Finance Bill 2011: amendment to section 2-(16)(b) of Federal Excise Act proposed

The Finance Bill 2011 suggests amendment to section 2 (16)(b) of Federal Excise (FE) Act to bring the preparers of un-manufactured tobacco by drying, cutting and thrashing of raw tobacco into tax net.
The revenue body, which proposed several amendments to the Act, wants to enhance the scope of the definition of "manufacture" to expand its tax-ambit to the preparers of the snuffing or un-manufactured tobacco by drying, cutting and thrashing of raw tobacco.
According to budget briefing 2011-12 compiled by Ernst & Young Ford Rhodes Sidat Hyder, the bill has now proposed to abolish the Special Excise Duty (SED), which was introduced in the FE Act, through the Finance Act, 2007 and presently charged at the rate of 2.5 per cent of the value of goods. Therefore, the SRO 655(I)/2007 dated 29 June 2007, which grants exemption of goods from the levy of the SED, is rescinded through SRO. 489(I)/2011 dated 3 June 2011, which will be effective from July, 1 2011.
The section 8 of the Act, which deals with the levy of default surcharge applicable at the rate of KIBOR plus 3 per cent of the amount of duty due but not paid or a refund of duty or draw back received or an adjustment made, is not admissible under the FE Act. This section did not specify the period for which the KIBOR rate was to be applied and a corrective amendment has been made by inserting the word per annum.
The Bill seeks to enhance the period of issuance of notice from three years to five years as the section 14, which provides the modus operandi in respect of recovery of unpaid duty or of erroneously refunded duty or arrears of duty, empowers the officer of Inland Revenue to issue notice for the same within three years from the relevant date.
Similarly, the Bill proposes to introduce provisos to sub-section (2) requiring the officer of Inland Revenue to issue an order for recovery of duty in the event of aforementioned defaults. This order is to be passed within one hundred and twenty days of issuance of the show cause notice or within such extended period as the commissioner may provide. However the extended period should not exceed sixty days.
It is also proposed that any period during which the proceedings remain adjourned due to the reason of a stay order or Alternative Dispute Resolution proceedings or time allowed (maximum of thirty days) on the application of the petitioner shall be excluded in computing the period for passing of the order as proposed under the first proviso.
The Bill further seeks to extend the power granted under section 26 to the beverages as well. Pursuant to the provisions of section 26 of the FE Act, dealing with seizure of cigarettes, the manner of confiscation of the same was provided under section 27 of the FE Act. Due to enhancement of the power of seizure in relation to beverages as proposed under the Bill, the consequential impact relating to its confiscation is also proposed to be included.
The reference of CBR is still being mentioned in sub-section (2) of Section 29 the same being superfluous with the advent of the concept of Inland Revenue. Accordingly the Bill seeks to rectify the above editorial mistake.
The section 34 deals with the procedures of appeals to be filed at the appellate forums, which include the High Court. Through the Finance Act, 2010 a new Section 34A was introduced in the FE Act, providing separately the matters relating to filing of reference to the High Court. Accordingly the Bill proposes to delete reference of High Court in Section 34 being superfluous.
The Bill now seeks amendments to section 38 of the FE Act, sub-section (4) in order to provide a time line of forty-five days for passing order by the Board based on the recommendations of the committee constituted for dispute resolution. The Bill suggests withdrawing duty on a number of goods and services.