CALCULATION OF CENTRAL EXCISE DUTY ON GOODS CHARGEABLE TO DUTY ON THE BASIS OF RETAIL PRICE — FOOD FOR THOUGHT FOR THE MANUFACTURERS OF BEVERAGES,'AERATED WATERS, NON-AERATED WATERS, CIGARETTES, FRUIT JUICES, SYRUPS, PAINTS, VARNISHES'', PERFUMES, TOILETRIES, SOAPS, DETERGENTS, POL PRODUCTS INCLUDING LUBRICANTS, ETC.

LIST OF NOTIFICATIONS REPRODUCED IN THE <!--[if gte mso 9]> CALCULATION OF CENTRAL EXCISE DUTY ON GOODS CHARGEABLE TO DUTY ON THE BASIS OF RETAIL PRICE FOOD FOR THOUGHT FOR THE MANUFACTURERS OF BEVERAGES,'AERATED WATERS, NON-AERATED WATERS, CIGARETTES, FRUIT JUICES, SYRUPS, PAINTS, VARNISHES'', PERFUMES, TOILETRIES, SOAPS, DETERGENTS, POL PRODUCTS INCLUDING LUBRICANTS, ETC. By Akhtar Javed, Advocate, Lahore In terms of section 4(2) of the Central Excises Act, 1944, the goods notified by the Federal Government are charged to duty on retail price fixed by the manufacturer inclusive of all charges and taxes other than sales tax at which any particular brand or variety of such article is sold to general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price. 2. The aforesaid legal provisions clearly stipulate that the retail price fixed by the manufacturer for calculation of excise duty will be inclusive of all charges and taxes other than sales tax; hence the retail price-so fixed by the manufacturer will be inclusive of excise duty. For example, if the manufacturer fixes the retail price of a particular item at Rs.100 and the rate of excise duty is 10% of the retail price, it will be inclusive of central excise duty. The excise duty will be calculated by work back method as under: Assessable value = 100 x 100 = 90.91 110 3. It means that in the amount of Rs.100, Rs.9.09 (approximately Rs.9.10) will be the excise duty calculated on assessable value of Rs.90.91. For the convenience, the back calculation is made as under Retail Price: = Rs.100 Central Excise Duty when rate of CED is 10% = 10 x 100 = 9.09 110 Assessable value= 100 - 9.09 = 90.91 4. The Central Excise Department is of the view that the retail price must not only include all other charges and taxes including excise duty and the amount so calculated is to be subjected to excise duty. If the amount of Central Excise Duty is calculated on the basis of method required by the Central Excise Department, the manufacturers are required to pay 10% of duty of excise on retail price including 10% of excise duty, with the result that the manufacturers pay an amount as excise duty over and above to that which they are legally required to pay. In case of above referred example, the manufacturer will have to pay Rs.10 as central excise duty (10% of Rs.100) meaning thereby that for each article, the manufacturer will have to pay Rs.10 instead of Rs.9.09. The duties of excise on goods chargeable to duty on the basis of retail price must not form a part of retail price and the manufacturers are to pay excise duty on retail price without including excise duty. 5. The aforesaid view point is based on the legal provisions contained the Central Excises Act, 1944. The term "Duty" has been defined in section 2(17) of the Central Excises Act, 1944, which means additional duty, regulatory duty or any amount payable under the Act or the rules made thereunder. It will be seen that ingredients of the retail price are that it shall be fixed by the manufacturer; it shall be the price at which the particulars brought is to be sold; if more than one such price is fixed for the same brand the highest of such price and it shall include all charges and taxes but not sale tax. "Charges" mean and include the money spent by the manufacturer himself or any intermediary of the manufacture. Packing, re-packing, transport advertising etc. are included. The word "Tax" has been used and it is to be taken as a tax whether of Central or Provincial Government. For revenue realization the terms used and invogue are tax, charge, .fee and duty. The Legislature was fully aware of these terms and in subsection (2) .of section 4 for inclusion in the retail price two terms, mainly, charges and taxes have been used. But certainly the word "duty" has not been used and this omission is significant so as to include intention of the law makers. If tile intention was to include excise duty in the retail price, it could have been easily done by adding duty or excise duty. If the retail price includes "duty that would amount to double taxation which indeed is not the intention of the law. The object is to impose' excise duty once and not twice. It is well-settled that fiscal statutes are to be interpreted liberally in favour of subject. 6. The method of calculation advised by Central Excise Authorities was challenged by Messrs Lucky Cement Ltd. and Messrs Cherat Cement in Peshawar High Court, Peshawar. While arguing the case before the High Court, the learned counsel for' C.B.R. argued that the petitioner were showing excise duty as a part of retail price and thus the spinning units, how can the Department proceed against the spinning units for contravention of any of the provisions of these goods: To remove this lacuna, the new Rules, 2002 are proposed to be applicable not only to the ginners and ginning factories but also to the buyers of ginned cotton or by-products of ginning industry. Registration The existing Rules of 1996 do not cater the eventuality in the ginning factory is given by the owner on lease. Under the draft rules, a new sub-rule (3) has been inserted in rule 3 which provides that where ginning unit is already registered in the name of the owner or