The Federal Board of Revenue (FBR) has issued three self-contradictory rulings on the interpretation of tax laws for payment of excise duty refund to the payphone companies. Sources told Business Recorder on Thursday that Collector of Customs, Sales Tax and Federal Excise, Appeals, Lahore, has informed the FBR Legal Wing about the legal complications of the case.
The collector has conducted preliminary scrutiny of the record, concluding that the case was not so simple as it contains different technicalities. The Collectorate Appeals, Lahore, is dealing with the appeals filed by the payphone companies against contravention cases framed by the department on allegations of illegal refund of excise duty.
Collector Appeals Salman Abbasi was of the view that there are a number of legal and technical lacunas in the case. At least three self-contradictory clarifications have been issued from time to time by the FBR regarding applicability and interpretation of 'discount price', retrospectively or prospectively. As many senior officials have been suspended in the scam, it requires replacement senior officials at the level of Collector Appeals, he added.
Sources said the Collector of Customs, Sales Tax and Federal Excise, Appeals, Lahore, has postponed hearing of the case on March 19 and new date has yet to be fixed.
The Federal Tax Ombudsman (FTO) had also given its verdict in favour of the companies rejecting allegations of tax fraud against them. Last year, the board had withdrawn a controversial ruling, which resulted in payment of huge refund of excise duty to the payphone companies. The FBR clarification was withdrawn following the ruling of Law and Justice Division, declaring board's interpretation as incorrect and invalid.
After withdrawal of FBR clarification, the board is collecting excise duty from the payphone companies under the normal regime without taking into account the 2004 ruling.
Sources said that any ruling, circular or clarification be considered withdrawn in case the higher authority declares it illegal. The Law and Justice Division had endorsed the board's viewpoint that the payphone companies were not entitled to claim refund of excise duty, as its incidence is passed on to the consumers, and duty is collected in Value Added Tax (VAT) mode charged on 'gross amount' rather than 'discounted price'.
The board had sought the legal opinion of Law and Justice Division about the status of refunds claimed by these payphone companies. According to the Law Division, the board earlier clarification of 2004 was not correct, which said that the excise duty was chargeable on discount price.
Sources said that payphone companies obtained huge amount of refunds based on this clarification of 2004. These payphone companies have merely acted as agents of PTCL to sell payphone cards to the end consumers. It was a commercial transaction between the PTCL and the payphone companies, which disallowed refund admissibility with retrospective effect.
The Law Ministry ruling specified that the controversy cropped up because of lack of proper understanding of the difference between central excise duty and sales tax. The levy in substance was excise duty on services and it was only recoverable in sales tax mode.
It is a settled principle that mode of collection does not change status of actual levy. Thus, the levy on services remained central excise duty. The concept of discount price is alien to central excise duty and it is only relevant to the sales tax as contained in clause-B of sub-section 46 of section 2 of the Sales Tax Act.
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