REVENUE DIVISION
CENTRAL BOARD OF REVENUE
(SALES TAX WING)
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SUBJECT: ZERO-RATED SUPPLY OF LOCALLY MANUFACTURED GOODS TO DUTY FREE SHOP –
PROCEDURE REGARDING.
Supplies to duty free shops are entitled to zero-rating under serial No. 3 of the Fifth Schedule to the Sales Tax Act, 1990, provided clearances from duty free shops are made against various baggage rules issued under the Customs Act, 1969 and treated as import for the purpose of levy of sales tax. Under serial No. 33 of the Sixth Schedule to the Sales Tax Act, 1990, personal wearing apparel and bonafide baggage imported by overseas Pakistanis and tourists is exempt from sales tax provided the same is also exempt from customs duty under various baggage rules. Currently, baggage concessions are covered under Chapter II of the Customs Rules, 2001.
2. M/s Duty Free Shop Limited (hereinafter-called DFSL) have approached the Board for prescribing a procedure for the procurement of locally manufactured goods under zero-rated scheme as aforesaid. He following procedure is, therefore, laid down for immediate compliance: -
(i) DFSL will apply to the respective Collector of Sales Tax for grant of authorization for taking sales tax free delivery of the goods intended to be purchased from a specified registered manufacturer. In the application DFSL will exactly specify the description and quantity of goods besides particulars including sales tax registration number of the manufacturer-cum-supplier. Only such goods shall be included in the application as DFSL intends to sell against duty free allowances under different baggage concessions.
(ii) At the time of filling application under (I) above, DFSL will furnished an indemnity bond in a proper form to the effect that in case goods intended to be purchased free of sales tax are used for the purpose other than the purpose of supplying the same against duty free allowance under different baggage concessions, DFSL shall pay the amount of sales tax invoiced in such goods besides additional tax payable under section 34 of Sales Tax Act, 1990. Original indemnity bond shall be retained under safe custody in the Collectorate and two attested photocopies of the accepted indemnity bond shall be given to DFSL and DFSL shall given one copy to the concerned manufacturer.
(iii) On the basis of authorization given by the Collector of Sales Tax after acceptance of the indemnity bond furnished by DFSL as aforesaid, the manufacturer shall deliver the goods against a zero-rated invoice issued in the name of DFSL and quote the reference number and date of authorization issued by the Collector. The zero-rated invoice shall show the value of goods in Pak rupees as well as in US dollar. The goods shall be delivered to DFSL only after affixing irremovable sticker containing a caution to the effect that it is meant exclusively for supply to and sales by DFSL under duty free allowances of the baggage concessions.
(iv) DFSL shall pay price of the goods in foreign currency (US dollars) which shall be surrendered by the manufacturer to the State Bank of Pakistan and manufacturer shall receive the payment in Pak rupees as per the prevailing State Bank of Pakistan’s procedures and foreign exchange regulations.
(v) On receipt of goods DFSL shall issue a certificate of receipt indicating the reference number and date of the aforesaid authorization and serial number and date of zero-rated invoice. This certificate shall be duly attested by the customs staff posted at duty free shops. A copy of this certificate shall be sent each to the manufacturer as well as to the Collector of Sales Tax.
(vi) DFSL shall maintain proper separate records of the tax-free purchases and tax-free sales of goods purchased under this order, Full particulars of the persons buying these goods under duty free allowances shall be invariable mentioned in the records. Similarly, the manufacturer shall maintain proper record relating to the supplies made to DFSL without payment of sales tax. Both DFSL and the manufacturer shall present these records to the sales tax staff for inspection or audit as and when required.
(vii) The manufacturer shall be entitled to input tax adjustment in respect of goods supplied to
DFSL against zero-rated invoices and in case excess input tax credit is not available, the
manufacturer shall be entitled to refund of the input tax involved in such goods on the basis
of the following documents: -
The said documents shall be furnished in original with a set of photocopies and returned to the manufacturer after tallying an endorsement of verification on the photocopies by the officer-in-charge of Refund Division of the Sales Tax Collectorate. Refund shall be processed and sanctioned in accordance with the Sales Tax Rules, 2002 treating the claimant as manufacturer-cum-exporter.
(viii) DFSL shall procure goods under this order to meet its requirements for a period not exceeding three months and shall ensure that these goods do not find way in the local market. DFSL shall be responsible to pay sales tax and additional tax in case any such goods are found being sold in the local market.
(ix) The indemnity bond furnished by DFSL shall be released by the Collector of Sales Tax only after satisfying himself either through audit or otherwise that goods have been sold by DFSL only against duty. free allowances under the relevant baggage concessions.
(Iftikhar Qutab)
Chief (Sales Tax – III)
Amended vide STGO No. 04/2003 dated 27.08.2003.