FEDERAL EXCISE GENERAL ORDER NO.2/2005

Subject: ISSUES RELATING TO FEDERAL EXCISE DUTY.

Eversince the promulgation of the Federal Excise Act, 2005 and rules made thereunder, the Central Board of Revenue has issued clarifications on different issues relating to the mechanism or mode of payment of Federal excise duty. Despite theses clarifications, some circles are still misinterpreting the provisions of the Federal Excise Law resulting in diverse compliance practices. Even the Federal Excise staff is not correctly following the requirements of the new system causing inconvenience to the taxpayers community. While Board realizes that adjustment with the new excise system will require efforts to harmonize compliance with the legal obligations, it is however, considered imperative to finally consolidate all the important clarifications so for issued and to clarify the recently raised new issues through a general order so that uniform compliance could be ensured throughout the country and taxpayers are facilitated towards the adequate performance of their excise obligations. In view of this, Board is pleased to issue the following instructions for compliance by all concerned:-

(i) As provided under section 13 of the Federal Excise Act, 2005, no person already registered for sales tax purposes shall be required to obtain any separate registration for excise purposes. However, since the exemption threshold prescribed for the manufacturers of (otherwise sales taxable) goods is not applicable under the Federal excise regime, all such manufacturers of goods liable to excise duty, who are otherwise entitled to sales tax exemption threshold are required to obtain registration for excise purpose and discharge their excise obligations and liabilities as provided under the law.

(ii) The word ‘sale’ appearing singly or in conjunction with the word ‘clearance’, in any of the clarifications issued by the Board or the prescribed excise duty return shall mean ‘clearance’ and clearance shall be construed as physical removal of goods from the factory/manufacturing premises.

(iii) Under the new excise law the liability accrues with the clearance whether or not it proceeds sales thus excise duty shall become due at the time when goods are cleared from the factory/manufacturing premises regardless whether or not sale has taken place. Thus, payment of excise duty shall be accounted for the day when goods are removed from the factory/manufacturing premises whether for sale or for storage outside such factory or premises.[Reference Board’s letter C.No.1(7)-CEB/99, dated 05.08.2005 and letter of even number dated 06.08.2005]. However, no excise liability shall accrue on the goods manufactured/produced and stored/stocked within the factory/manufacturing premises prior to their clearance therefrom.

(iv) Under section 6 of the Federal Excise Act, 2005, adjustment of input excise duty is admissible against output excise duty. Such adjustment or off-setting of excise duty shall be admissible only if the duty-paid goods are used exclusively in the manufacture or production of goods on which excise duty has been paid. In other words, only such duty-paid raw materials/inputs shall be taken into account for the purpose of duty adjustment as are directly used in the manufacture/production of excisable goods. Adjustment will be available only to the extent of quantity of raw materials or inputs used in manufacture or production of such products on which duty is paid. Moreover, adjustment shall be available only at the time when duty payment liability is being discharged on the finished/final products. [Reference Board’s letter C.No.1(2)-CEB/2005, dated 21.07.2005]

(v) In case (a) of section 10 of the Federal Excise Act, 2005, the word ‘cleared’ has been used for the purpose of determination of excise duty liability. This provision is to be read independent of the provisions of section 18 of the Act, which deals exclusively with the subject of issuing invoices. If clearance and sale are taking place simultaneously, the invoice becomes due for issue otherwise it needs to be issued only at the time of actual sale. However, in cases where goods are liable to both excise duty and sales tax, the invoice may be raised in terms of section 3 of the Sales Tax Act, 1990 as required under sub-section (2) of section 18 of the Federal Excise Act, 2005 and in such cases the amount of excise duty (indicating whether already paid or still due on the relevant goods) shall invariably be separately mentioned on the invoice. In this regard, all the provisions of the Sales Tax Law relating to invoicing shall mutates mutandis apply. However, the sales tax provisions regarding receipt and accountal of ‘advances’ shall not apply in such cases because excise duty becomes due on the clearance of goods as aforesaid.

(vi) The warehousing scheme and bonding scheme for remission of duty earlier admissible on excisable goods used for specified industrial purposes as provided under the old Central Excise law have been done away with. Under the new scheme, the toll manufacturers (vendors) manufacturing or producing excisable goods on behalf of their principals with the raw materials or inputs owned by such principals shall be liable to pay excise duty on such goods, which shall be adjustable against the final liability discharged by the principals. Such vendors shall not be entitled to any adjustment in case of duty-paid raw materials or inputs owned by the principals. However, the principals, shall be entitled to adjustment on such raw materials or inputs. The vendors shall comply with all the applicable provisions of the Federal Excise law and the principals will not be required to pay any duty on the movement of such raw materials or inputs from their possession to the vendors for the purpose of manufacture or production of excisable products on their behalf, though they will properly account for such movements in their records. However, where a vendor adds any raw material or input acquired by him on payment of excise duty, which he has used exclusively for the manufacture or production of such products, he shall be entitled to adjustment of such duty as admissible under the law.

(vii) Since original duty payment challans are received by the Collectorates directly from the banks, the registered persons are required to furnish to the concerned Collecotrate only one copy (photocopy) of their challans with the return.

2. The Collectors are directed to widely circulate this General Order so that uniform compliance standards are ensured in excise regime.

(Ahmad Reza Khan)

Secretary (ST & FE-L&P)