[(44) ―time of supply‖, in relation to,–

• a supply of goods, other than under hire purchase agreement, means the time at which the goods are delivered or made available to the recipient of the supply―or the time when any payment is received by the supplier in respect of that supply, whichever is earlier;
• a supply of goods under a hire purchase agreement, means the time at which the agreement is entered into; and
• services, means the time at which the services are rendered or provided;

Provided that in respect of sub clause ( a) ,(b) or (c), where any part payment is received, –

(i)            for the supply in a tax period, it shall be accounted for in the return for that tax period; and

(ii)          in respect of exempt supply, it shall be accounted for in the return for the tax period during which the exemption is withdrawn from such supply;]

 Explanation:

This definition is very important as it determines as to when the sales ax incidence arises. Time of supply depends on different situations as under:

• NORMAL

Earlier of:

Time at which goods are delivered or made available to the recipient of the supply;

Or

The time when payment is received by the supplier in the respect of that supply whichever is earlier.

It means that advance against supply is subject to tax at the time of payment of advance. Therefore, an invoice needs to be issued in respect to advance.

The payer can also claim input tax on advance against purchases.

• SUPPLY TO AN ASSOCIATED PERSON AND THE GOODS ARE NOT TO BE REMOVED

Time at which goods are made available to the associated person

• SUPPLY THROUGH HIRE PURCHASE AGREEMENT

Date of agreement

[(3) ―associates (associated persons) ‖ means, –

• subject to sub-clause (ii), where two persons associate and the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person;
• two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person;
• without limiting the generality of sub-clause (i) and subject to sub-clause (iv), the following shall be treated as associates, namely: –
• an individual and a relative of the individual;
• members of an association of persons;
• a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application of this section, controls fifty per cent or more of the rights to income or capital of the association;
• a trust and any person who benefits or may benefit under the trust;
• a shareholder in a company and the company, where the shareholder, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons–
  1. fifty per cent or more of the voting power in the company;
  2. fifty per cent or more of the rights to dividends; or

• fifty per cent or more of the rights to capital; and

• two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons – –

1. fifty per cent or more of the voting power in both companies;
2. fifty per cent or more of the rights to dividends in companies; or

• fifty per cent or more of the rights to capital in both companies.
• two persons shall not be associates under sub-clause (a) or (b) of paragraph (iii) where the 1[Commissioner] is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.
• In this clause, ―relative‖ in relation to an individual, means–
  • an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or
  • a spouse of the individual or of any person specified in sub-clause (a).]

Value of supply [section 2(46)]

[(46) ―value of supply‖ means: —

• in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax:

Provided that –

• in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of the supply excluding the amount of tax;
• in case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax; and
• in case a taxable supply is made to a consumer from general public on installment basis on a price inclusive of mark up or surcharge rendering it higher than open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax.]
• in case of trade discounts, the discounted price excluding the amount of tax; provided the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices;
• in case where for any special nature of transaction it is difficult to ascertain the value of a supply, the open market price;
• in case of imported goods, the value determined under section 25 of the Customs Act, including the amount of customs-duties and central excise duty levied thereon;
• in case where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Inland Revenue constituted by the Commissioner; and
• in case the goods other than taxable goods are supplied to a registered person for processing, the value of supply of such processed goods shall mean the price excluding the amount of sales tax which such goods will fetch on sale in the market:
• in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which a supplier will charge at the time of making taxable supply by him, or such other price as the Board may, by a notification in the official Gazette, specify.]

Explanations:

VALUE OF A TAXABLE SUPPLY:

The consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of sales tax.

VALUE BY FBR:

The FBR has power to fix the value of any imported goods or taxable supplies. However, if the import or supply is made at a value higher than the value fixed by the FBR then the actual value shall be considered.

TRADED DISCOUNTS:

Trade discount shall be excluded provided that;

1. the tax invoice shows the discounted price and the related tax and
2. the discount allowed is in conformity with the normal business practices;

Cases in which the value of supply shall be a different amount;

• NORMAL CASE

The consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives in respect of supply but excluding the amount of sales tax. And Mark up on credit sales shall not be taken into value of supply – clause 5 of General Order 3 of 2004.

• CONSIDERATION IS FULLY OR PARTLY IN KIND:

Open market price of the supply excluding the amount of tax;

• TAXABLE SUPPLY IS MADE TO A CONSUMER FROM GENERAL PUBLIC ON INSTALLMENT BASIS ON A PRICE INCLUSIVE OF MARK UP OR SURCHARGE RENDERING IT HIGHER THAN OPEN MARKET PRICE,

The value of supply shall mean the open market price of the supply excluding the amount of tax.

• SUPPLY BETWEEN ASSOCIATED PERSONS:

The value of supply shall be as in normal case or open market price of the supply excluding the amount of tax.

• IMPORTED GOODS:

The value determined under section 25 of the Customs Act, including the amount of customs-duties and excise duty levied thereon;

 Note: FED is applicable on value + custom duty

Example: the value of raw material importer is Rs. 1,000, custom duty 20%, FED 10%, Sales Tax 17% and advance income tax is 5.5%. The amount of sales tax in this case would be:

value of raw material imported                               Rs, 1,000

add: Custom Duty                (@ 20%)                      Rs.    200

Rs. 1,200

Add: FED                   (Rs. 120)                                 Rs. 1,320

Sales Tax                 (Rs. 1,320 x 17%)                  Rs.      224

Advance Income Tax [5.5% x (1,320+224)]           Rs.      85

• IF THERE IS SUFFICIENT REASON TO BELIEVE THAT THE VALUE OF A SUPPLY HAS NOT BEEN CORRECTLY DECLARED IN THE INVOICE.

The value determined by the Valuation Committee comprising representatives of trade and the Inland Revenue constituted by the Commissioner.

• EXEMPT GOODS ARE SUPPLIED TO A REGISTERED PERSON FOR PROCESSING:

The price excluding the amount of sales tax [which such goods will fetch on sale in the market].

• SPECIAL NATURE OF TRANSACTION IT IS DIFFICULT TO ASCERTAIN THE VALUE OF A SUPPLY

The open market price

Taxable activity [section 2(35)]

[(35) ―taxable activity‖, means any economic activity carried on by a person whether or not for profit, and includes – –

• an activity carried on in the form of a business, trade or manufacture;
• an activity that involves the supply of goods, the rendering or providing of services, or both to another person;
• a one-off adventure or concern in the nature of a trade; and
• anything done or undertaken during the commencement or termination of the economic activity,

but does not include –

• the activities of an employee providing services in that capacity to an employer;
• an activity carried on by an individual as a private recreational pursuit or hobby; and
• an activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub-clause (b).]

Registered person [section 2(25)]

[―registered person‖ means a person who is registered or is liable to be registered under this Act:

Provided that a person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder;]

Therefore;

• A person liable to be registered but not registered is also liable to pay sales tax on goods supplied during the period that he remained unregistered;
• Such person is not entitled to get the benefit of input tax credit or other benefits available to a registered person

Person [section 2(21)]

[(21) ―person‖ means, –

1. an individual;
2. a company or association of persons incorporated, formed, organized or established in Pakistan or elsewhere;
3. the Federal Government;
4. a Provincial Government;
5. a local authority in Pakistan; or
6. a foreign government, a political subdivision of a foreign government, or public international organization;]