Sales Tax on wheat bran: FBR's field formations create panic among flour millers?

ISLAMABAD: The field formations of Federal Board of Revenue (FBR) are said to have created panic amongst hundreds of flour mills by starting charging sales tax on wheat bran despite exemption available under SRO 837(I)/2015.

Experts stated that as per background facts up to 30.06.2015, cereals and products of milling industry were exempted from levy of sales tax under Sixth Schedule of the Sales Tax under Sr.No.19 of Table I.

Wheat bran is a product of milling industry and is mostly used by the poultry feed industry as an ingredient of poultry feed. However, there was legislative change through Finance Act, 2015 whereby wheat bran exemption given in column (3) of Sr.No.19 of Table I pertaining to cereals and products of milling industry was withdrawn Similarly, through another amendment certain ingredient of poultry feed were made taxable at reduced rate by incorporating Sr.No.15 in the Eighth Schedule wherein in column (3) wheat bran with PCT Heading 0302.4000 is mentioned.

As such, with effect from July 1, 2015, wheat brand being the product of milling industry became taxable for the first time though the main product of the milling industry such as flour, maida and fine etc. continued to be exempted being household items of human consumption.

On this, the milling industry across the country threatened to go on strike as by making one of their products taxable extra burdens of documentation and interaction with the department was put on them. On their protest, the Federal Government issued SRO 837(I)/2015 dated 25.08.2015 and granted exemption to the wheat bran. However, despite this exemption through SRO, recently the field formations are raising sales tax liability on wheat bran.

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When asked for comments, Shahid Jami, Chairman of CPD Committee of the Institute of Taxation of Pakistan observed that the point-in-issue reflect an oversight by the FBR as well as of the Federal Government as while hurriedly granting exemption to the wheat bran through SRO 837(I)/2015 dated 25.08.2015 corresponding amendment has not been made to delete wheat bran from Sr.No.15 of Eighth Schedule wherein reduced rate of sales tax has been prescribed for this item being an ingredient of poultry feed.

He explained that as such both the taxability and exemption were continuing at the same time. The taxability was introduced through Finance Act, 2015 with effect from 1st July 2015 whereas exemption was given through SRO 837(I)/2015 dated 25.08.2015. Jami explained that the field formations are making out a case on the basis that there is a conflict between the Finance Act and Notification and it is established principle that in case of a conflict the law made by the Legislature would prevail over a Statutory Notification issued by the Executive.

Jami observed that there is another principle of interpretation that the provision introduced later in time would prevail and as such the exemption given through SRO dated 25.08.2015 should have been honoured by the field formations instead of creating huge demand due to its own lapse and as such creating panic in the milling industry.

Jami suggested that it is imperative that FBR should issue a direction to the field formations not to make out cases due to the aforesaid anomaly which was lately removed through Finance Act, 2020 but the department is making out cases for the intervening period of 2015 to 2020. He observed that no doubt legislation is carried out by the National Assembly but it is the FBR who primarily initiates budget proposals and should have been prompt in suggesting amendments in Eighth Schedule with retrospective effect to implement the SRO in letter and spirit.

Copyright Business Recorder, 2021