Exemption from FED: Tobacco exporter asked to formulate policy with commissioner IR

PESHAWAR: The Peshawar High Court on Wednesday directed the petitioner in a writ petition seeking exemption from federal excise duty (FED) on unprocessed tobacco leaf meant for export to formulate a mechanism with the commissioner Inland Revenue to ensure the protection of national revenue.

A two-member bench comprising Justice Syed Arshad Ali and Justice Dr Khurshid Iqbal issued these directives during the hearing of a writ petition filed by Watan Associates, a company exporting tobacco leaves abroad. The petitioners were represented by advocate Ishtiaq Ahmad. The petitioner’s lawyer informed the court that the company exported tobacco leaves overseas and processed them to maintain their quality in their original state. He argued that under the third schedule of the federal excise duty, unprocessed tobacco leaves that were not fit for use in cigarettes or snuff products were exempted from excise duty. However, any other type of tobacco would be subject to an excise duty at Rs390 per kilogram.

“Since the petitioner company exports tobacco leaves and does not manufacture cigarettes, the excise duty should not apply to it,” the lawyer pleaded, adding that the law was clear on this matter and requested an exemption for the company from federal excise duty.

At this point, the court asked the petitioner’s lawyer how they could guarantee that the tobacco leaves would actually be exported and not used for cigarette manufacturing in Pakistan.

The court noted that if the leaves were used to produce cigarettes locally, the company would be liable to pay excise duty. The bench asked the lawyer to provide assurances that the tobacco meant for export would not be used for cigarette production within the country.

In response, the petitioner’s lawyer said that the export process followed a comprehensive procedure, and they were even willing to submit post-dated cheques or bank guarantees to ensure compliance.

He cited a precedent set by the PHC, where imported goods, upon processing in tax-exempt zones, were cleared based on official documentation. The lawyer suggested a similar mechanism until they submit export proof, their cheques would not be returned. The bench acknowledged the legal validity of this argument but emphasized the need to safeguard government revenue. The court remarked that a well-planned framework must be developed to ensure this.

The petitioners were directed to collaborate with the commissioner Inland Revenue to establish a proper mechanism. Once a satisfactory arrangement was reached, the court would be informed and an appropriate order would be issued.

The petitioner’s lawyer assured the court that within a month, they would engage with the commissioner Inland Revenue and were willing to provide any necessary guarantees to protect national revenue.