Supply of goods, services: CBR seeks comments on sales tax waiver draft rules

The Ministry of Finance is to allow sales tax-free supply of goods and services to the manufacturers-cum-exporters of textiles, exporting not less than 80 percent of their manufactured products. The Central Board of Revenue (CBR) has circulated the draft of special rules for delivery of goods and services without payment of sales tax under the Sales Tax Rules, 2004 among the Sales Tax collectorates for comments.
The draft of the SRO circulated provides that the new rules to become effective from January 1, 2005.
It would be applied to input goods and services, supplied to the registered manufacturers-cum-exporters of knitwear, hosiery articles, textile goods (yarn, grey cloth, processed fabrics, made-ups etc), exporting not less than 80 percent of their manufactured products.
The draft SRO provides that the input goods mean all goods whether imported or manufactured locally required for use in the manufacture or production of goods meant for the export.
The input services means services of the registered manufacturers from whom a manufacturer-cum-exporter gets the textile goods processed or manufactured against processing, manufacturing or conversion charges by opening an inland letter of credit (L/C).
ISSUANCE OF AUTHORISATION CERTIFICATE: The draft rules provide that a manufacturer-cum-exporter, who intends to procure input goods and services, without payment of sales tax, will open a L/C, showing supplier of goods as a beneficiary in a branch of scheduled bank.
The L/C will be valid for 12 months extendable by another six months by the opening bank.
The copy of L/C will be furnished to the Sales Tax Collector, having jurisdiction over his sales tax registration, and will be treated as an authorisation for procurement of input goods and services, as the case may be, without payment of sales tax under these rules.
PROCEDURE: A manufacturer-cum-exporter will be entitled to purchase from a registered person input goods and services without paying sales tax against an irrevocable inland L/C containing sales tax registration numbers of the buyer and seller and master L/C number and date against which the goods are to be exported.
The rules further provide that where, in exceptional case, for reasons beyond his control or when master L/C is cancelled, a manufacturer-cum-exporter cannot export his finished goods within 12 months from the date of first procurement or within the extended period as per rules.
He may sell such goods in the local market on payment of tax due thereon along with the additional tax and penalty under Sections 33 and 34 of the Sales Tax Act, 1990, respectively on input tax involved in input goods acquired under these rules.
It is further provided that a manufacturer-cum-exporter, operating under these rules, will not be entitled to input tax adjustment to the extent of input goods acquired under these rules.
The registered person, supplying input goods to such manufacturer-cum-exporter, will be entitled to input tax adjustment or refund on such goods treating the same deemed as export.
A copy of the L/C will be furnished by the manufacturer-cum-exporter to the concerned Sales Tax Collector within 15 days of the L/C opening. In addition to this, the L/C holder will furnish monthly declaration of purchases made and goods exported under these rules on a specified format by the 15th day of the month succeeding the month in which purchases/exports were made.
The draft rules provide that the registered supplier will issue zero-rated invoices to the manufacturer-cum-exporter, mentioning the particulars of the L/C.
To maintain the records of the transactions made under these rules, a centralised office will be established in each collectorate where the L/Cs copies, along with monthly information received from the manufacturer-cum-exporters, will be maintained.
The registered person, procuring goods and services under these rules, may furnish the prescribed data/information on electronic media. Annual audit of the manufacturer-cum-exporter may be conducted against purchases/supplies made in respect of these rules.
The draft rules provide the CBR, by notification in the official gazette, may suspend application of the facility in respect of any particular good/service or class of goods and services.