The Federal Board of Revenue (FBR) has withdrawn a controversial ruling which resulted in illegal payment of huge refund of excise duty to the payphone companies. Sources told Business Recorder on Thursday that the FBR clarification has been withdrawn following ruling of Law and Justice Division, declaring board's interpretation as incorrect and invalid.
After withdrawal of FBR clarification, the board is collecting excise duty from the payphone companies under the normal regime without taking into account the 2004 ruling.
In this regard, the board has accordingly informed the inquiry committee about the present status of ruling. Sources said any ruling, circular or clarification is being considered as withdrawn in case the higher authority or superior department declares it illegal.
The Law and Justice Division had endorsed the board's viewpoint that the payphone companies were not entitled to claim refund of excise duty, as its incidence is passed on to the consumers, and duty is collected in Value Added Tax (VAT) mode charged on 'gross amount' rather than 'discounted price'.
The board had sought the legal opinion of Law and Justice Division about the status of refunds claimed by these payphone companies. According to the Law Division, the board's earlier clarification of 2004 was not correct, which said that the excise duty was chargeable on discount price.
Sources said the payphone companies obtained huge amount of refunds based on this clarification of 2004. These payphone companies have merely acted as agents of PTCL to sell pay phone cards to the end-consumers. It was a commercial transaction between the PTCL and the payphone companies, which disallowed refund admissibility with retrospective effect.
The Law Ministry ruling specified that the controversy cropped up for lack of proper understanding of the difference between the central excise duty and the sales tax. The levy in substance was excise duty on services and it was only recoverable in sales tax mode. It is a settled principle that mode of collection does not change status of actual levy. Thus, the levy on services remained central excise duty.
The concept of discount price is alien to central excise duty and it is only relevant to the sales tax as contained in clause-B of sub-section 46 of section 2 of the Sales Tax Act. The Law Division also specified that the excise duty was in-built in the discounted price and incidence was passed on to the consumers, which could not be refunded.