knitted cloth from un-registered person but
manage to buy flying invoice of yarn form spinning mills and others to claim refund of sales tax.
Similarly, fabric is purchased from unregistered person i.e. weaver, wholesaler commission agent
but invoices are purchased from the manufacturer, wholesaler and sometimes even from fake
registered units to complete the chain as well as get refund of sales tax.
It is observed that, in most of such cases, input tax remains on higher side than output tax and the
registered person does not pay output tax even after passage of considerable time.
Thus as against the normal course indicated at ―A‖ above, the goods and invoices take the
following route:-
Registered person (Seller)
Goods not
accompanied
by sales tax
invoice
Unregistered buyer
Sales tax
invoice, not
accompanied
by goods,
purchased
against cash
payment.
Registered buyer
Unregistered person (Seller)
Goods not
accompanied by
sales tax invoice.
For example ―A‖ is a registered manufacturer in Lahore; it sells goods to a distributors /
wholesaler ―B‖ in Faisalabad, who in turn, sells goods to another wholesaler ―C‖ in Faisalabad
and this wholesaler sells it to an exporter ―D‖ all on paper without any physical transfer of
goods.
In this event monthly returns are filed by ―A‖, ―B‖, ―C‖ and ―D‖ regularly and either input tax
is shown more than output tax or very meager amount of sales tax is deposited. Verification of
such invoices is done by the Collectorate, as a routine, on the basis of entry in sales register and
reflection of the aggregate amount as output tax in monthly return-cum-payment challan. Such
chain is usually detected accidentally or on specific information. Normally it cannot be detected
unless verification of transactions of persons ―A‖ to ―D‖ is not done.
C. ITEMS PRONE TO FLYING INVOICES
Yarn, fabrics, processing, packing material, dyes & chemicals, machinery parts and furnace oil
are prone to flying invoices as number of registered persons dealing in these goods is too little to
cater the need of organized / registered sector.
D. QUANTUM OF FLYING INVOICES