Petroleum Division is reportedly very active in extending financial benefit of over a billion rupees to a petroleum exploration company through amendment in Statutory Regulatory Order (SRO), after Federal Board of Revenue (FBR) declared the company ineligible in accordance with prevalent SROs, well informed sources in Petroleum Division told Business Recorder.
Giving the background, sources said, the cabinet while considering a summary submitted by the Petroleum Division on "non applicability of additional customs duty on temporary import of major equipment for exploration drilling wells in offshore" on January 2, 2019 accorded approval to the following instructions for all companies / joint venture partners, who are party to any Production Sharing Agreement (PSA) with the Government of Pakistan, for offshore petroleum products activities: (i) clearance of vessels and helicopters without levy of any duty or charge, including additional custom duty subject to a corporate guarantee to be furnished regarding their temporary import; and (ii) to issue clearance of drill shops without levy of any duty, including additional custom duty.
The cabinet further directed the FBR to make the necessary amendments accordingly in SRO 630(1)2018 of May 24, 2018 and SRO 678(1)2004 of August 7, 2004. Pursuant to the cabinet decision, the FBR issued SRO 18(1)/2019 and SRO 17(1)/2019 on January 4, 2019.
The petroleum exploration licence over Indus-G offshore block was granted to GHPL, a joint venture of four companies with 25 percent share interest: Eni (operator), Exxon, OGDCL and PPL as contractors in the block.
According to sources, Eni has approached Petroleum Division stating that Pakistan customs are contending that the beneficial exemption brought about through amending SRO does not extend to the supply/ feeder vessels imported for drilling the ultra-deep offshore exploration well, Kekra-1 in offshore Indus-G block (2265-1).
The customs authorities' view of non-applicability is based on the fact that Goods Declaration Forms (GD) for vessels were filed on December 22, 24 and 26, 2018 while the amending SRO was passed on January 4, 20019. Customs authorities have directed Eni to pay Rs 1.06 billion as additional customs duty.
Petroleum Division clarified that the initial summary for the cabinet was specifically moved on December 28, 2018 on the request of Eni for its offshore Indus-G block, however, it was suggested by the Petroleum Division that this dispensation should not be restricted to Eni and that the same incentive should be made applicable to all offshore petroleum production sharing agreement contractors.
Considering the anomaly, the FBR was requested to issue a local clarification to the collector customs to immediately withdraw their letter and to issue formal customs clearance of the vessels without levying any customs duty or additional customs duty in accordance with the amending SROs.
However, the FBR in its letter of February 19, 2019 contended that as per section 30 of the Customs Act, 1969, the rate of duty applicable to any imported goods shall be the rate of duty in force at the time of filing GDs for consumption. In the case of Eni, the importer filed GDs on December, 22, 24 and 26, 2018. Duties and taxes applicable at the time of filing GDs are to be, therefore, charged. The amending SRO-17(1)/ 2019 and SRO-18(1)2019 was issued on January 4, 2019 in pursuance of federal cabinet's decision in case No.19/1/2019 of January 2, 2019. The benefits extended through the two SROs shall be available from the date of issuance and cannot be applicable retrospectively to imports made prior to the date of issuance of amendments.
Petroleum Division maintains that the initial summary of December 28, 2018 was initiated specifically on the request of Eni as operator of Indus-G offshore block; and that in the initial summary, it was proposed that dispensation may not be restricted to Indus-G block only and that it shall be extended to all exploration and production companies for their operations in offshore blocks.
Accordingly, Petroleum Division has proposed that both the amending SRO-17(1)/2019 and SRO 18(1)/2019 of January 4, 2019 may be made effective from December 22, 2018 so that the benefit can be extended to Eni in line with intent of the approval of the Cabinet in case number 19/1/2019 of January 2, 2019.
The proposal was shared with FBR and Law and Justice Division for their views/ comments. FBR suggested Law and Justice Division may comment on the retrospective application of SROs. Law & Justice Division had opined that benefit can be given retrospectively but it should be duly approved by the competent authority i.e. cabinet.