FEDERAL

EXCISE LAW
Compiled by: Murtaza Quaid, ACA
Federal Excise Law
In this Part:
 Introduction  Liability for payment of duty in the case of
 Definitions private companies or business enterprises or
in case of sale of business ownership
 Levy of Federal Excise Duty [Section 9]
 Liability to pay Federal Excise Duty  Recovery of unpaid duty or of erroneously
 Determination of Value for the purposes of refunded duty or arrears of duty, etc.
Duty [Section 12] [Section 14]
 Applicable Value and Rate of Duty [Section 10]  Short Paid Amounts Recoverable
 Adjustment of Excise Duty [Section 6] [Section 14A]

 Zero Rate of Duty and Drawback of Duty  Destruction of Excisable Goods [Rule 20]
[Section 5]  Power to forgo duty on excisable goods lost
 Exemptions [Section 16] or destroyed while lodged within registered
premises [Rule 21]
 Application of the provisions of the Sales Tax
Act, 1990 [Section 7]  Registration [Section 13]

 Manner of Computation of FED Due  Records [Section 17]

 Collection of Excess Duty etc. [Section 11]  Filing of return and payment of duty etc.
[Section 4]
 Default Surcharge [Section 8]
 Invoices [Section 18]
 Introduction
Federal Excise Duty (FED) is an indirect tax charged
by the Federal Government. It is regulated through
Federal Excise Act, 2005 and Federal Excise Rules,
2005.
Section 3 of Federal Excise Act, 2005 provides that
all goods and services are subject to FED at general
rate of 15% ad valorem except goods and services
specified in 1st Schedule on which FED shall be
charged at specific rates provided in 1st Schedule.
However, Section 16 provides that all goods and
services are exempt from levy of FED except goods
and services specified in 1st Schedule. Therefore, it is
valid to conclude that FED is levied only on goods
and services specified in 1st Schedule.
 Definitions
MUST READ all the definitions given in
 Section 2 of Federal Excise Act, 2005
 Rule 2 of Federal Excise Rules, 2005
 Levy of Federal Excise Duty [Section 3(1)]
Federal Excise Duty at specified rate ad valorem shall be
levied and collected on: SRO 649 (I)/2005 dated 1st Jul 2005
FED shall be levied on following goods
a) Goods produced or manufactured in Pakistan;
produced or manufactured in non-tariff
b) Goods imported into Pakistan, irrespective of their areas (excluding the territory of Azad
final destination in territories of Pakistan; Jammu and Kashmir) & brought to the
tariff areas for sale & consumption therein:
c) Such goods as the Federal Government may, by
notification in the official Gazette, specify, as are i. Vegetable ghee and cooking oil
produced or manufactured in the non-tariff areas and ii. Cigars, cheroots, cigarillos and
are brought to the tariff areas for sale or consumption cigarettes, of tobacco or of tobacco
substitutes.
therein; and
d) Services provided in Pakistan including the services “Non-tariff area” means Azad Jammu and
originated outside but rendered in Pakistan. Kashmir, Northern Areas and such other
e) any item not covered in clause (a) to (d) above and territories or areas to which FED Act does
not apply.
specified in the First Schedule
“Tariff area” means area other than the
non-tariff area

Import of Goods Manufacturing of Goods Provision of Services

 Levy of Federal Excise Duty [Section 3(1)]

Other Basis of Charge [Section 3(3)]

FBR may, by notification in the official Gazette, in lieu of levying

and collecting FED in normal manner, levy and collect duties,
a) on production capacity of plants, machinery, undertakings,
establishments or installations producing or manufacturing
such goods; or
b) on fixed basis, on any goods or class of goods or on any
services or class of services, payable by any establishment or
undertaking producing or manufacturing such goods or
providing or rendering such services.

FED at Import Stage [Section 3(2)]

FED on goods imported into Pakistan shall be levied and

collected in the same manner and at the same time as if it were
custom duty payable under Customs Act, 1969.
 Levy of Federal Excise Duty [Section 3(1)]

Further Duty [Section 3(3A)]

Where excisable goods and services are supplied to

unregistered person, Federal Government may, by notification
in the official Gazette, charge, levy and collect, on the
excisable goods and services specified in that notification, a
further duty at the rate of 2% of the value in addition to
normal FED.

