By addition of Section 3A to Federal Excise Act-2005 (Act), the 'Special Excise Duty' has came to the statute's book through Finance Act-2007. Proposal for such addition did not appear in the Finance Bill-2007. However, it is there in the Finance Act-2007.
"SPECIAL EXCISE DUTY: (1). The Federal Government may, by notification in the official Gazette, levy and collect, subject to such conditions, limitations or restrictions as it may deem fit to impose, special excise duty on any:
(a). goods produced or manufactured in Pakistan; and
(b). goods imported into Pakistan; at the rate of one percent of the value of such goods.
(2). Special duty levied under sub-section (1) shall be in addition to any duty levied under section 3."
Special excise duty is a levy in terms of section 3A of the Act and as such subject to all the law provisions under the Act except the ones specially excluded or specified otherwise.
In terms of SRO No 655(I)/2007 dated 29-06-2007, issued in exercise of the powers under section 3A and sub-section (2) of section 16 of the Act, special excise duty at the rate of one percent of the value shall be levied, collected and paid on goods specified in the First Schedule to the Customs Act, 1969. This SRO lists 28 goods exempted from the levy of special excise duty.
-- in the case of imported goods, special excise duty shall be attracted on the value determined in accordance with section 25 of the Customs Act for assessing customs duty:
-- in case of goods produced or manufactured, special excise duty shall be levied on the value determined under sub-section (1) or as the case may be under sub-section (4) of section 12 of the Federal Excise Act-2005, excluding the amount of excise duty levied under section 3 of the said Act.
According to SRO No 655(I)/2007 dated 29-06-2007, the special excise duty shall be levied and paid:
(a). in case of goods imported, in the same manner as customs duty is paid by an importer under the Customs Act, 1969 (IV of 1969); and
(b). in case of goods produced or manufactured, in the same manner as Federal Excise Duty is paid by a producer or manufacturer under the Federal Excise Act, 2005. SRO No 655(I)/2007 dated 29-07-2007 which serves as the magna carta does not mandate any record in relation to the special excise duty under section 3A of the Federal Excise Act.
No guidelines or instructions for record keeping of 'special excise duty' have been provided. Following record, this scribe would believe, an assessee should have - in addition to other record to suit his requirements based on experience and in keeping with the requirement under section 17 of the Act:
(a). Input Special Excise Duty A/c in the ledger, which should provide a snap shot for the debit entries.
(b). Output Special Excise Duty A/c in the ledger. Entries in the above ledger accounts should be made on the 'support' of elaborate details.
It appears that, in terms of the SRO, there is no legal bar to carry forward balances of special excise duty, although machinery provisions for the purpose do not appear in place.
Sub-section (5) of section 3 of this Act, inserted through Finance Act-2007, creates liability for payment of tax on the manufacturer in the following words:
"The liability to pay duty shall be: in case of goods produced or manufactured in Pakistan, of the person manufacturing or producing such goods;
-- in case of goods produced or manufactured in non-tariff areas and brought to tariff areas for sale or consumption therein, of the person bringing or causing to bring such goods to tariff areas."
Also added to the Act through the Finance Act-2007 is definition of the term 'sales tax mode'. The same refers to the manner of collection and payment of excise duty as if it was sales tax leviable under section 3 of the Sales Tax Act, 1990.
Therefore, mutatis mutandis, all sales tax laws, rules and notifications are applicable on collection and payment of federal excise duty. Through Finance Act-2007, reference to 'sales tax mode' has also been made in section 7 of the Act, which provides input-output adjustment mechanism on excisable goods and services. The amended law now provides adjustment of excise duty under sales tax mode. Therefore, changes made in section 7 enhance clarity in the excise law.
In this background may be viewed sub-sections (21a) and (23a) added to section 2 of the Act by Finance Act-2007, which respectively read as follows:
"(21a) "sales tax mode" means the manner of collection and payment under the Sales Tax Act, 1990, and rules made thereunder, of the duties of excise chargeable under this Act specified to be collected and paid as if such duties were tax chargeable under section 3 of the said Act and all the provisions of that Act and rules, notifications, orders and instructions made or issued thereunder shall, mutatis mutandis, apply."
"(23a) "supply" includes sale, lease or other disposition of goods and shall include such transaction as the Federal Government may notify in the official Gazette from time to time."
The 'recovery of special excise duty and charge / reporting of the same' has been discussed in this write-up hereinafter.
