Value determined u/s 2(46) of ST Act: taxmen to collect SED on value of sugar fixed by FBR

The Federal Board of Revenue has issued instructions to the field formations to collect special excise duty on the value of sugar fixed by the Board for sales tax purposes u/s 2 (46) of the Sales Tax Act, 1990 from July 2008 to June 2011.
Explaining the rationale behind the FBR directive, a leading tax expert Syed Naved Andrabi told Business Recorder here on Thursday that the SED will also be payable on the value of sugar determined for the sales tax purposes u/s 2 (46) of the Sales Tax Act, 1990. The Special Excise Duty (SED) was levied by insertion of Section 3A into the Federal Excise Act, 2005 (Act) by way of Finance Act, 2007 to be effective from July 1, 2007.
He said that as per the newly inserted Section 3A into the Act the SED would be payable subject to notification in the official gazette by the Federal Government. The notification in this regard was issued on June 29th 2007 which was before the date of insertion of the Section 3A into the Act ie, July 1st 2007. The SRO 655(I)/2007 dated June 29th 2007 was challenged in the Lahore High Court (LHC) on the ground that the notification u/s 3A of the Act could not be issued prior to the date on which it came onto the statute book; therefore, levy and collection of SED under SRO 655(I)/2007 was illegal and not sustainable in law.
Andrabi stated that the interim stay order was granted by the LHC admitting the petitions after regular hearing. The petitions were finally heard and by a consolidated order it was held that by virtue and in light of the provisions of Section 22 of the General Clauses Act, 1897 whereby a notification can be issued at any time after passing of the Act and before the Act takes effect. It was held that the Finance Act 2007 was passed on June 22, 2007 by the National Assembly therefore the notification issued on June 29, 2007 was valid and so was the levy/collection of SED was valid.
After the decision of the LHC the department initiated proceedings against the sugar mills for collection of SED along with other persons who had challenged the levy of the SED. At the time of issuance of notices for collection of SED the LTU required the sugar mills in particular to pay the SED on the market value whereas the SED as per the provisions of Section 12 (1) of the Act was to be collected on the value as determined u/s 2 (46) of the Sales Tax Act, 1990 ie, Rs 28.88 per kg.
He further explained that the issue was taken up with the FBR by Large Taxpayer Unit (LTU) Lahore so as to clarify as to whether the SED would be charged on market price as per Federal Excise General Order (03/2007) or the value fixed u/s 2 (46) of the Sales tax Act, 1990. It was clarified by the FBR that the SED was to be collected as per the value determined u/s 2(46) of the Sales Tax Act, 1990 and not as per the market value u/c (b) of the Federal Excise General Order 03/2007. This means SED will also be payable on the value of sugar determined for the sales tax purposes u/s 2 (46) of the Sales Tax Act, 1990, Naved Andrabi added.