SPECIAL PROCEDURE FOR GINNING INDUSTRY RULES, 2000 --- AN ANALYSIS OF DRAFT NOTIFICATION

SPECIAL PROCEDURE FOR GINNING INDUSTRY RULES, 2000 --- <!--[if gte mso 10]> SPECIAL PROCEDURE FOR GINNING INDUSTRY RULES, 2000 --- AN ANALYSIS OF DRAFT NOTIFICATION By Akhtar Javed, Advocate, Lahore Section 71 of the Sales Tax Act, 1990 empowers the Federal Government to prescribe special procedure for scope and payment of tax, registration, book keeping and invoicing requirements and the terms in respect of such supplies as may be specified in the notification. 2. In exercise of powers conferred under section 71 of the Act, the Federal Government vide S.R.O. 1271(I)/96 dated '10-11-1996 has prescribed "the Special Procedure for Ginning Industry Rules, 1996" which are applicable to cotton ginners and ginning factories. 3. The Federal Government intends to replace the existing procedure for ginning industry with a new one and has circulated the draft rules to Collectorates for suggestions and comments. I have made an attempt to make an analysis of the new draft rules viz-a-viz the existing procedure. Applicability As is evident from the title, under the rules, special procedure has been prescribed for ginning industry. In terms of rule 1(2) of the existing Rules, 1996, these are applicable to cotton ginners and ginning factories. As evident,' these rules are not applicable to the buyers of ginned cotton i.e. spinning units or the exporters of ginned cotton. As these rules are not applicable to ginned cotton through seriously numbered delivery note or gate pass to the spinning unit alongwith the sales tax invoice issued in the name of buyer. The spinning unit will be required to settle the terms about quantity and value of ginned cotton with the ginner within 6 days of the date of dispatch of ginned cotton. The quantity or value shall be recorded on reverse of sales tax invoice, delivery note or gate pass. In case, there is some difference in quantity or value settled between seller and the buyer, the buyer will be required to issue a debit note. On receipt of attested copy of each invoice, gate pass or delivery note and debit note, the ginning unit will prepare a credit note and will revise the entries in the supplies record regarding the quantity and value of the ginned cotton finally agreed between the ginner and the spinning unit. Through the new draft rules, C.B.R. has' proposed that the sales tax invoice will be issued at the time of delivery of ginned cotton whereas under the existing rules, the ginning unit issues invoice for quantity on the value of ginned cotton within 7 days of the date of delivery note and the terms regarding quantity and value are settled with the buyer and the seller. No doubt, the tax invoice is required to be issued of the date on which the ginned cotton is dispatched. Issuance of debit and credit note In case the terms and conditions regarding quantity or value settled after the receipt of ginned cotton at the premises of the spinning unit are different from the one indicated on the sales tax invoice, the spinning unit will be required to issue a debit note and on receipt of attested copy of invoice, gate pass or delivery note and debit note, the ginning unit will issue a credit .note. The procedure for issuance of debit or credit note are being introduced in the present procedure whereas no such procedure is available in the existing rules. In the existing rules, the buyer and seller can make corresponding adjustments regarding value and quantity of ginned cotton in their purchase and sale record respectively without issuing debit or credit notes and the terms of quantity and value of ginned cotton on the reverse of delivery note whereas in the draft rules, these terms are required to be recorded on the reverse of the sales tax invoice, delivery note or gate pass. Payment of Tax Under the existing rules, the spinning unit is required to remit the amount of sales tax payable on cotton purchased by him during the month to which the tax invoice relates through a bank draft drawn and crossed in the name of the respective Collector of Sales Tax. Under the new draft rules, the spinning unit or exporter shall remit the amount of sales tax payable on ginned cotton purchased within ten days of the date of invoice issued by the supplier of ginned cotton. The remitting of amount of sales tax through bank draft against each invoice after ten days of its issuance will be a cumbersome procedure for the spinning unit and the staff of the 'unit will remain busy all the' time to watch the payment against sales tax invoice is made within the stipulated period of 10 days. It