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CBR to withdraw contravention cases: SRO 554/98 interpretation

ISLAMABAD (December 20 2003): The Central Board of Revenue (CBR) has decided to withdraw contravention cases against all exporters who were unable to meet the annual export target for availing concession of duties/taxes on import of machinery/equipment under SRO 554(I)/98 of June 12, 1998.

The notification permits a special concessionary regime on the import of machinery and equipment for establishment of manufacturing units for balancing, modernisation and replacement (BMR) of existing units. However, it is necessary to meet export target from the date of installation of machinery for five years.

Units failing to achieve export target were liable to pay full duties/taxes applicable at the time of importation of machinery.

But there were some instances of misinterpretation of SRO upon which contravention cases were made against exporters.

On the other hand, the factual status is that there is no provision of achievement of annual export target as per notification, whereas SRO.554(I)/98 specifies two staggered periods of two and three years for meeting the export target, CBR admitted.

The CBR has issued a ruling to correctly interpret the SRO.554(I)/98 and directed all collectors to follow in finalisation of identical cases framed against units.

According to the ruling, some of the units approached CBR for clarification on the provisions of SRO.554(I)/98 of June 12, 1998.

Exporters raised two questions. First, whether the condition of meeting the export target of 50 percent of the value of actual production during the first two years of a unit operation envisaged in the table of the SRO means annual achievement of the export or it refers to the cumulative export of 50 percent during first two years and 60 percent during the later three years.

Secondly, at what point of time the monitoring of first two years commences.

The matter was examined threadbare by the Board in consultation with relevant experts.

The CBR opined that a unit availing the benefit of duty under SRO.554(I)/98 is obliged to export 50 percent of the value of its actual production during first two years. During the following three years such unit must export 60 percent of the value of its production.

Clearly, the SRO requires achievement of the cumulative export target of 50 percent of the production during the first two years and 60 percent during the later three years.

The apparent reading of the SRO suggests that there is no provision of achievement of annual export target.

Therefore, the collectorates are not justified in demanding of the exporters to meet the annual export target. The export target is staggered into two periods and the export performance should match the criterion given in the table. The contravention cases framed by collectorates on the basis of misinterpretation of the SRO were, therefore, without legal effect.

As far as commencement of production is concerned under SRO.554(I)/98, the production year will be deemed to start from the date on which the industrial unit starts commercial production. If the date of installation of the machinery and commencement of commercial production does not coincide, the critical date for the purpose of SRO shall be the date of commissioning of the commercial production, the ruling added.

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