The Federal Board of Revenue's (FBR) field formation has created confusion among over 1,000 flour mills by charging sales tax on wheat bran (a by-product of flour mills industry) under operative SRO 837(I)/2015, which requires a sales tax clarification to guide the Regional Tax Offices (RTOs). According to a tax lawyer dealing with the issue, the FBR should immediately issue a clarification to guide RTOs about the issue of public importance affecting the entire flour mills industry as well as general masses.
The FBR's clarification would ensure that the concerned RTO has accurately interpreted the sales tax laws and SROs for chargeability of sales tax on wheat bran. The FBR must clarify the validity of SRO 837(I)/2015, which had granted sales tax exemption to wheat bran. However, the SRO is being interpreted as redundant by the FBR field formations at Lahore.
As per a notice issued by the Commissioner Inland Revenue, Zone-II, Corporate Regional Tax Office (CRTO), Lahore, to some of the flour mills, sales tax SRO 837(I)/2015 dated 25.08.2015 granting exemption to wheat bran is not valid with effect from 01.07.2016 though the same has not been rescinded.
Taking serious notice of the situation, tax lawyer Shahid Jami made a representation to the Board for issuance of clarification on the subject as issue is not of a few flour mills rather of more than 1,000 flour mills operating across the country.
As per representation, the background facts are that upto 30.06.2015, cereals and products of milling industry were exempted from levy of sales tax under Sixth Schedule of the Sales Tax Act, 1990 under Column (2) of Sr No 19 (Table-I). Whereas wheat bran is a product of milling industry. Whereas there was separate exemption under Column (2) of Sr No 28 (Table-I) to poultry feed and all its ingredients, and wheat bran is an ingredient of poultry feed. As such upto 30.06.2015, wheat bran produced by the flour mills across the country was exempted from sales tax under Sr No 19 of Table-I being product of milling industry as well as under Sr No 28 of Table-I being ingredient of poultry feed. Above finds support from note No 1 given after Table II of the Sixth Schedule stating that for the purpose of Sixth Schedule for entries against which classification of heading or sub-heading has been specified exemption shall be admissible on the basis of description of goods as mentioned in Column (2) of the Sixth Schedule. Therefore non-mentioning of PCT heading of wheat bran at Column (3) of Sr No 19 and 21 is irrelevant as there has been consistent practice of the flour milling industry as well as of the department that wheat bran is a product of milling industry as well as ingredient of poultry feed and hence exempt from levy of sales tax, Shahid Jami said.
There was a legislative change through Finance Act, 2015 whereby some of the classifications of Column (3) of Sr No 19 of Table I pertaining to cereals and products of milling industry has been omitted though there is no change in Column (2) of Sr No 19. However, Sr No 28 pertaining to poultry feed and all its ingredients has been deleted and instead Sr No 21 in Table-II has been added pertaining to poultry feed and named ingredient instead of all the ingredients. Whereas, ingredient of poultry feed have been mentioned at Sr No 15 of Eighth Schedule attracting reduced rate of sales tax wherein in column (3) wheat bran with PCT heading 0302.4000 is mentioned, Shahid Jami maintained.
With the inclusion of wheat bran in Eighth Schedule it was the first time that this very product which is a by-product of the milling industry was made liable to sales tax at reduced rate with effect from 1st July 2015 though main product of milling industry such as flour, maida and fine, etc, continued to be exempted being household items of human consumption.
Soon thereafter representation was made by the All Pakistan Flour Mills Association threatening to go on strike if one of their items is made taxable. Responding to this, the federal government in exercise of its powers under Section 13(2)(a) exempted the wheat bran from the whole of sales tax through SRO 837(I)/2015 dated 25.08.2015. However, due to an oversight the entry of wheat bran was not deleted from column (3) of Sr No 15 of Eight Schedule.
Presently entry in the Eight Schedule and SRO 837(I)/2015 coexist and due to enhancement of rate of sales tax of Sr No 15 from 5% to 10% through Finance Act, 2016 the Commissioner Inland Revenue is of the opinion that SRO has become redundant with effect from 1st July 2016. Whereas this SRO is still in operation and in spite of the continuation of entry in Eighth Schedule should prevail being latter in time and applicable from 1st July 2015 with retrospective effect being curative in nature as well as in accordance with the policy of the federal government, Shahid Jami explained. Therefore, it is requested that the a clarification should be issued by the FBR at the earliest as the issue is of public importance affecting the entire flour mills industry and population, Shahid Jami added.