Our comments on toll manufacturing December 09, 2014 RECORDER REPORT 0 Comments. Toll manufacturing PRA, KPRA argue against FBR interpretation Punjab Revenue Board (PRA) and Khyber Pakhtunkhawa Revenue Authority (KPRA) have opposed the Federal Board of Revenue (FBR) interpretation of taking toll manufacturing within the ambit of manufacturing. The PRA/KPRA insisted to treat it as a service for collection of sales tax. Sources told Business Recorder here on Monday that the issue for levy of sales tax on toll manufacturing was discussed during last meeting between Chairman FBR, Chairman, Sindh Revenue Board (SRB), Chairman, Punjab Revenue Board (PRA), Secretary Excise & Taxation, Excise & Taxation Department Khyber Pakhtunkhawa and officials of Khyber Pakhtunkhawa Revenue Authority (KPRA) at the FBR House. Classification of toll manufacturing is a debatable disputed issue between provinces and federal government. PRA and KPRA took the stance that it falls within the definition of service and therefore the provinces have the right to collect sales tax thereon. SRB was of the view that the SRB is willing to consider it as manufacturing as a quid pro quo with FBR regarding other issues such as withdrawal of Federal Excise Duty on franchise and other services if considered by the FBR. The Chairman FBR requested PRA and KPRA to reconsider their position so that things can move forward in an agreed manner. Experts said that PRA while insisting to consider toll manufacturing as service is arguing that it is clear from the language of 3(1) of the Sales Tax Act, 1990 that Federal sales tax is payable only on the taxable supplies (besides goods imported in to Pakistan). Under section 2(41), taxable supply means a supply of taxable goods by an importer, manufacturer, wholesaler, distributor or retailer. Again under section 2 (33), the pivotal principle for any transaction to become a supply is that it must be a sale or the transfer of the right to dispose of goods as owner, which means ownership title must be transferred from seller to buyer, otherwise the transaction is not a supply for the purpose of Federal Sales Tax Act. Under toll manufacturing, ownership for title of goods is not transferred to the vendor under any circumstances, which means a transaction for the purpose of toll manufacturing can never be treated as supply. The ownership of both input goods (raw materials, semi-finished products or components etc) and output goods (processed or finished products) remains with the principal throughout the performance or the execution of the toll manufacturing contract, whether written or otherwise. When questioned, Arshad Shehzad a top Karachi-based sales tax expert gave an independent view, he explained word toll manufacturing is self-explanatory and tilt more towards manufacturing rather than services. He informed we have to keep in front definition of manufacture and manufacturing provided under section 2(16) and 2(17) of the Federal Sales Tax Act 1990 for better understanding of the term rather confusing the matter with definition of supply. According to sub section 2(16) Manufacture or produce includes - (a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product; (b) process of printing, publishing, lithography and engraving; and (c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repacking or preparation of goods in any other manner; Likewise according to sub section 2(17) manufacturer or producer means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include- (a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner; (b) an assignee or trustee in bankruptcy, liquidator, executor, or curator or any manufacturer or producer and any person who disposes of his assets in any fiduciary capacity; and (c) any person, firm or company which owns, holds, claims or uses any patent, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distributes, consigns or otherwise disposes of the goods: In order to further evaluate the legal position, Shehzad informed that he has also attempted to review the definition of toll manufacturing service and rules if any been formulated by Sindh Board of Revenue, unfortunately he didnt find either of it in Sindh Sales Tax Act., 2011. In the absence he cant extend comments to ascertain the legal stance embodied in law of provisional government. Taking example of textiles Arshad Shehzad, explained that in all the process of weaving, knitting, dyeing or processing, the goods were transformed into a new commodity and thus classified as different and distinguished product, hence in his opinion there could not be two different opinion that manufacturing is took place. These positions are further strengthened by the definitions provided in the Federal Sales Tax Act. 1990. There is also no second opinion that Pakistan Customs Tariff heading of chapter 9830 allocated to the services for toll manufacturing services has no relevance with the process of weaving/ knitting, dyeing or processing and all these process are well covered under chapter 50 to 60 in Pakistan Customs Tariff. Shehzad added that issue of meaning and scope of term manufacturing by a person, is settled by the superior courts in past. Copyright Business Recorder, 2014
Posted on: Tue, 09 Dec 2014 06:32:43 +0000
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