By: Adnan Mufti, FCA Partner Shekha & Mufti, Chartered Accountants

1. FEDERAL EXCISE RULES 2005 By:Adnan Mufti, FCAPartnerShekha & Mufti, Chartered Accountants

2. Overview Federal Excise Rules, 2005 • Registration & allied matters • Invoicing & issuance of debit & credit note • Manufacturing of goods & their removal • Special procedures for levy of duty on excisable services • Alternative dispute resolution

3. Registration & allied matters Registration • The person engaged in the production of goods or rendering services liable to FED required to obtain registration • No Threshold of Annual Turnover for Goods or Services • Person registered under the Sales Tax Act 1990 not required to obtain excise registration separately. Sales Tax Registration will deemed for excise registration • A personrequired to be registered, before commencing manufacturing of any excisable goods or before rendering or providing any excisable services, shall apply to the Collector for registration in the Form FE-I. • In case of a company, the application for registration shall be filed to the Collector having jurisdiction over that area where the registered head office of such company is located • Other then company having a single manufacturing unit, whose business premises and manufacturing unit are located in different areas, shall apply to the Collector of the area in whose jurisdiction his manufacturing unit is located

4. Registration & allied matters Failure to get registration + Cancellation • A person required to be registered failed to apply for registration, the Collector or his authorized officer shall issue notice to such person for obtaining registration • The Collector, if deemed fit, may pass order to register compulsory specifying the reason for such registration • If any person registered wrongly by inadvertence, the Central Registration Office will cancel such wrong registration Change in particulars of registration • In case of change in name, address or other particulars as stated in the registration application or registration certificate, the registered person shall notify such change to the Collector.

5. Registration & allied matters Transfer of change • The Board may by an order transfer the registration of registered person from the jurisdiction of one Collectorate to another Collectorate. • Where a registered person intends to shift his business activity from the jurisdiction from one Collectorate to another, there should be some valid reason for such transfer. In this case, the registered person shall apply to the Collector for transfer of his registration. • The Collector whose jurisdiction the registration has been transferred, will issue new certificate to the taxpayer and such certificate shall contain the reference of previous certificate.

6. Registration & allied matters Others matters relating to registration • In case, a person ceases: • to manufacture excisable goods • to provide or render excisable services he shall apply to Collector for cancellation of his registration in the Form FE-2 • The Collector may after audit / inquiry may cancel the registration of that person not latter then three months from the date of such application. • The registered person will have to deposit the arrears, if accrued on account of audit for de-registration purpose

7. Registration & allied matters Others matters relating to registration • Collector may suspend registration of a taxpayer, if he is involves in issuance of fake invoices, evaded duty or committed any offence or irregularity • The order for suspension of registration can be withdrawn by the Collector upon the request of taxpayer in consultation with concerned association • The procedures prescribed under the sales tax law with respect to: • de-registration • Suspension or cancellation of registration • Transfer of registration • Changesor amendments in registration will be applicable in the case of excise matters

8. Invoicing & issuance of debit & credit note Numbering of invoice • Manufacturer of excisable goods or providing / rendering of excisable services is required to issue serially numbered invoice in triplicate, commencing from the first day of each financial year • Consolidated, clubbed or aggregated invoices not to be issued by the taxpayers under any circumstances Computer generated invoice • Computer generated may be issued provided each copy of such invoice is signed by the taxpayer or authorized person Proof in support of adjustment • Adjustment of duty on credit transaction not allowed. For adjustment of duty, proof of payment is compulsory-contrary to sales tax

9. Invoicing & issuance of debit & credit note • A registered person may claim adjustment of duty already paid on his inputs within a period of six months. Provided, in case of un-manufactured tobacco, the manufacturers of cigarettes may adjust within two years. Apportionment of adjustment • In case of manufacturing and selling of both excisable and non-excisable goods from duty-paid inputs, adjustment of duty allowed to the extent of excisable services produced Credit & debit notes • in case of return or cancellation of supply, the registered person is required to issue debit and credit notes and make correspondent adjustment as per procedures provided under Chapter-III of the Sales Tax Rules, 2006

10. Manufacturing of goods & their removal Declaration of business premises & equipment • Registered person, while applying for registration, is required to declare in writing details of business premises, godwons, plant, machinery, raw material, etc. Storage of excisable goods • Every manufacturer of excisable goods will maintain a separate store-room or any place for storage on his registered manufacturing premises and place all such excisable manufactured goods thereon • No duty paid goods or other than excisable goods shall be kept in such store room or place of storage

11. Manufacturing of goods & their removal Daily production, clearance and balance of excisable goods • Every manufacturer will maintain a production account and enter daily the description, quantity and rating of all excisable goods and other goods which are: • manufactured or produced in his factory; • removed on payment of duty from the factory for home consumption; • removed without payment of duty from factory for export outside Pakistan; • issued for use in the manufacture of other goods within the factory or reprocessing or remanufacture; • goods sent for value addition or further processing to other manufacturing premises in balance at the close of each day.

