A summary to ECC of the Cabinet was moved by the Ministry of National Food Security and Research proposing change to the aforesaid regime relating to cottonseed derivatives. On approval, SRO 188(I)/2015 dated 05.03.2015 was issued bringing about following changes:
Firstly, SRO 213(I)/2013 was superseded thus doing away with 2% sales tax on cottonseed oil and restoring standard rate thereon and secondly Chapter XV was added to Sales to Sales Tax (Special Procedures) Rules, 2007, providing following special procedure.
In lieu of sales tax payable on cottonseed of sales payable on cottonseed oil by the oil mills at standard rate, the sales tax was to be paid by the cotton ginners at Rs 6 per 40 kg of cottonseed supplied or consumed in-house.
According to the FBR, SRO 188(1)/2015 dated 05.03.2015 was challenged before Sindh and Lahore High Courts and both the courts declared the SRO to be ultra vires. The departmental appeal before the Supreme Court was also dismissed on the ground that the requisite approval of the federal cabinet was not obtained.
As a consequence, the aforesaid notification ceased to have any force and chapter XV inserted by it in the Sales Tax (Special Procedures) Rules, 2007, ceased to exist. However, the cotton ginners and oil mills are again pressing hard for restoration of aforesaid special procedure with retrospective effect after due approval of the federal cabinet. Pakistan Cotton ginners Association has also undertaken to follow the procedure to be so prescribed and pay all the dues for the period starting from 1st July, 2018. The Revenue Division also supports this proposal keeping in view the difficulties associated with collection of sales tax from oil mills.
Accordingly, it is proposed that aforesaid special procedure may be revived by re-inserting aforesaid Chapter XV providing as under:
In lieu of sales tax payable on cottonseed oil by the oil mills, the sales tax shall be paid by the cotton ginners at the time of supply of cottonseed or consumption thereof in-house at Rs 7 per 40 kg of cottonseed for the period from 1st July, 2018 to 30th June 2019 and at Rs 8 per 40 kg of cottonseed for the period starting from 1st July 2019 and exemption from payment of sales tax on cottonseed oil cake.
The changes proposed above require exercise of powers vested with the federal government under sub-section (6) of section 3 and section 71 of the Sales Tax Act, 1990. In view of the fact that sales tax on cottonseed oil will be collected from the cotton ginners, the existing mechanism of its collection from the oil mills would result in an anomalous situation that is proposed to be resolved by granting exemption from payment of sales tax on cottonseed oil cake in exercise of federal government's powers under clause (a) of sub-section (2) of section13 of the Act. The draft notification will give effect to the aforesaid proposal, duly vetted by the Law Division. The changes will take effect from 1st July 2018, given that it is seasonal and the application should begin with the commencement of the season.