Can further tax be offset against input tax, and can a buyer claim further tax charged to it as input tax?

Further tax under section 3(1A) of the Sales Tax Act, 1990 is the extra four percent a registered supplier charges on taxable supplies to a buyer who is unregistered or not an active taxpayer. Distributors ask two follow-up questions about it: can the supplier set it off against input tax, and can the buyer who paid it claim it back? The Act answers the first directly and answers the second through the rules on who may claim input tax.

What does the law say about the supplier’s side?

Section 7(1) is the provision that lets a registered person deduct input tax. It allows input tax paid or payable during the tax period, for taxable supplies made or to be made, to be deducted “from the output tax excluding the amount of further tax under sub-section (1A) of section 3.”

The words “excluding the amount of further tax” were inserted by the Finance Act, 2014. Their effect on the text is that output tax is split into two parts:

Part of output tax	Can input tax reduce it?
Sales tax at the normal rate under section 3	Yes, under section 7(1), subject to the other provisions section 7(1) itself refers to
Further tax under section 3(1A)	No, it is excluded from the output tax input tax is set against

So the further tax a distributor collects in a month is payable in full, whatever its input tax for that month.

What does the law say about the buyer’s side?

Section 3(1A) charges further tax only on supplies to two kinds of buyer. The Act and Rules deal with each:

• An unregistered buyer. Section 8(3) says “No person other than a registered person shall make any deduction or reclaim input tax”. A person who is liable to register but has not done so is still barred: the proviso to clause (25) of section 2 says such a person “shall not be entitled to any benefit available to a registered person”.
• A registered buyer who is not active. Rule 12A(2) of the Sales Tax Rules, 2006 says a non-active taxpayer shall not be entitled to “claim input tax or refund”. Rule 12A(4) adds that where a buyer enters an invoice issued by a non-active supplier, no input tax credit is admissible against it.

The definition of input tax in clause (14) of section 2 covers “tax levied under this Act on supply of goods to the person”, and it does not single out further tax either way. In practice the question does not arise for an eligible claimant, because a registered and active buyer should not have been charged further tax at all.

Worked example (illustrative figures)

Rehman Distributors in Sialkot is registered and active. In one month, with invented figures:

1. Sales to registered, active shops: value Rs. 3,000,000. Sales tax at 18% = Rs. 540,000.
2. Sales to unregistered shops: value Rs. 1,000,000. Sales tax at 18% = Rs. 180,000. Further tax at 4% = Rs. 40,000.
3. Output tax other than further tax: Rs. 540,000 + Rs. 180,000 = Rs. 720,000.
4. Admissible input tax on purchases, after any disallowance under section 8 and any other limit: Rs. 650,000.
5. Net sales tax: Rs. 720,000 minus Rs. 650,000 = Rs. 70,000.
6. Further tax payable in full: Rs. 40,000.
7. Total payable for the month: Rs. 70,000 + Rs. 40,000 = Rs. 110,000.

If admissible input tax had been Rs. 750,000 instead, step 5 would give nil with Rs. 30,000 of input tax left over, and the Rs. 40,000 of further tax in step 6 would still be payable.

What if the buyer registers later?

Section 59 lets a person who later registers treat as input tax “the tax paid” on goods bought from a registered person against a section 23 invoice within thirty days before applying, if the goods are verifiable unsold stock on the relevant date. Section 59 speaks only of the tax paid. It does not say whether the further tax portion of such an invoice counts. The corpus does not settle that point.

What if further tax was charged by mistake?

If a supplier charges further tax to a buyer who was registered and active at the time of supply, the Act does not contain a provision dealing with that specific error. The general provisions on debit and credit notes are not written with further tax in mind, and this page does not say how they would apply, because the corpus does not address the point directly.

Common mistakes

• Netting further tax against input tax in the return. Section 7(1) excludes it from the output tax that input tax reduces.
• A non-active buyer claiming it as input tax. Rule 12A(2) bars a non-active taxpayer from claiming input tax altogether, not only further tax.
• Assuming registration later recovers all past further tax. Section 59 covers only tax on stock bought within thirty days before the application, and is silent on further tax.

What to check in the official text

Read sections 3(1A), 7, 8 and 59 and clauses (14) and (25) of section 2 of the Sales Tax Act as amended to 30 June 2026, and rule 12A of the Sales Tax Rules, 2006 as amended to 30 June 2025. Check whether any Board special order or Federal Government notification under section 7 applies to your class of business, since those are not held in this corpus.