MONDAY MARCH 19: Proportionate input tax adjustment of FED: record of ghee, cooking oil makers to be scrutinised

ISLAMABAD: The Federal Board of Revenue (FBR) has decided to scrutinise the tax record of ghee and cooking oil manufacturers in cases they have already claimed proportionate input tax adjustment of the federal excise duty (FED) paid at import stage against the output sales tax of Palm Fatty Acid/soap to ascertain actual tax adjustment claimed by them.
Sources told Business Recorder here on Sunday that the FBR had issued instructions to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to scrutinise the tax record of the ghee and cooking oil units to ascertain the actual adjustment claimed. The FBR had further directed that no refund of any input tax/duty paid at import stage or refund of any amount of input tax carried forward in the sale of Palm Fatty Acid would be allowed. Moreover, no refund of any duty paid at import stage would be admissible to any ghee/oil manufacturing unit except in case of exports, they stated.
According to the FBR's instructions, the issue of 16% FED adjustment and Re1 per kg FED, both in sales tax mode, paid on the import of items mentioned in the Second Schedule of the Federal Excise Act, 2005, has been examined by the FBR's legal experts. The FBR has clarified that the duty/tax on Palm Fatty Acid recovered through the manufacturing process of ghee/oil has already been paid at the import stage, therefore, no further sales tax is payable on such Palm Fatty Acid. In case of supply of such Palm Fatty Acid to registered persons, the supplier shall issue invoice on the same pattern as had already been prescribed vide FBR's letter C.No 1(3)CEB /04 dated April 20, 2006. However, no refund of any duty paid at import stage would be admissible to any ghee/oil manufacturing unit except in case of exports, FBR said.
The FBR has further clarified that in case of use of such Palm Fatty Acid in manufacturing of soap, the manufacturers of soap shall only be allowed to adjust proportionate input tax worked out on the basis of the invoice issued in light of formula of tax fraction ie "16/116 x value of supply".
In cases, where the manufacturers of ghee/oil have already claimed proportionate input tax adjustment of FED paid at import stage against the output sales tax of Palm Fatty Acid/soap, the RTOs/LTUs may scrutinise the record of the manufacturers to ascertain the actual adjustment claimed viz the position stated above. In case, the proportionate input tax adjustment was found to be in accordance with the above mentioned position, , no further action for recovery of such adjusted amount or deduction of the same from refund be initiated against the registered person. The FBR has also directed the Chief Commissioners of LTUs/RTOs that no refund of any input tax/duty paid at import stage or refund of any amount of input tax carried forward in the sale of Palm Fatty Acid shall be allowed, FBR added.
The FBR has issued the above mentioned instructions to the LTUs and RTOs following a representation of the Pakistan Vanaspati Manufactures Association (PVMA) on the issue of adjustment of the FED paid in sales tax mode on the import of items mentioned in the Second Schedule of the Federal Excise Act 2005.
According to the PVMA, this is with reference to our application dated January 12, 2012 soliciting the permission/ clarification for adjustment of Federal Excise Duty paid in the mode of sales tax against the output tax in terms of clause (b) to section 7(1) of the Federal Excise Act, 2005. In this connection, with due veneration, it is submitted that the applicant units remained regular and potential units with regard to its contribution of duty and taxes towards the government exchequer. Further, it will not be out of place to mention here that no contravention whatsoever has been framed by any agency/RTO/LTU/custom authorities against the applicant units for any violation of taxing statutes on account of any procedural or material loss to the state's revenue. Therefore, in this application too, before claiming any right arising out of the provisions of clause (b) to section 7(1) of the Federal Excise Act, 2005, prior approval of the Board is solicited on the following submissions:
Firstly, as per the mandatory provisions of section 7 of the Federal Excise Act, 2005, whereby registered persons in relation to the goods specified in the Second Schedule, have been required to pay the duty (FED) in sales tax mode.
Secondly, respective clause(s) to section 7(1) has specified the substantive right/entitlement of a registered person which is created on account of the aforesaid reality. Every clause to section 7 (1) according to its nature mentions that "a registered person shall be entitled to deduct".
Thirdly, inter alia; clause (b) to section 7(1) also mentions that "a registered person shall be entitled to deduct the amount of duty of excise paid or payable by him on such goods or services acquired by him from the output tax".
Fourthly, the provisions of section 7 including the clause (b) are beneficiary in nature and mandatory where under a substantive right of adjustment against output tax of a taxpayer is created for the purpose of determining its due liability for a particular period and to avoid dual taxation.
Fifthly, the provisions of clause (a) to (d) to section 7(1) are mandatory which does provide for adjustment of the duty paid against the amount of output tax due for the period. Otherwise the aforesaid clause places no restriction on the adjustment of any tax/duty paid against the output tax payable.
Sixthly, the legislature in its wisdom has expressly used the words "entitled to deduct from the output tax due". The cardinal rule of the construction of Acts of Parliament is that they should be construed according to the intention expressed in the Acts themselves. In clause (b) to section 7(1), the intention of legislature is the same as it expresses in words ie output tax. The legislative intent in the instant case can be gathered from the express language used by the statute with reference to the legitimate right of the taxpayer created from all its spheres. Further, the words themselves of clause (b) to section 7(1) are precise and unambiguous in its natural and dictionary meaning which are sufficient to ascertain that duty (Second Schedule to the Federal Excise Act, 2005) paid at import stage under sales tax mode shall constitute input tax which shall be deducted by a registered person from its output Sales tax due.
Seventhly, the Board vide its letter dated March 11, 2006 has also considered such matters regarding the adjustment of FED against output Sales tax despite of the interim product whether exempt or taxable.
In view of the aforesaid explanations and submissions, it is requested that the applicant units are paying the duty of excise under sales tax mode on its products (mentioned in Second Schedule in terms of section 7 of the Federal Excise Act, 2005) and charge and pay sales tax on Palm Fatty Acid/ soap stock (waste), therefore, permission/clarification is solicited for adjustment of such duty against the output sales tax, the association added.