The solvent extraction industry has requested the Federal Board of Revenue (FBR) to restrain Large Taxpayer Unit (LTU) Karachi from not allowing input tax adjustment paid at the time of import of seed against the output tax charged on extracted edible oil. Sources said Tuesday that Seasons Edible Oil Limited has written a letter to the FBR against the tax demand by the LTU Karachi.
According to the unit, the matter is related to the notices issued to the solvent extraction industry by the LTU Karachi. The bulk of the tax demand is created under the following interpretation of the SRO 68 (1)/2006 dated 28th January 2006: "That the input tax paid at the time of import could be adjusted against the output tax charged against extracted oil, since no output tax was charged at this stage, its adjustment cannot be allowed at any later stage," interpretation of tax department added. The same issue was amply clarified by the FBR - clarification no C.No 4157-STB/97 dated. 20th March 2008. In the said clarification the board is using the language supply of oil (Since nowhere the word extracted oil is used therefore the question of allowing the input tax adjustment at this stage, and not at any later stage does not arise.
According to this clarification the input tax paid on import of seed is final, therefore there is no question of disallowing the adjustment of this tax, as the final liability has been discharged at the time of import. The unit also referred to another clarification no 4/57-STB/97 dated 5th July 2008 on the said subject. This also makes it abundantly clear that the tax paid at import of seed is final liability. Therefore once again the question of disallowing the discharge of final liability under any pretext, including input output adjustment at one stage or the other is out of question.
These clarifications were issued after extensive deliberations and meetings with the representatives of the All Pakistan Solvent extractors Associations. There is absolutely no room for any other interpretations on this matter. The FBR should forward these two clarifications to the LTU Karachi and instruct them to decide the matter in the light of these unambiguous clarifications in this matter, the unit added.
The first FBR clarification dated March 20, 2008 said that under SRO 69(1)/2006 dated 28.01.2000, sales tax @ 13 percent of the value of rapeseed and canola seed is leviable if imported by solvent extraction industries. Further, under SRO 68(10)/2006 dated 28.01.2000, solvent extractors are allowed to deduct entire amount of input tax paid at import stage from the output tax charged on supply of oil subject to the condition that no refund of input tax shall be paid.
In a meeting with the Chairman, FBR, the All Pakistan Solvent Extractors' Association raised the issue that during negotiations with FBR, prior to the issuance of the above said notifications, although, it was agreed by FBR that tax paid by the solvent extractors in the above said manner will be treated as their final liability with no subsequent audit, yet it has not been clearly reflected in these notifications. The Chairman FBR agreed to issue a clarification on the subject matter. It is, hence, clarified that tax paid by the solvent extraction industry after 28.01.2006 in the above said manner will be treated as their final liability and their sale tax records will not be subjected to audit.
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