FED at Higher or Lower Rate [Section 3(4)]

Federal Government may levy and collect duty on any

class or classes of goods or services by notification in the
official Gazette at such higher or lower rate or rates as
may be specified in such notification.
 Liability to pay Federal Excise Duty [Section 3(5)]
Situation Liability to pay FED is of the
Goods produced/manufactured in Person manufacturing/producing such
Pakistan goods
Goods imported into Pakistan Person importing such goods

Services provided/rendered in Pakistan Person providing/rendering such service

Services are rendered by the person out

Recipient of such service in Pakistan
of Pakistan
Goods produced/manufactured in non-
Person bringing/causing to bring such
tariff areas and brought to tariff areas for
goods to tariff areas
sale or consumption therein
 Determination of Value for the purposes of Duty [Section 12]
Situation Value of goods / services

Goods liable to duty

Value as determined u/s 2(46) of STA-1990, excluding the amount of
under FED Act at a rate
duty payable thereon.
dependent on their value

Total amount of charges for the services including the ancillary facilities
or utilities, if any, irrespective whether such services have been
Services liable to duty rendered or provided
under FED Act at a rate  on payment of charge or
dependent on the charges
 free of charge or

 on any confessional basis.

Goods chargeable to duty Value determined u/s 25 of Customs Act, 1969 including customs
at the import stage duties payable thereon
 Determination of Value for the purposes of Duty [Section 12]
Situation Value of goods / services

1. Retail price fixed by manufacturer, inclusive of all duties, charges and taxes,
other than sales tax under of STA-1990, at which any particular brand or
variety of such goods should be sold to the general body of consumers.

2. If more than one retail price is fixed for the same brand or variety, the
highest of such price.

3. Retail price shall, unless otherwise directed by FBR, be legibly, prominently

and indelibly indicated on each good, packet, container, package, cover or
label of such goods.
Goods chargeable to duty 4. However, where so and as specified by FBR, any goods or class of goods
on the basis of retail price liable to duty on local production as percentage of retail price, the
provisions of this sub-section shall mutatis mutandis apply in case such goods
are imported from abroad.

[SRO 545(I)/2006 dated 5 June 2006 – FED shall be charged and collected
on imported cigarettes on the basis of retail price legibly printed on each
packet of cigarettes.]

5. FBR may through a general order specify zones or areas only for the
purpose of determination of highest retail price for any brand or variety of
goods
 Determination of Value for the purposes of Duty [Section 12]
Situation Value of goods / services

1. FBR may fix the minimum price of any goods or class of goods, for
the purpose of levying and collecting of duty and duty on such
goods shall be paid accordingly.
Goods liable to duty on
minimum price 2. If price at which the goods or class of goods are sold, is higher
than the price fixed by FBR, the duty shall, unless otherwise
directed by FBR, be levied and collected at such higher price
 Applicable Value and Rate of Duty [Section 10]
Value and rate of FED applicable to any goods or services shall be the value, retail
price, tariff value and the rate of FED in force:

Situation On the date on which

Goods are supplied for export or for home
In case of goods
consumption
In case of services Services are provided or rendered

Goods produced/manufactured
outside tariff areas and brought to Goods are brought to tariff areas
tariff areas for sale or consumption
 Adjustment of Excise Duty [Section 6]
For the purpose of determining net liability of duty in respect of any goods, a registered
person is allowed to deduct the duty already paid on dutiable goods, subject to
following conditions:
1. Such dutiable goods are used directly as input goods for the manufacture or
production.
2. The registered person holds a valid proof to the effect that
a) He has paid the price of goods purchased by him including FED; and
b) He has received the price of goods sold by him including FED duty
through banking channels including online payment whether through credit card or
otherwise.
3. The supplier of input goods and services has declared such supply in his return and
has paid amount of tax due as indicated in his return.
FBR may, by a notification in the official Gazette, disallow or restrict whole or part of
the amount of or otherwise regulate the adjustment of duty in respect of any goods or
class of goods.
 Adjustment of Excise Duty [Section 6]

Proof in Support of Adjustment [Rule 13]

1. Adjustment of duty already paid shall be admissible against duty payable on any excisable
goods only if a registered person has a valid proof in the form of purchase invoice or goods
declaration or any other lawful document in his own name besides a proof to the effect that
he has paid the price of goods inclusive of duty at previous stage through banking channels.
2. Where the excisable raw materials or input goods cannot be procured or purchased by any
person directly from a manufacturer of such raw materials or input goods due to the policy or
regulations of the Government, a photocopy of excise invoices issued by the manufacturer to
an authorized marketing company along with concerned invoice issued by such marketing
company shall be treated as valid document for the purpose of duty adjustment provided
other requirements of the FED Act and FED Rules are fulfilled.
3. Notwithstanding anything contained in FED Act or FED Rules, a registered person shall be
entitled to claim adjustment of duty already paid on his inputs within a period of 6 months
provided that in case of un-manufactured tobacco, the manufacturers of cigarettes shall be
entitled to claim adjustment within 2 years.

