SED recovery from sugar mills: FBR rejects legal interpretation by Karachi LTU

The Federal Board of Revenue has rejected legal interpretation of the Large Taxpayer Unit (LTU) Karachi on collection of the special excise duty (SED) from sugar manufacturers and ordered immediate recovery of the SED from all sugar mills across the country on the basis of the FBR clarification on "determination of the SED value" issued on June 24, 2011.
In this connection, the FBR has issued instructions to all Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) here on Wednesday. As per directives, the FBR has turned down the interpretation of the Large Taxpayer Unit Karachi on the determination of the SED value in case of sugar mills. The LTU Karachi was of the view that the legal interpretation of the FBR would create ambiguity, which would allow the sugar sector to continue avoiding payment of the SED.
The LTU Karachi further requested the FBR to reconsider the whole issue of the SED and issue a revised clarification. Terming LTU Karachi''s comments as irrelevant, the FBR has directed the field formations to strictly follow the FBR clarification in this regard.
According to the FBR''s instructions to the field formations, all Chief Commissioners of LTUs/RTOs should securitise the tax records of the sugar mills and ensure recovery of the SED from the mills without further delay. In this regard, the FBR has already issued clarification vide Board''s letter of June 24, 2011 to all Chief Commissioners of LTUs/RTOs which comprehensively covers scheme of chargeability of the SED till June 30 2008 and after June 30, 2008, accordingly.
The issue raised by the Large Taxpayer Unit Karachi on the issue is not relevant as the concept of "whole sale cash price" was abolished with effect from July 1, 2008, FBR instructions added. The FBR clarification said that the value for the purpose of levy of Special Excise Duty (SED) on sugar under Section 3A of the Federal Excise Act, 2005 read with SRO 655(1)/2007 dated June 29, 2007 shall be the ''wholesale cash price'' till June 30, 2008. After June 30, 2008, the SED on sugar became chargeable on the basis of value ''determined'' vide sub-section (46) of section 2 of the Sales Tax Act, 1990, because no notification was issued for ''fixation'' of value for the purpose of levy of Special Excise Duty under sub-section (5) of section 12 of the Federal Excise Act, 2005.
All field formations arc instructed to scrutinise the record of sugar mills falling in their jurisdiction and immediately recover the outstanding amount from sugar mills on the basis of aforesaid clarification, FBR clarification added. Meanwhile, LTU Karachi has informed the FBR that the clarification issued by the Board regarding determination of SED value on sugar has been examined in the light of Federal Excise Act, 2005 read with SRO 655(1)/2007 and federal excise general order (F.E.G.O) 3 of 2007.
Although the Board has clarified the issue to some extent in terms of section 12(1) of the Federal Excise Act, 2005 however, the clarification given by the Board is likely to create ambiguity. This ambiguity will allow the sugar sector to continue to avoid payment of SED on whole sale cash price basis under the garb of the facilitative provisions of section 2(46) of the Sales Tax Act, 1990. These provisions deal with the consideration in money received from the recipient of the supply made by a registered person, LTU Karachi said.
As a result of insertion of section 3A in the Federal Excise Act, 2005 through the Finance Act, 2007, SRO 655(1)/2007 is the main notification laying down conditions, restrictions and exceptions for the levy, collection and payment of SED on the goods imported or supplied, except the goods mentioned in the table provided therein, LTU Karachi maintained.
As such, since the said notification was issued specifically under the express provisions of Section 3A ibid therefore, SED is to be levied and collected as per conditions provided in the said notification exclusively. LTU Karachi further said that to give effect to the provisions of SRO 655(1)/2007, the Board in exercise of the powers conferred under section 43 of the Federal Excise Act, 2005 issued clarification vide Federal Excise General Order No 3 of 2007 dated 30.07.2007 and decided the subject issue once for all by stating that the collection/payment of SED on locally produced goods should be made on wholesale cash price as provided in sub-clause (b) of clause (ii) of the said General Order.
In view of the aforementioned position of law, the Board is requested to reconsider the issue, keeping in view the provisions of SRO 655(1)/2007 and F.E.G.O. 3 of 2007 and may revisit the clarification issued vide Board''s letter C. No 1(3)STM/2004(Pt-III)/92346 dated June 24, 2011, LTU Karachi added.