ISLAMABAD (January 01 2004): As SRO 410(I)/2001 expired on December 31, the Central Board of Revenue (CBR) on Wednesday issued a comprehensive clarification extending certain incentives for exporters under the Duty and Tax Remission for Export (DTRE) rules from January 1, 2004.
The CBR has directed all collectors of customs that the DTRE clarification would act as a policy guideline for the regional authorities to deal with the exporters registered under the DTRE scheme from year 2004.
Different collectorates sought guidelines of the tax authorities on the scheme. After examining their viewpoint the CBR issued clarification which extended the scope of certain incentives under the DTRE scheme.
Details of these issues have been dispatched to the collectors in the form of clarification.
Many changes were made in the new clarification as compared with the earlier draft issued last month.
As per new decision, the furnace oil used in the generation of electricity to be consumed exclusively in the manufacture of goods for export under DTRE is covered under the definition of input goods. However, this facility would be allowed only after determining input-output ratios and for the generators equipped with meters duly sealed by the electricity inspectors of the relevant province for recording the generation of units of electricity.
Following are the DTRE related issues raised by the collectors of customs/exporters along with the CBR's clarification given on each issue:
Issue: Whether DTRE approval can be granted to a unit against whom a contravention case has been established under Customs Act, 1969, Sales Tax Act, 1990 or Central Excises Act, 1944, especially if such unit has proof of advance payment or valid export contract against the DTRE application.
CLARIFICATION: The Collectorate should have sympathetic view in respect of applications against export contracts/advance payments. If the export contract is verified and advance payment is received, the DTRE should not be withheld unless the applicant has committed a serious fraud duly adjudged by a judicial or quasi-judicial forum. The term serious fraud means deliberate or intentional evasion of duty and taxes with the knowledge that revenue loss is being caused to the government.
ISSUE: Whether a direct exporter can take DTRE approvals simultaneously or otherwise on the basis of export contract in terms of sub-rule (1) of rule 297 as well as on the basis of past export performance in terms of sub-rule (4) of the said rule.
CLARIFICATION: The performance-based DTRE approval and contract based DTRE approval can be given even with regard to exportable (goods) of the same description.
ISSUE: Whether the responsibility for determining input/output ratio of raw material lies with DSAO or with the Sales Tax Audit.
CLARIFICATION: The input/output ratios and wastage declared at the time of applying for DTRE approval are to be ascertained by DSAO at the time of audit under DTRE scheme unless DSAO (or IOCO) has already verified/accepted/determined input/output ratios and wastage in identical cases and the DTRE applicants have based their declaration on such verification/determination.
Director (DSAO/IOCO) should regularly apprise all the collectors about the input/output ratios and wastages as and when verified/accepted/determined. The decisions already taken on this account in the past may also be conveyed to the collectorates within two weeks of the receipt of this clarification. CBR may be kept abreast about the progress made in this regard.
ISSUE: Whether export to Export Processing Zone is allowed under DTRE Scheme.
CLARIFICATION: Supply of goods to Export Processing Zone is deemed as export under EPZ rules and thus such supply is eligible for DTRE approval provided the manufactured goods are exported out of Pakistan and not repatriated into tariff areas of Pakistan.
ISSUE: Whether “Furnace Oil” is included in the definition of input goods as per rule 296(I)f.
CLARIFICATION: Furnace oil used in the generation of electricity to be consumed exclusively in the manufacture of goods for export under DTRE is covered under the definition of input goods. However, this facility may be allowed only after determining input/output ratios and for the generators equipped with meters duly sealed by the electricity inspectors of the relevant province for recording the generation of units of electricity.
ISSUE: Rule 297(6) allows an exporter to get his goods manufactured anywhere in Pakistan from a Sales Tax registered person. In some cases, applicant gets processes like dyeing, printing, etc. done by some vendors and claim exemption of sales tax on processing charges.
CLARIFICATION: The processing charges shall not be subjected to sales tax under sub-rule (8) of rule 297 treating the same at par with zero-rated supply. The DTRE applicants may make tentative declaration about such processing charges in the DTRE application. DSAO may also endorse sales tax invoices issued by the registered vendors.
ISSUE: An incident has been noticed where the exporter applied for DTRE approval prior to amendments vide SRO 490(I)/2003 of June 7, 2003. He was accordingly not allowed import of polyester staple fibre as it was banned under DTRE scheme prevailing at that time. After the amendments vide SRO 490(I)/2003, polyester staple fibre became eligible for import under DTRE scheme. The exporter who was allowed DTRE approval prior to issuance of SRO 490(I)/2003 is now requesting for inclusion of polyester staple fibre in his DTRE approval through amendments.
CLARIFICATION: SRO 490(I)/2003 cannot be given retrospective effect. However, amendment in DTRE approval with prospective effect can be allowed for future exports of the balance quantity, if any. In other words, if export contract has not been fully covered under the old DTRE approval, the exporter can get his approval amended or get a supplementary or fresh approval only to the extent of the balance quantity of contracted exports.
ISSUE: Prior to SRO 490(I)/2003 dated 7.06.2003, the utilisation period under the rule 298 of DTRE was one year from the date of approval and penalties started accruing after completion of this period. After the amendments vide SRO 490(I)/2003, the utilisation period has been extended up to 18 months. Now the exporters who were granted DTRE approvals prior to the amendments vide SRO 490(I)/2003 are also claiming the same benefits of utilisation period. It is intimated that in some of these cases, the utilisation period as per DTRE rules prior to SRO 490(I)/2003 has already been completed and penalties have started accruing.
