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  • Feb 4th, 2017
  • Comments Off on LTU Islamabad adopts illegal way to collect tax from steel sector
Large Taxpayer Unit (LTU) Islamabad has adopted an illegal way to collect sales tax from steel sector resulting in double taxation on steel melters and re-rolling mills. Sources toldBusiness Recorder here on Friday that a full bench of Appellate Tribunal Inland Revenue (ATIR) Islamabad has issued an order against the LTU Islamabad. The said remarks have been given by ATIR Islamabad which also dismissed the appeals filed by the LTU Islamabad.

The appeal has been filed by LTU Islamabad before the ATIR against Sales Tax Order-in-Appeal No 101/2013, dated 21.03.2013, passed by Commissioner Inland Revenue (Appeals-I), Islamabad.

The LTU Islamabad failed to respond to two basic queries of the ATIR Islamabad. The first question was about confirming from FBR records whether intention of FBR was to create extra tax payable in addition to earlier tax chargeable and the second query was whether the LTU Karachi and LTU Lahore have adopted the same methodology for collection of tax from the steel sector. However, there was no response from the LTU Islamabad, sources said.

According to the judgement of the ATIR Islamabad, in the light of the department's (LTU) silence on any supporting material from FBR's records, ATIR finds that the method of taxation as adopted by LTU, Islamabad ie of applying both manner of tax simultaneously (once being tax deducted on power bill, and secondly on rate per unit of power consumed, under SRO 678), to be an incorrect method that practically results in double taxation, which was never the intention of FBR. As such appeal of department, the case, is dismissed as being unsubstantiated by FBR's record and also as being without merit.

The ATIR has also examined the matter at length and has heard both sides in detail. The facts are that steel industry was being taxed under rule 58 H(1) and tax was collected via electricity bill vide SRO 678 dated 6-7-2007 which was issued after series of negotiation between Steel Association and Federal Board of Revenue (FBR). The very first month of implementing SRO 678 of 2007 dated 6-7-2007 being the billing month of July 2007, the department at Lahore checked that power bills issued to steel mills in Lahore Collectorate and it was found that short sales tax was levied in the electricity bills which were issued as per old software using 15 percent GST rate and not as per SRO 678 of 2007 dated 6-7-2007 which was effective from 1-7-2007. Realising the danger of loss of revenue, the Sales Tax Department issued instructions to field officers to recover the sales tax as per SRO 678 of 2007 from steel mills. However it was realised that as per Rule 58H(2), only single payment procedure was given ie through power bills. In order to cope with situation and avoid any loss of revenue where sales tax levied in the monthly power bills was short of sales tax liability under rule 58H(1), the FBR issued SRO 952 of 2007 dated 17-9-2007 enabling steel mills to pay any differential sales tax liability under Rule 58H(1) in cash, along with monthly sales tax return.

The LTU Islamabad has misinterpreted this clarification and held it to be a "charging" SRO to effect that steel mills will pay the sales tax collected through electricity bills under the earlier tax regime as represented by rule 58 H (1) and will also pay tax at new prescribed rates according to provision to Rule 58H(2) as introduced through SRO 952 of 2007. Tribunal order finds that there is merit in the AR's argument that the main object, of the consultative process between FBR and Steel Mill Associations resulted in SRO 678 of 2007 dated 6-7-2007, was to arrive at a fair mechanism for paying sales tax by steel mills. ATIR leans toward the view that the interpretation by LTU, Islamabad regarding the application of both charging tax per Rule 58H(1) and also at rates per SRO 678 is incorrect.

Despite finding weight in the AR's arguments, during hearing of 5th September 2016 the department was given opportunity to produce any FBR-documents supporting interpretation taken by LTU and report back to tribunal on following:

Firstly, contact the FBR and confirm from FBR records whether intention of FBR was to create extra tax payable in addition to earlier tax chargeable under rule 58H (1) or whether intention of FBR was to have the Proviso the Rule 58H(2) introduced by SRO 9S2 of 2007 payment procedure provision and not an additional taxing provision.

Secondly, over two years having passed since levy of tax in LTU, Islamabad under this interpretation of LTU, Islamabad, whether in this two years if any other tax office across Pakistan has taken a similar interpretation (as that of LTU, Islamabad) and charged tax on steel mills via both methods.

Despite over a three weeks period having passed since last hearing, and until final hearing on 4th October, 2016, the department has not come up with any reply of above two questions and has opted to remain silent. The department responded that this silence is because FBR's record can only confirm the interpretation as is taken by steel industry namely that SRO 952 of 2007 was a procedural issue linked to taxing solution for steel industry as contained in SRO 678 of 2007 which lay the principle of taxing steel mills at a rupee-rate per unit of power consumed instead of earlier method of charging 15 percent tax rate on rupees paid for electricity. Taxation of steel industry is being done on basis of SRO as applicable and no other tax office is using both rupee-rate per SRO 678 and at same time also charging 15 percent of electricity bill in order to tax steel mills, the ATIR added.



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