On invoicing excise duty sub-section (2) of section 18 of the Act-2005, reads: "Notwithstanding sub-section (1), where a registered person is also engaged in making supplies taxable under the Sales Tax Act, 1990, such person shall not be required to issue a separate invoice for excise purposes and the amount of excise duty and other related information may in such cases be mentioned on the invoice issued for sales tax purposes."
(Sub-section (1) referred to in sub-section (2) engages with particulars to be in an invoice under the excise laws).
Accordingly, like sales tax, special excise duty is to be stated on the invoices - elaborated in section 23 of the Sales Tax Act and sub-section (1) of section 18 of the Act.
As per text of sub-section (2) of section 3A the special excise duty, under sub-section (1) thereof, shall be: "in addition to any duty levied under section 3".
Customs Act, 1969, Sales Tax Act, 1990 and Federal Excise Act-2005 are different legislations. Liability for customs duty cannot be created through Federal Excise Act. Similarly for levy of excise duty, Customs Act shall not be enforceable. Following the same analogy Customs Act cannot create a liability under the Sales Tax Act and vice versa. However, reference to another statute, more so for illustrative purposes, is a common feature of legislations, particularly in case of fiscal laws.
Section 3A of the Federal Excise Act-2005 does not seek enforcement of the Customs Act. Section 3A makes reference to the Customs Act for illustrative and exemplification purposes. Same can be said for reference to the Customs Act under its sections 3, 12 and 15 or reference to Sales Tax Act in section 7 or other sections of the Federal Excise Act.
In terms of sub-rule (iv) of rule 2 of the SRO, special excise duty paid at:
(a). import, or
(b). local supply stage on industrial imports.
shall be adjustable: "against the special excise duty chargeable on the goods manufactured therefrom at local supply stage".
The special excise duty cannot be adjusted against Federal Excise Duty or Sales Tax or any other tax and vice versa, sub-rule (iv) of rule 2 of the SRO lays down.
Section 12 of the Federal Excise Act-2005 caters 'determination of value for the purpose of (excise) duty'. Sub-section (4) of section 12 of the Act discusses the levy on the basis of retail price. Sub-section (5) takes care of the levy on minimum price fixed by FBR. Sub-section (1) caters a situation when duty is attracted on wholesale cash price basis, "without any deduction whatever except the amount of duty and sales tax then payable". Sub-section (3) takes care of levy at imports stage. Sub-sections (1), (3) and (4) provide mechanism for levy of excise duty. Sub-section (2) is devoted to excise levy on services. Sub-sections (1), (3) and (4) provide for calculation on 'sales tax exclusive' basis.
Manufacturers in Pakistan normally sell to wholesalers. From wholesalers en route to consumers these are placed in the hands of retailers. The excise levy is not passed to the retailers. It is built in the price a wholesaler charges to retailers. 'Value' on which excise duty or special excise duty is to be levied in such a scenario is catered by section 12(1) of the Federal Excise Act, reading as follows:
"Where any good is liable to duty under this Act at a rate dependent on its value, duty shall be assessed and paid on the basis of wholesale cash price of that goods and where such price is not available, of identical or similar goods, on which the goods are capable of being sold to a general body of retail traders and if there is no such body, to the general body of consumers on the day of its sale, without any deduction whatever except the amounts of duty and sales then payable."
In case the FBR has fixed a price for the relevant goods produced and marketed, reference to section 12(5) of the Act would be relevant.
Whether excise duty shall be attracted on sales tax inclusive or sales tax exclusive value is answered by section 2(46) of the Sales Tax Act also. This provides value excluding tax. This methodology in the Sales Tax Act is also to be relied for excise duty computation purpose, because it specifically provides that sales tax shall be attracted on the excise duty paid value.
This takes one to the inescapable conclusion that, according to the Sales Tax Act, excise duty is to be calculated on value 'exclusive of sales tax'. Such an analogy is not contested by a provision of the Excise Law. On the other hand it has support from the Federal Excise Act as well.
We would, however, suggest creation of a column in the sales tax invoice for 'special excise duty'. Assessees may use the present format till such time a modified format of tax invoice is provided by the FBR. The assesses should, however, forthwith notify to the Collector (Federal Excise & Sales) that they are using their modified version of sales tax invoice - giving reference of first proviso of sub-section (1) of section 23 of the Sales Tax Act and sub-section (3) of section 18 of the Act.
This scribe is of the view that although the law position is not all too convenient, this is the option an assessee may find convenient to exercise.