CLARIFICATION: The Collectorates may examine each of such hardship cases and send their recommendations to CBR for final decision as a special case.
ISSUE: Rule 297(I) states that “exporter whose performance corresponds to the performance criterion as per sub-rule (4) shall be required to give description and value of the goods in application form set out in appendix-I”.
However rule 297(4) states that the exporter “shall be entitled to request approval for importation and domestic sourcing free of all duties and taxes of a quantity of inputs equivalent to maximum export production requirements in any consecutive six months period in previous 24 months”.
In addition appendix-I (c) requires quantities of inputs and not only values. The problem arises when exporters insist that they are supposed to provide only description and value of the goods under rule 297(I) while it is necessary for the Department to require maximum export production of the applicant in order to calculate quantity of inputs involved so as to estimate duty/taxes free allowance under rule 297(4).
It may also be mentioned that maximum export production and consequently quantity of inputs can only be ascertained from shipping bills and not from EE forms.
CLARIFICATION: Rule 297(I) binds the applicant to provide description, quantity and value of the input goods. However, exporters whose performance corresponds to the performance of criteria as per sub-rule (4) of rule 297 are required to give only description and value of goods in the application form.
This non-mentioning of quantity creates enormous difficulties in monitoring inputs and outputs. It is, therefore, advised that in addition to description and value information about quantity may also be obtained under sub-rule (4).
However, in case of any subsequent changes, amendment may be allowed in the DTRE approvals after ascertaining the genuineness of the required amendment.
ISSUE: Rule 297(I) binds the exporter to provide list of goods along with description, quantity & value of input goods. The exporters are of the view that they can not provide exact description and details of input goods at the time of approval as the inputs like chemicals and dyes, accessories may run into hundreds and keep on varying. In this situation, the exporters request that a general description such as “Chemicals” should be given at the time of approval under general PCT headings.
CLARIFICATION: Exporters may not be allowed to provide general and vague description like chemicals, dyes & accessories. They should be asked to provide complete, exact and correct description and quantity of all inputs. They do not have an option to request for any subsequent amendment subject to approval by the Collector. In this regard, CBR has advised the collectors to accept variation (tolerance) up to 10 percent.
ISSUE: Remission from Sales Tax on input goods may be extended under rule 297B even without approval of software by CBR.
CLARIFICATION: CBR is pleased to agree with such interim arrangement provided information about purchase, import, sale and export of goods is provided by the applicant in the laid down formats and the records are subsequently converted in the computerised format and are so maintained whenever the software is approved by the CBR.
ISSUE: Whether or not locally manufactured inputs otherwise liable to sales tax acquired under DTRE rules against zero rated invoices can be returned in terms of Debit-Credit Note and Destruction of Goods Rules, 1996 read with section 9 of the Sales Tax Act, 1990.
CLARIFICATION: Zero-rated supply being a taxable supply and zero-rated invoice being a tax invoice and the supplier being a registered person (besides the registered direct exporter being also a registered person), the provisions of section 9 of the Sales Tax Act, 1990 read with the rules issued thereunder shall ipso facto apply.
ISSUE: Whether the utilisation period of 18 months enhanced from 12 months by amending rule 298 of DTRE through SRO 490(I)/2003 is applicable on the material imported or purchased under DTRE scheme prior to the said date.
CLARIFICATION: The Collectors may examine such genuine hardship cases and send their specific recommendations for CBR's final decision as special case.
ISSUE: Whether lubricants, consumable stores and spares are covered in the definition of input goods under DTRE rules.
CLARIFICATION: These items are not covered in the definition of input goods for the purpose of DTRE scheme.
ISSUE: Whether zero-rating is admissible on services like courier, clearing agency charges, etc. under DTRE scheme.
CLARIFICATION: Rule 297(8) and rule 297B covers only goods and not services.
ISSUE: Under Rule 297, Appendix-I and IA are filed for exemption of duties and taxes and Duty Drawback respectively. But the applicant has been prohibited to include the goods in Appendix-I and IA simultaneously vide rule 297 (A). In the case of Polyester Stable Fibre, facility of Duty Drawback has also been extended and sales tax is also allowed to be exempt. In such case, the applicant will have to show the item on both the appendixes. This problem needs advise from CBR.
CLARIFICATION: Under DTRE scheme, duty drawback on locally procured imported goods (not exceeding 10 percent of the total value of the approved input goods) and duty drawback on locally manufactured PSF on 'deemed import' basis without ceiling are two different components of duty drawback under DTRE regime and are also to be dealt with accordingly. The PSF on which duty drawback on deemed import basis and meanwhile exemption of sales tax is to be claimed needs not to be included in appendix-I (A) and the DTRE approved person can avail sales tax exemption on such quantity under sub-rule (8) of rule 297. The collectors should cover such amount of sales tax under the relevant security instrument at the time of granting DTRE approval.
ISSUE: Guidance is solicited that whether the surcharge @ 1 percent or 2 percent is to be ascertained by this collectorate or by the DSAO/Sales Tax Department.
CLARIFICATION: If not already paid, the surcharge due under rule 298 is to be ascertained and realised by the collectorates at the time of discharging security instrument under the DTRE scheme.