Sales Tax Instructions

Sales Tax Instructions, 2009
3. The issue has further been examined in Central Board of Revenue. With
the broadening of sales tax base, similar more complex situations are emerging; they may
need careful consideration and decision. Considering the probabilities that may be
encountered, the following guidelines are issued:
(i) in a case where a vendor produces goods with the material
supplied by his principal (against labour charges only) sales tax will be
calculated on the gross amount of charges received by the vendor and
excise duty, if any. Input tax credit of sales tax paid on such raw materials
and packing materials etc. which are supplied by the principal will not be
available to vendor, for example, the principal provides raw materials
worth Rs. 2,000.00 and the job involved labour charges of Rs. 500.00.
The vendor will pay sales tax of Rs. 75.00 @ 15% on Rs. 500.00 charged
by him and will not get any input tax credit.
(ii) input tax credit will be available to the vendor on purchases of
those materials which are purchased from a registered person other than
the principal, and on which sales tax was paid. This will be
available in case he uses them in making the product for his
principal.
(iii) when the principal supplies the goods made by the vendor, he
will pay the sales tax on final value of supply after availing input tax
credit which was incurred by the vendor and the principal for making
purchases for raw materials. For example, if the principal sells a product
for Rs. 4,000.00 manufactured out of the raw materials worth Rs. 2,000.00
and Rs. 500.00 have been paid to vendor, the net liability of the principal
will be as under :-
Sales Tax on Rs. 4,000.00 = Rs. 600.00
Sales tax Paid:
a) on raw materials worth Rs. 2,000.00 = Rs. 300.00
b) by vendor for charges of Rs. 500.00 = Rs. 75.00
Sub Total = Rs. 375.00
Net Sales Tax payable by the principal:
Rs. 600.00 (-) Rs. 375.00 = Rs. 225.00
(iv) Principals as well as vendors who wish to avail the
provisions of this General Order shall get themselves registered.
(v) Necessary records will be maintained which every manufacturer
is required to maintain under the law. In addition special records and
returns may be prescribed by the Collectorate to satisfy them that the