For computation of sales tax, sales price fixed under a Sales Tax SRO may take care of the value of supply of specific goods, falling under a specific heading of First Schedule to the Customs Act. In the wake of non-existence of an identical SRO under the Federal Excise Act:
-- for sales tax purpose guideline shall be taken from the Sales Tax SRO.
-- for excise / special excise duty purposes section 12 of the Federal Excise Act provides guideline.
This would mean that a manufacturer will pay special excise duty "on the basis of wholesale cash price" as provided in section 12(1) of the Federal Excise Act, while he would pay sales tax in keeping with relevant sales tax SRO.
Sub-rule (iii) of rule-2 in SRO No 655(I)/2007 dated 29-06-2007 reads:
"The amount of special excise duty shall not be part of the value for the purpose of assessment of customs duty, Federal excise duty, sales tax or advance income tax, in case of imported or locally manufactured goods." The law provides that special excise duty shall not be part of the value for the purpose of assessment of:
-- Customs Duty and / or
-- Federal Excise Duty and / or
-- Sales Tax and / or
-- Advance Income Tax
-- in case of imported or locally manufactured goods. It would mean that the 'special excise duty' would have a place of its own. It shall enjoy a distinct / separate status at par with 'excise duty'.
Sales tax is calculated on value inclusive of excise duty. Excise duty calculation is exclusive of the amount of sales tax. Accordingly, a manufacturer would compute value for levy of special excise duty exclusive of sales tax.
In relation to Sales Tax, assessees may refer to section 2(46) of the Sales Tax Act, which provides " including all Federal & Provincial duties and taxes, if any, which the supplier receives from the recipient of that supply but excluding the amount of tax".
It means that, with the exception of sales tax under Sales Tax Act-1990, all governmental levies should be included in the value to form basis for application / computation of tax. We find no rationale / citation to believe that the special excise duty shall be the one to be taken out from the category of levies referred to under section 2(46) of the Sales Tax Act.
There is no special provision for audit of 'special excise duty'. Under the circumstances, one can only guess the modus operandi. One may be inclined to surmise that it will be covered under 'excise duty audit'. However, since the Collectorate for the three levies viz. excise duty, special excise duty and sales tax is the same, the sales tax auditors may also undertake 'special excise duty audit'.
There is no guideline with regard to levy of special excise duty on scrap. Its attraction, in view of section 3(1)(a) of the act, some tax gurus do not over-rule.
Section 2(9a), titled 'duty due' was added to the Act* through Finance Act-2006. This accordingly appears in the set of definitions given in the Act. Sub-section (21a) in section-2, inserted in the Act in 2007, is a more specific legislation - subsequent to amendments effected in the law in 2006. Section 2(21a) relates to "duties of excise chargeable under this Act specified to be collected and paid as if such duties were tax chargeable under section 3 of the said Act".
In view of this, the words "shall be paid on the last day of that month" appearing in section 2(9a) do not have the force sub-section (21a) of section 2 has.
This scribe is, therefore, of the view that excise duty shall be paid with sales tax on the date payment of tax is due according to the sales tax law. In this connection reference should be made also to sub-section (8a) of section 2 which provides that return for excise duty is required to be filed by "15th day of the month following the end of the month, or such other date as the Federal Government may, by notification, in the official gazette, specify".
Exemption is available, inter alia, to the following goods mentioned at S.No 25 to 28 of the list appearing in the aforesaid SRO:
-- 25. Goods specified in the Federal Government's Notifications Respective headings
-- No SRO 509(I)/2007, dated 9th June, 2007, SRO 462(I)/2007 dated 9th June;
-- 2007, SRO 646(I)/2007 dated 27th June, 2007, SRO 548(I)/2006 dated 5th June;
-- 2006, SRO 604(I)/2006 dated 7th June, 2006, SRO 664(I)/2006 dated 27th June;
-- 2006, SRO 759(I)/2006 dated 24th July, 2006, SRO 758(I)/2006 dated 24th July;
-- 2006, SRO 1204(I)/2006 dated 30th November, 2006, SRO 670()/2006 dated 29th June, 2006 and SRO 1270(I)/2006 dated 27th December, 2006.
-- 26. Supplies made by cottage industry as defined in the Sales Tax Act, 1990. Respective headings
-- 27. Goods produced or manufactured and exported by a manufacturer Respective headings
-- 28. Imported goods subject to customers duty at the rate of zero percent Respective headings under the Customs Act, 1969 (IV of 1969), or any notification issued thereunder.