Blacklisting law: Finance Bill to enhance power of IR commissioners

Finance Bill (2011-2012) would further strengthen blacklisting law by enhancing powers of the Commissioners of Inland Revenue to clearly spell out consequences of purchasing goods from blacklisted persons under the Sales Tax Act 1990.
Sources told Business Recorder here on Thursday that the amendments would be made in the Sales Tax Act for introducing new enforcement measures and actions against registered persons involved in suspicious activities/fake and flying invoices to suspend and blacklist their registrations with clear consequences for purchasing goods from such blacklisted persons.
A major change in the Sales Tax Act would be related to the blacklisting of the persons involved in suspicious activities through Finance Bill (2011-2012). The provisions of section 21 relates to blacklisting and suspension of registration. This section does not spell out the consequences of blacklisting/suspension of a registered person and reliance is purely on Rule-12 of the Sales Tax Rules, 2006 for recovery of refunded amount/disallowance of claimed input tax credit on invoices issued by blacklisted units. It is proposed that section 21 may be suitably amended to spell out consequences of non-compliance by the delinquent registered persons involved in suspicious activities, their suspension and subsequent blacklisting with clear consequences for the purchasers of goods from such registered persons.
Sources said that the government has also decided to make it mandatory for the cigarette manufacturers to ensure vehicles carrying cigarettes from distributors to wholesalers/retailers shall also carry the original invoice issued by the manufacturers. It is an enforcement measure to be introduced through the Finance Bill (2011-2012). The Task Force created by FBR on cigarette sector recommends to suitably amend SRO 217(I)/2010 to provide for a mandatory provision whereby vehicles carrying cigarettes from distributors to wholesalers/retailers shall also carry the original invoice issued by the manufacturers.
Sources said that the Finance Bill (2011-2012) will introduce comprehensive legal and procedural amendments in the Sales Tax Act, 1990, Federal Excise Act 2005 and Income Tax Ordinance 2001 to remove ambiguities, plug in loopholes in the existing taxation system for improving compliance and documentation in 2011-2012. Sources said that some of the new sections in the Sales Tax Act, 1990, Federal Excise Act 2005 through Finance Bill (2011-2012) would be instrumental in speedy disposal of cases at the level of Commissioners Appeals and harmonise domestic taxes.
From 2011-2012 only officials with designation of Assistant Commissioner and above would be empowered to carryout investigative audit under section 38B of the Sales Tax Act 1990. It is proposed to suitably amend sub-section (1) of section 38B of the Sales Tax Act, 1990 to authorise officers not below the rank of Assistant Commissioner to carryout investigative audit by substituting the words "Deputy Commissioner" with the words "Assistant Commissioner".
Sources said that the Finance Bill would also introduce a provision to disallow adjustment of duty/input tax paid on international air travel through a notification. According to the proposed amendment in the Federal Excise Act, 2005, the provision of sub-section (3) of section 6 of the Federal Excise Act, 2005, prescribes that the Board may by notification in the official Gazette, disallow or restrict whole or part of the amount of or otherwise regulate the adjustment of duty in case of any good or class of goods. It is, therefore, proposed that the Federal Excise Circular No 1 and 2 of 2006, dated 24.07.2006 may be withdrawn and Rule-41 of the Federal Excise Rules, 2005 may be suitably amended to make it a part of special procedure.
The FBR will remove a major ambiguity in the tax law by rescinding SRO 364(I)/2007 relating to the imposition of the Federal Excise Duty on cable operators. The SRO 364(I)/2007, dated May 3, 2007 provided the levy of FED on Cable TV Operators at the rate of eight rupees per subscriber per month. The levy of FED was withdrawn vide Finance Act, 2007. Hence, this notification is redundant. It is proposed that SRO 364(I)/2007 would be rescinded.
Finance Bill (2011-2012) would also amend Sales Tax Act to reduce the number of appeals filed by the registered persons against orders of Commissioner (Appeals) under section 45B of the Act, 1990. It has been proposed to suitably amend section 34 to provide for remission of default surcharge from the date of order under section 11 or 36 as the case may be till the date of payment provided the registered persons opt to pay the due tax on the basis of aforesaid order and does not file appeal under section 46 of the Sales Tax Act, 1990.
According to sources, the Finance Bill (2011-2012) would empower the tax officials of Inland Revenue to reject refund claims filed under section 66 (refund to be claimed within one year). In this regard, the FBR has proposed amendment in the section 66 of the Sales Tax Act, 1990. The section 66 deals with the issuance of refund, as a consequence of an appellate order or refunds other than under section 10. It is proposed to suitably amend section 66 of the Sales Tax Act, 1990, to empower officer of Inland Revenue to reject such refund claims filed under section 66, where the incidence of the tax has been passed on to the final consumer. Under section 66, no refund of tax claimed to have been paid or over paid through inadvertence, error or misconstruction or refund on account of input adjustment not claimed within the relevant tax period, shall be allowed, unless the claim is made within one year of the date of payment.
The new Finance Bill would remove a major anomaly in the rate of the federal excise duty pertaining to "franchise service". In Rule 43A of the Federal Excise Rules, 2005, the FED on "franchise service" was enhanced from 5 percent to 10 percent through Finance Act, 2008, but no parallel change was made in sub-rule (2) of Rule 43A of the Federal Excise Rules, 2005. It is proposed that the rate of duty mentioned in sub-rule (2) of Rule 43A of the Federal Excise Rules, 2005 may be changed from 5 to 10 percent.
