KARACHI: The MCC Appraisement East has framed contravention cases to the tune of Rs1.046 billion against those who misused SRO 1125(I)/2011. Importers of raw and ginned cotton filed various petitions before the Lahore high Court requesting benefit of SRO 1125(I)/2011.

Meanwhile, the Large Taxpayers Unit (LTU) referring to the instructions of Lahore High Court certified that several importers of raw cotton were textile manufacturers and entitled to reduce income tax withholding at the rate of 1.0 percent in respect of raw cotton import.

However, Collector MCC Appraisement East, Manzoor Memon has opposed the above-mentioned representation of LTU and requested re-consideration of their stance.

MCC Appraisement East in a communiqué to LTU noted that Lahore High Court in its judgment in WP No. 6590/2015 directed that the relevant Commissioner would first have to certify that the importer fulfills the criteria stipulated in the SRO. In this regard, the commissioner will issue a verification certificate regarding status of the importer that conditions stipulated in the SRO fulfilled.

On the basis of the said verification certificate, the relevant Collectorate can grant the benefit of the SRO.

MCC Appraisement East noted that certificate issued by LTU to certain importers were in stark violation of the provisions of the SRO 1125(I)/2011.

SRO 1125(1)/2011 has granted the benefit of concessionary treatment to textile sector from ginning stage onwards. The same was however amended vide SRO. 154(1)/2013 by making SR0.1125(I)/2011 applicable from Spinning stage onwards.

The amendment put the import of raw and ginned cotton outside the purview of SRO. 1125(1)/2011. This step also put imports of raw and ginned cotton outside the purview of the Fist Schedule-Part-II to the Income Tax Ordinance which has allowed concessionary rate of with-holding tax of 1.0 percent to registered manufacturers and 3.0 percent to commercial importers condition upon their falling in the ambit of SRO.

Being excluded from SRO inevitably resulted in inadmissibility of the concurrent concessionary rate of withholding tax under SRO 212(1)/2013, hence, the imports of raw and ginned cotton were subject to 5.0 percent withholding tax before 30-06-2014 and 5.5 percent thereafter.

Based upon this legal position, this Collectorate has framed Contravention cases to the tune of Rs. 1.046 billion against those who have misused SRO 1125(1)/2011. Many importers have already paid an amount of Rs 77 million in old cases and a further amount of Rs 737 million has been paid by them voluntarily after removing the anomaly this year alone. Other Collectorates have also initiated action for recovery in similar manner.

In light of the above explained legal position, LTU has approached Member Inland Revenue (Operations) of Federal Board of Revenue (FBR) to clarify the issue so that further action could be taken by the relevant customs authorities accordingly.

It was known that the Chief Commissioner Appraisement South apprised DG I&I of IRS, Haroon Tareen about the situation and legality of the verification certificates issued by LTU to the importers.

Sources said Tareen after due perusal of the situation, advised the LTU to cancel all such verification certificates issued to the raw cotton importers.