will be appropriate if the present system is retained in which the spinning unit is required to remit the amount of sales tax to the ginner by 10th day of the next month as the staff of the spinning unit knows that payments to the ginners are to be made by 10th day, hence, they account for all the purchases made during the month. If the new procedure is implemented, than the staff will have to be more vigilant and will have to keep a track record of purchases made against each tax invoice to ensure that the payment is made within 7 days. Supplies under DTRE (Duty and Tax Remission for Exports) Scheme. In terms of DTRE Rules notified by C.B.R. through S.R.O. 450(I)/2001 dated 18-6-2001, the exporters are entitled to procure input goods without payment of sales tax. Accordingly, a number of spinning units have got approval from the concerned Collectors of Customs to procure ginned cotton from ginner without payment of sales tax. Serial No. 45, Chapter XIII of Customs General Order No. 12 of 2002 lays down a procedure to be followed by the persons operating under DIRE Rules. It has been prescribed in the said procedure that the goods sold from domestic suppliers to a direct exporter under DTRE Rules are eligible for zero rating. It has been further prescribed that to claim the input tax adjustment, a domestic supplier who is not registered for this purpose as an indirect exporter shall provide a copy of each invoice to the DSAO alongwith a declaration in the prescribed format duly endorsed by the exporter. In the proposed new, draft rules, it has been provided that a ginner who has been approved by the concerned Collector of Customs as indirect exporter shall furnish to the Collector of Sales Tax an approved copy of Appendix I prescribed in sub-Chapter (7) of Chapter XII of Customs Rules, 2001 alongwith a certified copy of the contract signed with the direct exporter for supply of ginned cotton. These provisions have been required to be inserted to safeguard Government Revenue. In some cases, it was reported that the ginning units had been supplying ginned cotton against zero rated invoices to such persons who were not approved under DTRE. Under the proposed rules, the ginners will be responsible to pay additional tax and penalties in case of supply of ginned cotton on the basis of any fake, bogus false or fabricated documents. Penalties Specific penalties have been prescribed under the new draft rules. In case the ginning unit supplies, delivers or dispatches ginned cotton to any spinning unit or exporter without issuing the delivery note or gate pass or the tax invoice, he shall be liable to penalty under clause (a) of subsection (2) of section 33 of the Act or as the case may be, under clause (b) or subsection (3) thereof besides being liable to pay the tax and additional tax as and if chargeable under the Act. Clause (a) of subsection (2) of section 33 prescribes a penalty of Rs.5,000 or 3% of the amount of tax involved, whichever is higher. Clause (b) of sub-section (3)' of section 33 prescribes a penalty of Rs.10,000 or 5% of the amount of tax involved, whichever is higher. In terms of sub-rule (5) of rule 6 of draft rules, the ginning unit is required to submit to the Collector of Sales Tax by 20th day of the month, details of cotton sold by him during a month and amounts of sales tax deposited by him in the prescribed format. If the ginning unit fails to submit the aforesaid statement, he shall be liable for penalty under clause (b) of subsection (3) of section 33 of the Act. Clause (b) of subsection (3) of section 33 prescribes a penalty of Rs.10,000 or 5% of the amount of tax involved, whichever is higher. In terms of sub-rule (5) of rule 6 of draft rules, the ginning unit is required to submit to the Collector of Sales Tax by 20th day of the month, details of cotton sold by him during a month and amounts of sales tax deposited by him in the prescribed format. If the ginning unit fails to submit the aforesaid statement, he shall be liable for penalty under clause (b) of subsection (3) of section 33 of the Act. Clause (b) of subsection (3) of section 33 prescribes a penalty of Rs.10,000 or 5% of the amount of tax involved, whichever is higher. Intimation to the Collector Under the draft rules, the ginner shall be required to inform the concerned Collector of Sales Tax at the time of commencement and also at the time of closure of ginning activity on the day earlier than the commencement and on the day following the cessation of ginning. 4. If there are any suggestions/reservations on the draft rules, these may be communicated to C.B.R. before issuance of Notification.