Engro Food Limited: LTU Karachi directed to process ST claims/input tax adjustments

The Federal Board of Revenue (FBR) has directed Large Taxpayer Unit (LTU) Karachi to process the sales tax refund claims/input tax adjustments of M/s Engro Food Limited (ELF) in view of section 66 of Sales Tax Act 1990, the decision of Supreme Court, section 3B and last proviso to Section 66 of Sales Tax Act 1990.
In this regard, the FBR has issued instructions to the Chief Commissioner of LTU Karachi regarding ("EFL")- Input adjustment/refund of sales tax consequent to issuance of SRO 670(1)/2013 for zero-rated sectors.
The section 66 is related to the refund to be claimed within one year and section 3B deals with the collection of excess sales tax etc under Sales Tax Act 1990.
According to the FBR, the company has claimed sales tax refund/input adjustment for the period June 12, 2013 when SRO 501(1)/2013 dated June 12, 2013 was introduced exempting dairy products (which was earlier zero-rated ) and July 18, 2013 when SRO 670(1)/2013 dated 18.07.2013 was introduced resuming dairy products at zero-rated in view of obitur dictum stated in paragraph 29 of decision of Supreme Court in CP 33& 34 of 2005 and civil Misc. Application 3821 of 2013 dated 21.06.2013.
Since the jurisdiction of this case lies with Large Taxpayers Unit, Karachi, the claim of sales tax refund is being referred to LTU Karachi to process the claim as per law after examining the same under section 66 of Sales Tax Act 1990 specially with reference to applicability of referred decision of Supreme Court in this particular case, section 3B and last proviso to section 66 of Sales Tax Act 1990, FBR instructions to the LTU Karachi added.
The FBR has also directed the concerned chartered accountant firm of the company that the refund claim may be submitted before the concerned Deputy Commissioner, Inland Revenue who is the appropriate authority to process company' claim under Sales Tax Act 1990, FBR added.
The chartered accountant firm has informed the FBR that input adjustment of sales tax by rescinding of SRO 501(1)/2013 dated 12/06/2013 to 18/07/2013 was not available to "EFL" due to exemption u/s 13 of the Sales Tax Act "STA".
The decision of honourable Supreme Court ("SC") - CP 33&34 of 2005 and Civil Misc. Application 3821 of 2013 dated 21/06/2013sc squarely applies on EFL as the sales tax paid by them on their purchases cannot be claimed due to SRO 501(1)/2013 dated 12/06/2013. In this land mark judgement it is categorically stated that levy of tax is the domain of Majlis-e-Shoora (Parliament) /Legislation alone, hence, increase in tax is no way allowed sans Parliament's approval. The withdrawal of facility tantamounts to levy of tax which is contrary to the sprits of the aforesaid landmark judgement.
The delay caused in issuance of SRO by Federal Board of Revenue (FBR) to give effect to the Finance Minister Commitment cannot form the basis of depriving genuine input adjustments to the registered persons.
It is reiterated that as decided the matter may be referred to the Ministry of Law to decide request and questions raised, chartered accountant firm added.
Earlier, the FBR has issued a letter to the chartered accountant firm on the issue of input adjustments and/or refund of sales tax consequent to issuance of SRO 670(1)/2013 for zero rated sectors
The FBR said that the examination of CA firm's representation shows that the company has claimed input adjustments and/or refund of sales tax between periods 12.06.2013 when SRO 501(1)/2013 dated 12.06.2013 was introduced exempting dairy products (which was earlier zero-rated) and 18.7.2013 when SRO 670(1)/2013 dated 18.7.2013 was introduced resuming dairy products at zero-rated in view of paragraph 29 of decision of Supreme Court in CP 33&34 of 2005 and Civil Misc. Application 3821 of 2013 dated 21.06.2013.
For convenience, paragraph 29 of the said judgement is reproduced below:
'"In the light of the law laid down in the aforesaid judgements, it is clear that the Majlis-e-Shoora (Parliament)/ Legislature alone and not the Government Executive is empowered to levy tax. As far as delegation of such powers to the Government/ Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby".
The FBR said that the decision of Supreme Court was against petition for increase in prices of petroleum products. However, the company has claimed input adjustments and/or refund of sales tax relying on above mentioned obitur dictum decision. The FBR has directed the CA firm to explain:
Firstly, how the above obitur dictum of Supreme Court repudiates SRO 501(1)/2013 which was issued in exercise of powers conferred by clause (a) of sub-section (2) of section 13 of the Sales Tax Act, 1990?
Secondly, the Supreme Court clarified that the Majlis-e-Shoora (Parliament) above and not the Government/Executive is empowered to levy tax. Whereas SRO 501(1)/2013 was issued to withdraw a relief given to dairy products and no new tax was levied.
Thirdly, in case of indirect taxes, due to an inbuilt mechanism, the duty or taxes are inclusive in the cost/value of the goods sold, therefore, the same passes on to the end consumers at the time of such transaction. It is a common economic principle that incidence of indirect tax is invariably included in the general market price to the consumer. Therefore, the claim of refund is required to be justified in terms of section 3B of the Sales Tax Act, 1990.