Non-payment of Rs321.733m duty by KESC: ECC to approve pact to settle 27-year-old dispute today

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet, which is scheduled to meet on Thursday (Mar 30), will approve a pact to settle 27-year old legal dispute of Rs 312.733 million, a part of which has already been deposited with Collectorate of Customs Karachi, well-informed sources told Business Recorder.

Sharing the details, sources said, KESC (now K-Electric) imported high voltage equipment and electrical material for rehabilitation and expansion of Transmission, Grid and Distribution system during 1995-96. However, owing to non-payment of custom duty amounting to Rs. 321.733 million by KESC, 40 consignments of equipment remained blocked at the port.

The ECC in its meeting held on May 18, 1998 deliberated and decided that the issue of payment of duties/taxes and demurrage should be looked into by a committee, to be convened by the then Secretary Water and Power. ECC further decided that the equipment lying at the port should be released immediately on submission of indemnity/guarantee by the KESC.

Consequently, CBR (now FBR) released the equipment on submission of indemnity bonds ofRs.32.1.733 million by KESC. However, the issue remained unresolved till the time of privatisation and later included in Implementation Agreement (IA) of April 2009, as an unsettled issue.

K-Electric filed a writ petition in the Sindh High Court in 2018 and the case was dismissed by the court with the direction that “liability of Rs.321 million outstanding towards duty and taxes for more than 20 years shall be paid by the petitioner within four weeks from the date of the order.”

Finally, K-Electric aggrieved by the order of the High Court of Sindh, filed a civil suit in 2019 before the Supreme Court which in its interim order of May 6, 2019 directed the petitioner to deposit 25 percent of the claimed liability of Rs 321.733 million and directed Government of Pakistan to discharge its obligation under Article 8.7 of Amended Implementation Agreement.

Consequently, K-Electric deposited Rs. 80.5 million in the government treasury. During hearing of the case on October 05, 2022, the Supreme Court directed Government of Pakistan to resolve the matter within three months.

The sources said, to comply with the order of Supreme Court and to resolve a long pending issue related to the implementation of Article 8.7 of the AIA, the Prime Minister on December 26, 2022 constituted a high level committee with following composition: (i) Minister for Power (Chairman); (ii) Minister for Privatisation (Member); (iii) Minister of State for Finance (Member); (iv) Secretary, Finance Division (Member); (v) Secretary, Power Division (Member); (vi) Secretary, Law and Justice Division (Member); (vii) Secretary, Privatisation Division; and (viii) Chairman FBR.

Federal Minister for Power Division chaired two meetings of the committee and amicably concluded the issue by devising a settlement mechanism, which is mutually agreed and signed by all stakeholders.

According to the agreement, K-Electric would pay 50 per cent of the total disputed customs duty and taxes amounting to Rs 312,733,000 from its own revenue/profit and not charge it to its consumers.

However, as K-Electric has already deposited Rs 80,500,000 on May 13, 2019 to the Collector Customs Karachi therefore, the power utility company will only deposit remaining amount of Rs 80,366,500 to the Collector Customs by March 31, 2023, making total aggregating to Rs 160,866,500, ie, equivalent of 50 per cent of the total disputed amount of Rs 321,733,000. For the remaining 50 per cent, K-Electric will file a tariff petition before Nepra to allow it as a pass through amount in tariff.

Consequent upon approval from Nepra, KE will also deposit the remaining 50 per cent amount with Collector of Customs FBR with 90 days of tariff approval.

However, in case, Nepra does not approve the payment, the payment of remaining 50 per cent as a pass through in KE’s tariff, the matter will be brought before the federal government for a mutually acceptable resolution.

Once the complete amount of Rs 321,733,000 is received by FBR in the manner agreed between the parties, the indemnity bonds submitted by KE with the Customs/FBR will be released forthwith. Further, the amount to be paid by KE as per agreement shall be treated as the final settlement.

However, KE’s Chief Financial Officer, Aamir Ghaziani, in a letter to Mahfouz Bhatti, joint Secretary ( Power Finance) Power Division, with reference to the settlement mechanism regarding the disputed customs duty and taxes amount of Rs 321,733,000 between KE and the Federal Board of Revenue argued that as per clause 1 of the Settlement Mechanism, it was decided that KE will pay 50% of the total disputed Customs duty and tax amount of Rs 321,733,000 out of which KE has already deposited Rs 80,500,000 on May 13, 2019 to the Collector Customs, Karachi and will deposit the remaining amount of Rs 80,366,500 to the Collector of Customs, Karachi by March 31, 2023.

According to him, the Settlement Mechanism was placed before the Supreme Court in 2019 and the Court was apprised that the formal approval of the Federal Cabinet is awaited.

“We understand that the Settlement Mechanism agreed between the parties is to be placed before the ECC of the Cabinet and will then be ratified by the Cabinet, which is awaited,” he said, adding that KE understands that the payment of Rs 80,366,500will be required after written intimation of Cabinet approval for the Settlement Mechanism to KE.

Copyright Business Recorder, 2023