The Central Board of Revenue (CBR) has contested the findings of Auditor General's special studies on duty drawback (2001-02 and 2002-03), saying that the observations were based on misconceptions about the tax law.
The CBR, responding to the AG's allegations, said that the recoverable amount of Rs 43.081 billion during two years, as suggested by AG report, is nothing but a tell-tale exaggeration/inflation aimed merely at undermining the time-honoured sanctity and national level utility of the duty drawback system deliberately declaring the functionalities of the system as dysfunctionalties.
The auditors of the Revenue Receipt Audit need to be educated to properly understand the duty drawback regime, it said.
The CBR, clarifying the position, said that duty drawback notifications are issued after clearance from Ministry of Law and Justice. Thus, the AG office has no jurisdiction to suggest stoppage of the operation, application, implementation of any legally valid duty drawback notification. AG could examine the application of any duty drawback notification but it can not question the legality or validity of its contents, which are notified by CBR after thorough examination of all legal technicalities.
The CBR has categorically informed AG office that any hypothesis or suggestions that Duty and Tax Remission for Export (DTRE) scheme would impulsively replace duty drawback system is tantamount to wrong interpretation of law.
One of AG subject study reports on textile rebate (2002) unearthed unwarranted increase in the rebate, irregular payment of export rebate on the export of goods without verification of use of imported raw material, excess payment of rebate due to miscalculation and recommended effective system for fixation of duty drawback rates on the basis of increase/decrease of custom duty.
CBR has conveyed to the Director General Audit and Evaluation Karachi that the reports have been prepared unilaterally without giving opportunity to the Collectorates of Customs to comment on the issue.
"CBR feels it necessary to clarify the correct legal position on major issues so that the misconceptions on which majority of the observations has been based are removed."
The AG report has emphasised that customs duty drawback regime is legislatively covered under Chapter VI (Sections 35 to 41) of the Customs Act, 1969. This is not legally correct interpretation.
Chapter VI covers drawback on physically identifiable same-state-goods whether or not taken into use between their importation and exportation (SRO 450(I)/2001).
It does not cover drawback on industrial inputs/ industrial raw materials, on which customs duty is repaid under section 21.
The CBR further stated that SRO 202(I)/70 has almost become redundant in entirety.
CBR has never felt any need to update, revise, or substitute or even cancel this notification as it has lost its utility with the change in the departmental administrative system and work processes, practices and procedures etc over a passage of time.
Each rebate notification in fact has its own conditions, limitations or restrictions.
Currently, the procedure for determination of rebate rates is prescribed under sub-chapter 8 of chapter XII of SRO 450(I)/2001. Hence, any academic reliance on SRO 202(I)/70 is blatantly misleading, as no exporter is now required to substantively comply with this notification as such.
The CBR has also clarified that nowhere in section 21 (c ) of the Custom Act is it mandatory that the exporter who claims rebate on exported goods should be a direct importer of the inputs used in the manufacture or production of such goods. If this course of understanding is followed, then only importer-cum-manufacturer-cum-exporters could claim drawback.
All other categories of exporters would stand ousted, which is not the intention of the government at all.
Clarifying the issue of approval from National Assembly, the CBR has said that the custom rules 2001 (SRO 450(I)/2001) was issued in budget 2001-02. NA was not existing at the time of this budget. All government notifications/rules made prior to the coming into being of the present NA now stand constitutionally protected. Thus, it does not require formal approval of the NA to make the rules valid.
The CBR has further clarified that none of the duty drawback standard SROs ie SRO.412(I)/2001, SRO.413(I)/2001, SRO.414(I)/ 2001 and SRO.415(I)/2001 prescribe any condition that the exporter is required to produce any documentary proof of payment of custom duty paid on the inputs used in the manufacture of goods to be exported.
The purchase invoices issued by commercial importers, their distributors, dealers, agents etc showing acquisition of imported inputs is considered to be a valid proof that imported inputs were used in the manufacture of exported goods.
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