Sales tax refund rules 2004 devised

ISLAMABAD (January 05 2004): The Central Board of Revenue (CBR) has devised new 'sales tax refund rules 2004' based on authenticity of export documents. The refund cases will be put in high/low risk categories after scrutinising computer profiles of exporters for determining whether refund should be paid promptly or after comprehensive audit.

Following this procedure, commercial exporters and manufacturers-cum-exporters will be declared as Low Risk, Medium Risk or High Risk after going through the profiles of exporters stored in 'STARR refund automation programme'.

The exporters will be placed in the categories of 'Green', 'Yellow' and 'Red' channels on the basis of documents so that exporters with clean record should be promptly issued refund as compared to those whose record has shown some kind of discrepancy.

Sources told Business Recorder here on Sunday that the new rules are likely to be notified by January 15 after considering the viewpoints of all the stakeholders.

The new rules would repeal the existing Sales Tax Refund Rules 2002. However, claims received before promulgation of these rules shall be sanctioned and paid under Sales Tax Refund Rules, 2002.

STARR refund automation programme will develop the profiles of the refund claimant for categorising them low/high risk. Such profiling will play a key role in automated processing of claims for their assignment to 'Green', 'Yellow' and 'Red' channels.

Under the proposed rules, exporters falling into green channel will be promptly issued refund where supportive documents are verified and no discrepancy in detected.

In case of any discrepancy, the CBR will transfer the exporter to 'yellow channel' for carrying out scrutiny to ascertain the admissibility of refund claim.

Red channel will be allocated to exporters only in cases where pre-refund audit is necessary to verify stocks or deposit of tax for verification of claims by a senior auditor. Refund claims of a claimant found involved in tax fraud will also be assigned “Red” channel.

Under the Sales Tax Refund Rules 2004, the Refund Division will exclusively deal with the receiving, processing and sanctioning of claims. A deputy collector or any other officer as may be nominated by the collector of Sales Tax, will head the Refund Division.

The collector may distribute the work of the Refund Division amongst one or more deputy collectors or senior assistant collectors.

The procedure has specified that the bank-receipted monthly sales tax return filed by a claimant shall be treated as his refund claim once all the supportive documents have been received.

The claimant will submit a legible photocopy of the sales tax return accompanied by supportive documents to the Refund Receipt section of the Collectorate.

The claimant shall submit the following documents to support his refund claim:

Input tax invoices, bills of entry and/or Pakistan Goods Declaration; zero-rated invoices for exports, and output tax invoices in case of any domestic supplies; bills of export (quadruplicate copy) indicating Mate Receipt number with date, airway bills, railway receipt and/or postal receipts, bearing examination reports recorded by customs officers; bills of lading, airway bills, railway receipts and/or postal receipt indicating transportation of goods out of Pakistan; copies of cheques, pay orders, demand drafts or other banking instruments through which payment has been made to the supplier.

In case of a commercial exporter or a manufacturer-cum-exporter, who predominantly deals in same-state goods, supportive documents include a statement showing value, quantity and input tax on stocks in balance and the position of stocks of major inputs (covering at least 90 per cent of the total inputs) and outputs carried over from the previous tax period, additions in such stocks, stocks consumed or supplied during such period and stocks in balance and bank credit advises.

In case of a refund claim where supportive documents have not been submitted, the officer-in-charge may require the claimant through telephone, facsimile, Email or by post to furnish the same within such time as may be specified by him.

On receipt of claim, it will be uploaded in STARR, which will assign it a unique claim number, processed it automatically on the basis of parameters approved by the Board, and assign it to either “Green”, “Yellow” or “Red” channel.

In case of a refund claim assigned to the “Green channel, the processing officer shall only cross-match the supportive documents with the pre-designated electronic format to verify whether the refund claim is properly supported by documents specified in these rules.

The processing officer shall then forward the refund claim to the officer-in-charge along with a written report in this regard.