12. Manufacturing of goods & their removal Destruction of excisable goods • Excisable goods rendered misfit for consumption for manufacture, after approval of the Collector, may be destroyed in presence of the officer deputed by the Collector. • If excisable goods lodged within business premises or during movement there on are lost or destroyed, the Collector may after verification may forego duty which might be payable on future sales had their not been lost or destroyed • No adjustment of duty will be admissible in respect of goods lost or destroyed

13. Services by Aircraft Operators for Air Travel by Passengers • Carriage of passengers on air journey within Pakistan and international air travel of passengers embarking from Pakistan for abroad or embarking for Pakistan from anywhere in the world, including chartered flights attracts FED • Domestic journey undertaken on concessional rate / without charges also subject to levy of FED • FED is chargeable on all international air tickets issued for the international journey starting from and where in Pakistan or terminating in Pakistan, whether such tickets issued in Pakistan or outside Pakistan • Air ticket issued for international journey covering more than one destination on flights operated by one or more airlines shall be chargeable to FED • FED to be charged by the airline or through its agent at the time of issuance of tickets or at the time of charging flights. If FED not collected at the time of issuance of ticket, the same to be charged before boarding of the passengers on the aircraft

14. Services by Aircraft Operators for Air Travel by Passengers • Duty due to be deposited in treasury by 15th day of the following second month relating to a month • FED charged on tickets, subsequently cancelled or not utilized for travel are refundable to the passengers in the same manner as the fare is refundable. Tickets partially utilized are not refundable for the purpose of FED. Records of cancelled tickets to be maintained by airline • Records prescribed under excise law to be maintained by the air line • No input FED adjustment allowed on international air travel !

15. Collection of FED on Franchise Fee / Technical Fee / Royalty • Franchise services subject to FED @ 10% of the value of taxable service • Value of taxable service = gross amount of the franchise fee or technical fee or royalty charged by the franchiser from the franchisee for using the right to deal with the goods or services of the franchiser Franchise ! • An authority given by a franchiser under which the franchisee is contractually or otherwise • granted any right to • Produce • Manufacture • Sell • Trade • Do any other business activity • Do service or undertake any process

16. Collection of FED on Franchise Fee / Technical Fee / Royalty • identified with franchiser against an agreed fee, whether or not trade mark, service mark, trade name, logo, brand name or any such representation of symbol • Franchise for beverage companies • Franchise for food companies • Where franchiser and franchisee are locally based companies, liability to FED on royalty payment lies upon the franchiser • FED on franchise fee is payable on 15th day of the month, following the payment month laid down in the franchise agreement • Where no date prescribed in agreement or no agreement in lieu of franchise services, FED shall be payable on 15th day on quarterly basis • If any remittance is made through bank on account of franchise fee, technical fee or royalty and the bank is satisfied that the franchisee has not paid FED thereon, the bank is authorized to:

17. ADJUSTMENT OF DUTIES OF EXCISE • Deduct the amount of FED from such remittance • Issue certificate on its letter head showing the name & registration number of the franchisee and the amount of FED so deducted • Deposit the amount of FED against its own monthly return • Where duty deducted by the bank, the franchisee will declare the amount of FED in the return Issue ! • Authorities treat all types of remittances as royalty fee / technical fee / franchise fee • If franchisee not registered, bank faces problems in payment of FED

18. Alternative Dispute Resolution Appointment of ADRC • Any registered person interested for resolution of any dispute may submit a written application for constitution of ADRC to the Board • The Board, after examination of the contents of an application by a registered person and facts stated therein may constitute ADRC for examination of the issues involved in the dispute • The Board may appoint one of the members of the ADRC, other than a public servant, to be its Chairman. • ADRC may determine the issue and may thereafter seek further information or data or expert opinion and shall formulate its recommendations on the matter within 90 days of its constitution. • In case ADRC fails to make recommendations within the prescribed time, the Board will dissolve ADRC and constitute new committee.

19. Alternative Dispute Resolution Appointment of ADRC • If this committee also fails to decide the matter within stipulated time, the matter will be decided by appropriate forum • The Chairman of the committee shall send a copy of the recommendations of the committee to the Board, applicant and the concerned Collector simultaneously • The Board, after examining the recommendations of the committee, shall finally decide the dispute and make such orders in such manner for the resolution of the dispute under intimation to the applicant, the Chairman of the committee and the concerned Collectorate. • The concerned Collectorate shall implement the order in such manner and within such period as may be specified by the Board in the order.

20. Thank You !