Through another amendment in the Sales Tax Act, the FBR would be empowered to condone the delay on the part of the department. The FBR has been authorised under section 74 to condone the delay for various actions to be taken under the Sales Tax Act, 1990. Appellate authorities have interpreted that the power of the Board under this section is restricted to condoning delay on the part of the registered person only and the Federal Board of Revenue cannot condone the delay on the part of the department. It is proposed to suitably amend section 74 by appending an explanation before the first proviso of the aforesaid section.
In order to give legal cover to the newly created Directorate General of Intelligence and Investigation Inland Revenue, Finance Bill would amend the Sales Tax Act and Federal Excise Act. Prior to integration of domestic taxes, Directorate General Intelligence and Investigation FBR was looking after the cases of sales tax and federal excise. After the integration of taxes under the nomenclature of Inland Revenue, it is essential to create a separate Directorate General, Intelligence and Investigation Inland Revenue with the mandate to investigate cases related to the three domestic taxes. Therefore, it is proposed to suitably amend section 30A of the Sales Tax Act, 1990 and section 29 of the Federal Excise Act, 2005.
Finance will also propose that section 30 may be suitably amended to include a reference to Inspector Inland Revenue an authority under the Income Tax Ordinance, 2001 as well as Federal Excise Act, 2005, to harmonise all the three taxes.
Through Finance Act, 2008, the rate of default surcharge was changed from @ 1 percent for the first six months and @ 1.5 percent thereafter, to KIBOR plus three percent. However, the word "per annum" was probably overlooked because the Default Surcharge under section 34 of the Sales Tax Act, 1990 was changed to "KIBOR plus three percent per annum". The words "per annum" may be inserted in section 8 of the Federal Excise Act, 2005 with retrospective effect ie from July 1, 2008 onward. Finance Bill would make necessary amendment in the tax laws in this regard.
According to Finance Bill (2011-2012), the Federal Excise Rules, 2005 have been framed in terms of sub-section (3) of section 6, sub-section (5) of section 12 and section 40 of the Federal Excise Act, 2005, as per notification SRO 534(I)/2005, dated 06.06.2005. It is pointed out that exemption from levy of FED on certain excisable services mentioned in Chapter VIII of the Federal Excise Rules, 205 has been accorded without quoting the enabling clause, the Federal Excise Act, 2005 especially the SRO 534(I)/2005, dated 06.06.2005 does not contain the provision of section 16 of the Federal Excise Act, 2005. Hence, the exemptions available under Rules 40(1), 40A(2), 41A(1) and 42(1) of the Federal Excise Rules. It is proposed that either provision of section 16 of the Federal Excise Act, 2005 may be added to SRO 534(I)/2005, dated 06.06.2005 or to notify these exemptions separately and reflect them in the Federal Excise Rules, 2005.
Presently, the counterfeit cigarettes/non-duty paid cigarettes and beverages can be confiscated under rule 63 of the Federal Excise Rules, 2005. The authority for confiscation of counterfeit cigarettes/non-duty paid and unlawfully manufactured cigarettes is available under section 27 of the Federal Excise Act, 2005. However, for confiscation of counterfeit beverages no empowering section for confiscation is available under the Federal Excise Act, 2005. It is proposed that the word "cigarettes" wherever occurring in section 27 may be substituted with the words "cigarettes or beverages" thus empowering officer of Inland Revenue to confiscate counterfeit beverages. In line with the spirit of section 26 (amended as aforesaid) and rule-63 of the Federal Excise Rules, 2005.
Finance Bill will prescribe time limit to decide the case after issuance of show cause notice. After deletion of section 31 of the Federal Excise Act, 2005 via Finance Act, 2010, there is no time limit given under Federal Excise Act, 2005 to decide any case after issuance of show cause notice. It is proposed that a time of 120 days after the issuance of show cause notice or within such extended period may be provided in section 14 of the Federal Excise Act, 2005 to decide the adjudication matters and to make it at par with the time limit given under Sales Tax Act, 1990.
Finance Bill (2011-2012) would harmonise section 38 of the Federal Excise Act with section 47A(4) of the Sales Tax Act. The section 38(4) of the Federal Excise Act, 2005 does not provide for any time limit for passing orders by the Board on recommendation of the Committee, whereas section 47A (4) of the Sales Tax Act, 1990 provides that the Board would pass orders within 45 days of the receipt of recommendations of the Committee. The same provision exists in Income Tax Ordinance. The time limit of 45 days may be inserted in the relevant section of Federal Excise Act, 2005.
Finance Bill would also harmonise section 47A (4) of the Sales Tax Act with section 38 of the Federal Excise Act. The section 47A (4A) of the Sales Tax Act, 1990, provides that the Chairman may, on the application of an aggrieved person, on being satisfied that there is an error in order or decision may pass such order as may deem fit and equitable. The word "FBR" needs to be added after the word "Chairman" in line with the identical provision in the Federal Excise Act, 2005 and Income Tax Ordinance, 2001. Since the language of relevant sections in all the three laws should be identical, as such the words and a member nominated by him in section 38 of the Federal Excise Act, 2005, should be added in the relevant sections of the other two laws.
Through another amendment in the Sales Tax Act, Finance Bill would further introduce an amendment relating to the Alternative Dispute Resolution Committee. The rule 65(3) of the Sales Tax Rules, 2006, provide that the Board shall require the Committee to submit its report within 60 days of its appointment, whereas section 47A(3) of Sales Tax Act, 1990, requires the Committee to make recommendations within ninety days of its constitution. The rules need to be amended in the light of relevant section of the Act, sources added.