The officer-in-charge shall sanction the admissible amount of refund on the basis of STARR processing and the report of the processing officer, and then forward the refund claim for post-refund audit.

Provided that in case any discrepancy is found during the aforementioned scrutiny or post-refund audit, the officer-in-charge shall transfer the claimant to the “Yellow” channel under intimation to the claimant, and no refund claim of such claimant shall be assigned to the “Green” channel till the discrepancy is removed.

In case of a refund claim assigned to the “Yellow” channel, the processing officer shall carry out pre-refund scrutiny to ascertain its admissibility under the law, give his written report thereon and forward it to the officer-in-charge.

The officer-in-charge shall recheck the refund claim, sanction the admissible amount of refund on the basis of STARR processing, the report of the processing officer and his own scrutiny, and then forward the refund claim for post-refund audit.

Provided that where the officer-in-charge is of the opinion that further inquiry or audit is required to establish the admissibility of the claim, he may transfer the claim to the “Red” channel after approval from the Additional Collector, and under intimation to the claimant.

In case of a refund claim assigned to the “Red” channel, comprehensive pre-refund audit shall be conducted by an officer not below the rank of senior auditor.

Such audit shall include verification of stocks in balance and deposit of tax on the goods in respect of which refund of input tax has been claimed.

The tax official may, for reasons to be recorded in writing and after taking permission from the collector, call for any other document or information for the purpose of ascertaining the admissibility of the claim.

The new rules have specified that if, on the basis of STARR processing, report of the processing officer, audit report and scrutiny, the tax officer is fully satisfied about admissibility of the claim, he will sanction the claim and send the original copy of the sanction order to the treasury officer for issuance of a cheque to the claimant.

The duplicate copy of the sanction order shall be retained in the Refund Division in the relevant file.

The treasury officer shall ensure that the refund cheque is in the form of a crossed cheque to be deposited in the declared bank account of the claimant, and is issued to the claimant only through courier service on claimant expense, or through urgent mail service with due acknowledgement. No refund cheque shall be handed over in person in any case.

The treasury officer shall maintain all the records and registers, etc prescribed under the treasury or financial laws for the purpose of keeping account of payment of Federal revenue refunds.

In case of a manufacturer-cum-exporter, the whole amount of admissible refund on inputs used or to be used in making zero-rated supplies shall be sanctioned.

Whereas, refund to a commercial exporter or a to manufacturer cum-exporter, who predominantly deals in same-state goods, shall be sanctioned to the extent of input tax consumed in the goods actually exported.

INADMISSIBLE REFUND: On the issue of inadmissible refund under new rules, the tax official could issue a notice to the claimant requiring him to answer within 14 days, as to why the refund claim or, as the case may be, part thereof should not be rejected and as to why the claimant should not be proceeded against under law.

The automated processing of refund claims shall be conducted on the basis of designated electronic format and the supportive documents provided by the claimant.

The claimant shall be responsible for any mis-declaration or provision of incorrect data or documents, and shall be liable for penal action.

As per revised procedure, all refund claims that have not been subjected to pre-sanction audit shall invariably be audited subsequent to payment.

If it is found during post-refund audit that any inadmissible amount of refund has been paid, such amount shall be recovered along with additional tax and penalty besides any other penal action that may be taken under the Sales Tax Act.

FAKE INVOICE: Moreover, in case any fake invoice or fraudulent document is detected in a refund claim, it shall be dealt as a case of tax fraud.

The refund claims filed by commercial exporters for exports made up to June 30, 2003, shall be sanctioned under the Sales Tax Refund Rules, 2000, after production of Bank Credit Advice (BCA) showing receipt of sales proceeds in foreign exchange from the country to which the goods have been exported.

The refund claims filed by commercial exporters may be sanctioned and paid if a bank guarantee, in the format prescribed by the Board, is submitted by the commercial exporters in lieu of Bank Credit Advice (BCA) for refund claims filed till June 30, 2003.

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