Apportionment of Adjustment [Rule 14]

1. In case a registered person is manufacturing and selling both excisable and non-excisable goods
manufactured or produced from duty-paid inputs, he shall be entitled to adjustment of duty
only to the extent and in respect of excisable goods.
 Zero Rate of Duty and Drawback of Duty [Section 5]
1. Notwithstanding the provisions of section 3, FED @ 0% shall be charged on
a) goods exported out of Pakistan or
b) such goods as may be, by a notification in the official Gazette, specified by
Federal Government.
2. FBR may, by notification in the official Gazette and subject to specified conditions
and limitations and at specified rate, grant drawback of duty paid on any goods
a) used in the manufacture of any goods manufactured in and exported out of
Pakistan, or
b) shipped as provisions or stores for consumption on board a ship or aircraft
proceeding to a destination outside Pakistan.
3. Adjustment of FED shall be admissible on zero rated goods. However, FBR may, by
notification in the official Gazette, prohibit the payment of drawback, refund or
adjustment of duty upon the exportation of goods or any specified goods or class of
goods to any specified foreign port or territory.
 Exemptions [Section 16]
1. All goods imported, produced or manufactured in Pakistan and services provided or rendered
except goods and services specified in 1st Schedule, shall be exempt from whole of excise
duties.
2. However, goods and services specified in 3rd Schedule shall be exempt from duty subject to
such conditions and restrictions, if any, specified therein
3. Adjustment of duty paid shall not be admissible in respect of goods exempt from duty of
excise whether conditionally or otherwise.
4. Federal Government may, whenever circumstances exist to take immediate action for the
purposes of:
a) national security, natural disaster, national food security in emergency situations,
b) implementation of bilateral and multilateral agreements and
by notification in the official Gazette, exempt any goods or services from the whole or any
part of the duty leviable under FED Act.
5. Federal Government or FBR may, by a notification in the official Gazette, for reasons to be
recorded, exempt any person or class of persons from payment of the whole or part of the
default surcharge and penalties subject to specified conditions or limitations
6. FBR shall place before the National Assembly all notifications issued under this section in a
financial year.
 Application of the provisions of the Sales Tax Act, 1990 [Section 7]
1. In respect of goods (2nd Schedule of FED Act, 2005)
and services (SRO 550 dated 5 June 2006) subject to “Sales tax mode” means the manner
FED under VAT mode, a registered person is entitled of collection and payment under the
to Sales Tax Act, 1990, and rules made
there under, of the duties of excise
2. Deduct sales tax paid (as input tax) from FED due chargeable under FED Act specified to
(i.e. output FED) from him on such goods and be collected and paid as if such duties
services; were tax chargeable u/s 3 of the said
Act and all the provisions of that Act
3. Deduct FED paid (as input tax) on such goods and
and rules, notifications, orders and
services from sales tax payable (i.e. output tax);
instructions made or issued there
4. Deduct FED paid (as input tax) or payable on such under shall, mutatis mutandis, apply
goods and services from the FED (i.e. output FED) to the excise duty so chargeable.
due from him on such goods and services.

Services on which FED is charged on VAT mode [SRO 550(I)/2011 dated 5th June 2006]
Heading Description of services
98.02 Advertisement
9805.1000 Shipping agents
98.13 Services provided or rendered by banking companies and non-banking financial companies.
98.13 Services provided by insurance companies.
9819.1000 Services provided or rendered by stockbrokers.
9819.9090 Services provided or rendered by port and terminal operators.
 Manner of Computation of FED Due

Importer Manufacturer Service Provider

Import Stage Supply Stage Rendering of Services

FED on ad val basis FED under VAT mode FED under VAT mode
Assessed Value XXX XXX XXX
Output FED Output FED
Add. Custom Duty XXX
Less. Input FED (XXX) Less. Input FED (XXX)
Value for FED XXX
Less Input Sales Tax (XXX) Less Input Sales Tax (XXX)
Rate of FED X%
Federal Excise Duty XXX Duty due XXX Duty due XXX

