Taxation matters: AGP asks FBR to withdraw clarifications issued to field formations

The Auditor General of Pakistan (AGP) has recommended to the Federal Board of Revenue (FBR) to immediately withdraw clarifications issued to the field formations on taxation matters to safeguard public interest and government revenue. The AGP audit report (Customs) for 2015-16 issued the said recommendations to the FBR in the light of a case involving revenue loss due to a FBR sales tax clarification which extended inadmissible benefit of SRO 492(1)12009 to manufacturers-cum-exporters.
The report revealed loss of Rs 130.85 million due to non-realisation of revenue resulting from misuse of Statutory Regulatory Order (SRO). According to conditions numbered V, XIV and XV read with serial No 1 of the Table to SRO 492(1)/2009 dated 13.06.2009, materials, excluding fabrics and leather, were exempt from whole of Customs Duty and Sales Tax on temporary importation for subsequent export for manufacturing of leather goods, leather garments and sports goods; garments and textile made-ups including foundation garments and furniture, wood-ware and fittings.
MCC Sialkot cleared consignments of manufacturers-cum-exporters of imported materials/input goods including PU leather, EVA foam, thinsulate insulating material, etc, by extending inadmissible benefit of SRO 492(1)2009. The SRO was only issued to extend benefit to the manufacturers-cum-exporters for temporary import of same-state-goods. The irregularity/lapse resulted in misuse of SRO 492(1)/2009 besides revenue earnings of Rs 130.85 million remained outside the National Exchequer.
The irregularity/lapse was conveyed to the Department in January, 2016. The MCC replied that the exemption to goods under question was granted in line with clarification of FBR. The clarifications quoted by the MCC were examined and it was learnt that the FBR directed the field formations not to extend benefit of the said SRO where consumption of imported goods could not be ascertained at the time of export without physical inspection of the manufacturing process of the relevant industry as input-output ratios determination fell beyond the ambit of the subject SRO. Later on, the FBR withdrew this clarification ab-initio and directed its field formations to extend benefit of the aforesaid SRO (as has been objected by Audit).
Audit recommends immediate withdrawal of clarifications issued by the Board to safeguard public interest and Government revenue. The AGP detected loss of revenue due to under invoicing and misdeclaration. According to Rules 389 and 391 of the Customs Rules, 2001 all import cargo entered into Customs' area for clearance were required to be accompanied with a copy of packing list, invoice and in case of containerised cargo, a Consignment Note. These documents were to be furnished to Customs by the carrier at the time of pass-in of goods for export. The liability of placing such documents was upon the owner of goods as well as upon the carrier. The owner of goods and the carriers were required to explicitly convey the requirement of placing documents in the manner prescribed as an obligatory condition, to the person who packed or shipped the cargo.
The field formations of the FBR failed to take cognisance of repeated violations of the above referred provisions of the Law and cleared imported goods by charging minimal penalty of Rs 5,000 per case where invoices and packing lists were not found placed inside the containers. As the liability of placing such documents was upon the owners of the imported goods as well as on the carrier of the goods, therefore, it appeared as an intentional violation on the part of importers to conceal actual invoice value and physical description of imported goods for getting illegal financial benefits.
The irregularity/lapse was conveyed to the Department in January, 2016. The MCCs replied that penalty was charged in all the cases where invoices and packing lists were not found in the containers. Audit was of the view that repeated violations by the same importers were treated leniently to extend undue benefit to them. The audit recommends outright confiscation of goods so imported in the event the same importer violated the law repeatedly. The AGP has also detected loss of revenue due to misuse of Duty and Tax Remission for Exports (DTRE).
The FBR vide SRO 886(1)/20 12 dated 18.07.2012 determined the jurisdiction, powers and limitations of newly established Collectorates of Adjudication and also those of the already existing set up for the purpose of effective adjudication of cases. The Collectors of Customs, Sialkot and Multan failed to take notice of the incidences of misuse of Duty and Tax Remission for Exports (DTRE) where the DTRE users either failed to utilise input goods during the stipulated time or had managed and tried to export the output goods which were different from approved output goods. The Regulatory Collectors, instead of referring the cases to the concerned Collectorates of Adjudication, adjudicated the cases themselves, whereas, after promulgation of the aforesaid SRO, they were not authorized to do that.
The irregularity/lapse was conveyed to the Department in January, 2016. The MCCs replied that fresh Contravention Reports had been framed and referred to the concerned Collectorate of Adjudication for decision. Audit did not agree with reply of the MCCs as SRO 886(1)/2012 clearly defined the nature of cases which could not be adjudicated by the officers of concerned Collectorates. The audit recommends immediate implementation of DAC's directive, the AGP added.