Budget 2020-21: Proposed Sales Tax Changes Relating to Textile Industry

Section 3(2)(a) / Eight Schedule. Scope of Tax:

Section 3(2)(a) of the Act specifies that goods included in the Eight Schedule shall be charged to tax at such rates and subject to such conditions and limitations which have been mentioned therein. The Finance bill has proposed to exclude some items from Eight Schedule which will be subject to 17% of sales tax after the approval of the bill. Following is the list of items which are used in textile sector:

S. No.	Description	Existing Tax Rate	Revised Tax Rate
5	Import of raw cotton and ginned cotton	5%	17%
6	Plant and machinery not manufactured locally and having no compatible local substitutes	10%	17%
50	Import of LNG / RLNG	12%	17%
51	Supply of LNG / RLNG to gas transmission and distribution companies	12%	17%
65	Ginned cotton	10%	17%

Section 4 / Fifth Schedule. Zero Rating:

Section 4 allows sales tax to be charged at the rate of zero on the items which have been included in Fifth Schedule of the Sales Tax Act, 1990. The Finance bill proposes to withdraw serial numbers 1, 6, 10 and 11 from the fifth schedule. The bill also proposes the addition of the serial number 15 which affects the textile and other export oriented sector. Under this clause local supplies of raw materials, components, parts and plant and machinery to exporters authorized under the Export Facilitation Scheme, 2021 will be zero rated.

Section 67. Delayed Refund:

Section 67 of Sales Tax Act, 1990 deals with the delay in payment of refund by FBR. Currently, this section discusses the refund of tax under section10 only, but now a new proviso is proposed to be inserted which deals with delay in refund payable as a result of an order passed by a tax authority under section 66. The proposed amendment states that in case of delay of refund beyond 45 days an interest equal to KIBOR per annum shall be paid by FBR to the claimant. The following is the text of proposed proviso:

“Provided further that where a refund due in the consequence of any order passed under section 66 is not made within forty five days of date of such order, there shall be paid to the claimant in addition to the amount of the refund due to him, a further sum equal to KIBOR per annum of the amount of refund, due from the date of the refund order.”

Section 73 (1). Certain transactions not admissible:

Section 73 of the Act requires that the payment from a buyer to supplier must be in the form of crossed cheque or crossed bank draft or crossed pay order or any other crossed banking instruments. The purpose of this requirement is to track the payment. Similarly, if a buyer pays through online banking channel, the payment proof should be traceable from the bank statement. Now a proviso under sub-section 1 of the Sections 73 is proposed wherein a registered person is allowed the adjustment of payable and receivable amount from the same party if both the parties have paid sales tax and approval of the commissioner has been taken. The following is the text of proposed proviso:

“Provided further that adjustments made by a registered person in respect of amounts payable and receivable to and from the same party shall be treated as payments satisfying the provisions of this sub-section subject to following conditions, namely: –

(a) sales tax has been charged and paid by both parties under the relevant provisions of this Act and rules prescribed thereunder, wherever applicable; and

(b) the registered person has sought prior approval of the Commissioner before making such adjustments.”