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Special Excise Duty Adjustment: FBR to Remove Confusion

ISLAMABAD (February 27 2008): The Federal Board of Revenue (FBR) will remove the confusion about the issuance of invoices by certain importers for claiming adjustment of one percent special excise duty (SED), which is inadmissible under the Sales Tax Act, 1990.

Sources told reporters on Tuesday that the board has issued instructions to the FBR Sales Tax Wing to thoroughly examine the issue of adjustment of one percent special excise duty. The board would issue a clarification about the circumstances where (SED) adjustment is available under the law.

Details showed that the government had imposed one percent SED on the import and local manufacturing of goods from July 1, 2007. The SED paid at import or local supply stage on industrial inputs shall be adjustable against the special excise duty chargeable on the goods manufactured therefrom at local supply stage.

It has been brought to the notice of board that some importers have been issuing invoices against the imported goods on which one percent SED has been paid. For example, invoice of 200 kg is being issued instead of original weight of 100 kg of the imported good. Interestingly, adjustment of one percent SED could not be claimed against the importer's invoices, but the same has been claimed in certain cases.

Secondly, if any importer has been engaged in issuing invoices of one percent special excise duty, it should not have happened due to non-availability of the facility. Importers cannot claim this adjustment on the basis of any invoice.

Sources said that the adjustment of excise duty is available when a manufacturer purchases an item from another and seller could subsequently charge one percent SED. Thus, purchaser can claim this adjustment.

Quoting an example, sources said that if a commercial importer has imported some item and paid the SED at import stage, he is not required to charge the SED on its sale invoices.

Sources said that the board had also unearthed a new mode of tax fraud involving unscrupulous elements, who deliberately used flying invoices of one percent special excise duty to claim illegal refund/adjustment. Sources said that some people have started using fake invoices for claiming wrong adjustment of one percent special excise duty.

The FBR had directed all collectors of sales tax for detecting such types of cases involving SED. Collectors have reported amount of adjustment of special excise duty and the alleged phenomenon of flying invoices of one percent special excise duty.

Apparently, the FBR has taken precautionary measures to check the misuse of adjustment facility at the local manufacturing stage. In case of SED, its adjustment could only be claimed to the extent of manufacturing stage. There are apprehensions that the companies might have adopted some fraudulent techniques to claim wrong adjustment of the SED.

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