the lessee and the owner intends to lease out the said premises to another lessee, whether previous registration is cancelled or not, the owner shall submit an undertaking on judicial stamp paper that he shall be responsible for all sales tax dues in case the prospective registrant fails to discharge his liabilities under the Act and Rules made thereunder. This provision will create hardships for the owners of the ginning factories as how the lesser/owner of ginning unit can be held responsible for the default on the part of the person to whom he has leased the business. In stead of penalizing the owner, the lessee should be punished for not discharging his liabilities under the Act. Issuance of tax invoice Under the existing Rules, the ginner is required' to deliver ginned cotton through a delivery note or gate pass indicating quantity of cotton sold, name of the buyer alongwith sales tax registration number, builty number, date and registration of vehicle on which the ginned cotton is carried. After the receipt of the ginned cotton, the spinner is required to settle the terms about quantity and value of ginned cotton with the ginner within 6 days of the dispatch of cotton, the changes in quantity or value are to be indicated on the reverse sides of the copies of the delivery note or gate pass. After doing the aforesaid formalities, the ginning unit is required to issue the prescribed sales tax invoice for the quantity and value of ginned cotton agreed between the ginner and the spinning unit. The tax invoice is to be issued of the date on which ginned cotton was dispatched against the delivery note or gate pass within 7 days of the date thereof and is required to bear a cross-reference of the delivery note or gate pass. Under the new draft rules, ginner will be required to deliver duty was to be charged on the said retail price inclusive of excise duty. However, the learned counsel agreed that no excise duty can be levied or collected on excise duty. While allowing the petition, the Division Bench of Peshawar High Court, comprising Mr. Justice Abdul Rauf Khan Lughmani and Mr. Justice Shahzad Akbar Khan held that excise duty is not to be treated as part of "retail price" for the purpose of duty of excise payable under the Central Excises Act, 1944. The Court has been pleased to declare that "the present system of realization of duties of excise on `retail price' inclusive of excise duty is illegal and without lawful authority, the duties of excise must not form part of retail price and the petitioners are not liable to pay duties of excise forming part of retail price." REFUND CLAIMS PENDING DUE TO LACK OF CONTINUOUS CHAIN TAX INVOICES By Akhtar Javed, Advocate, Lahore Under Sales Tax Refund Rules 2000 notified vide S.R.O. 417(I)/2000 dated 20-6-2000, the exporters claiming refund incurred in connection with zero rated supplies were required to furnish continuous chain tax invoices. C.B.R. vide its Letter C. No.3(10)STP/2000 dated 11-8-2000 had relaxed the condition of the same state goods or continuous chain tax invoices stipulated in the said rules in respect of such input as were purchased or acquired up to 31-8-2000 provided that the output manufactured or produced therefrom were exported up to 30-9-2000. 2. Keeping in view the difficulty being faced by the exporters of textile goods, Board vide STGO 3/2000 circulated that in case of textile made ups; only such refund claims would, be entertained if these were supported with input tax invoices up to the value of 75% of the total inputs' value and were otherwise in order and refund in such cases would be paid only in respect of such input tax invoices. That bench mark stood enhanced to 80% with effect from 1st January, 2001 till 30th March, 2001, whereafter only such refund claims of textile made ups were entertained which were supported with input tax invoices up to at least 90% of the total inputs' value. 3. The Refund Rules 2000 were superceded vide Sales Tax Refund Rules, 2002 notified vide S.R.O. 575(I)/2002 dated 31-8-2002 wherein the condition of the same state goods or continuous chain tax invoices has been withdrawn. Accordingly STGO 03/2000 has been rescinded vide STGO 01/2002 dated 31-8-2002 as the earlier STGO had become redundant. However, complaints from various quarters were made to Board that claims of some exporters of made ups are still held up due to non-fulfilment of the conditions laid down in STGO 03/2000 regarding minimum 90% purchases from registered persons. 4. In order to mitigate the difficulties being faced by such exporters, C.B.R. vide Letter C.No.2(1)STP/2000(Pt) dated 30-11-2000 has exercised its powers conferred under section 55 of the Sales Tax Act, 1990 and has been pleased to authorize the Collectors of Sales Tax to allow refund against such claims on fulfillment of the following conditions and otherwise in order under S.R.O. 417(I)/2000 dated 31-8-2002: (i) The claimant furnishes the proof of payment to the suppliers against the purchases as required under section 73 of the Act. (ii) The claimant furnishes proof of receipt of the goods by him from the supplier. (iii) The claimants furnished Bank Credit Advice (BCA) against the export in question. (iv) The claimants agrees for deduction form the claimed amount equal to the percentage falling short of 90% purchases from the registered persons. For instance, if a claimant has purchased 86% goods from registered person (that is short of 4%), the amount equal to this shortfall of 4% of the claimed refund shall be deducted and rest will be paid.