Tax dept ‘fails’ to disallow input tax claim against UFG

LAHORE: The tax department has failed to disallow a major gas pipeline company’s input tax claim, citing that it exceeded the permissible limit set by OGRA.

The issue centred on Unaccounted For Gas (UFG), which refers to the significant volume of natural gas lost during transmission and distribution due to leakage, pilferage, measurement errors, or malfunctioning gas meters.

The company had shown figure of Unaccounted for Gas (gas wasted during transmission) which represents volume difference of gas purchased and sale amounting to Rs10,527,715,000 which was in excess of the UFG bench mark of 6.9238% as determined by the OGRA for the relevant year.

The company was found to have already claimed input tax adjustment on such Unaccounted For Gas (UFG). The department declined the adjustment on the basis that the said gas was never supplied to consumer nor sales tax was paid thereon, and input tax adjustment on UFG over and above the allowed benchmark by OGRA.

The company claimed input tax adjustment for various items, including steel products, security services, hotel services, vehicle parts/services, workshop services, paints, furniture, courier services, financial services, cement, office equipment, and footwear. The Commissioner Inland Revenue (Appeals) allowed Rs872,068,731 for steel products but disallowed the remaining amount (Rs232,479,723) due to insufficient explanation.

It may be noted that the Oil and Gas Regulatory Authority (OGRA) allows gas companies to adjust their revenue for UFG up to a certain percentage of gas available for sales. However, tax officers attempted to disallow the company’s input tax claim, citing that it exceeded the permissible limit set by OGRA.

But the Appellate Tribunal Inland Revenue sided with the company, citing a previous decision that established input tax is admissible for gas lost due to ruptures, even if not actually supplied. The Tribunal allowed the company to claim input tax adjustment for Unaccounted For Gas (UFG), amounting to Rs1,789,711,550.

According to tax practitioners, this ruling has also highlighted the importance of regulatory clarity and adherence to precedents in tax disputes, preventing tax officers from employing tricks to tax everything.

Copyright Business Recorder, 2024