FED on retail price basis FED not under VAT mode FED not under VAT mode
Output FED XXX XXX
Retail Price XXX Output FED
- Inclusive of FED Less. Input FED (XXX)
- Exclusive of Sales Tax (direct input goods) Less. Input FED -

Rate of FED X% Less Input Sales Tax - Less Input Sales Tax -

Federal Excise Duty XXX Duty due XXX Duty due XXX
 Collection of Excess Duty etc. [Section 11]
1. Every person who has collected or collects any duty, which is
 not payable as duty or
 in excess of the duty actually payable
and the incidence of which has been passed on to the consumer,
 shall pay the amount so collected to Federal Government.
2. All provisions of FED Act or rules shall apply for recovery of such amount and claim
for refund of any such amount paid or recovered shall not be admissible on any
ground whatever.
 Default Surcharge [Section 8]
1. If a person
 does not pay the duty due or any part thereof within prescribed time; or
 receives refund of duty or drawback or makes an adjustment which is not admissible
to him,
 he shall, in addition to duty due, pay default surcharge at the rate of 12% per annum
or KIBOR plus 3% per annum, which ever is higher, of duty due, refund of duty or
drawback.

2. Period of default shall be reckoned

 from the date following the due date on
which the duty was payable
 to the preceding day on which the duty is
actually paid;

3. In case of inadmissible adjustment or refund

of duty or drawback, period of default shall
be reckoned
 from the date of such adjustment or refund
“KIBOR” means Karachi Inter Bank
 to the date on which refund of duty or
Offered Rate prevalent on first day of
drawback is received. each quarter of the financial year”
 Liability for payment of duty in the case of private companies or
business enterprises or in case of sale of business ownership [Section 9]
1. Where any private company or business enterprise is closed or discontinued or
otherwise ceases to exist and
Any FED chargeable on the company or business enterprise, (whether before, in the
course of or after its liquidation) cannot be recovered from the company or business
enterprise,
 Every person who was an owner, partner or director of the company or business
enterprise shall be jointly and severally liable for the payment of such FED.

2. In the case of sale or transfer of ownership of a business or part thereof involving

any charge of FED to another person as an ongoing concern, FED shall be paid by
the person to whom such sale is made or ownership is transferred. However, if FED
payable by such person remains unpaid, such unpaid FED shall be the first charge on
the assets of the business and shall be payable by the transferee of business:

3. Business enterprise or part thereof shall not be sold or transferred unless outstanding
FED is paid and NOC in this behalf is obtained from CIR.

4. In case of termination of a business or part thereof involving any outstanding FED, a

person terminating such business or part thereof shall be required to account for and
pay the outstanding FED as if no such termination has taken place.
 Recovery of unpaid duty or of erroneously refunded duty or
arrears of duty, etc. [Section 14]
1. Where
 any person has short levied or short paid any FED or
 any person has not levied or paid any FED or
 any FED has been refunded erroneously,
such person shall be serviced with show cause notice for payment of such FED.
2. However, such show cause notice can be issued within 5 years from the relevant date.
3. After considering the objections of the person served with show cause notice as above, the empowered
Officer of Inland Revenue shall determine the amount of FED payable by him and such person shall pay the
amount so determined along with default surcharge and penalty.
4. An order as above shall be made within 120 days of issuance of show cause notice. Such period may be
extended up to 60 days only by CIR for reasons to be recorded in writing.
5. Period during which the proceedings are adjourned on account of
 Stay order or
 Alternative Dispute Resolution proceedings or
 Time taken through adjournment by the petitioner not exceeding 30 days
shall be excluded from the computation of the above specified periods
6. The above provision shall mutatis mutandis apply regarding assistance in collection and recovery of duties in
pursuance of a request from a foreign jurisdiction under a tax treaty, a multilateral convention, and inter-
governmental agreement or similar agreement or mechanism as they case may be.
7. Where any business or activity involving liability to charge, levy and pay FED is sold, discontinued or
liquidated, the amount of unpaid or recoverable FED shall be the first charge on the assets of the business.
8. “Relevant date” means the date on which the payment of FED was due and in case where any amount of
FED has been erroneously refunded, the date of its refund.
 Short Paid Amounts Recoverable [Section 14A]
1. Where a registered person pays the amount of duty less than the duty due as
indicated in his return, the short paid amount of duty along with default surcharge
shall be recovered from such person
 by stopping removal of any goods from his business premises and
 through attachment of his business bank accounts.
2. However, no penalty shall be imposed unless a show cause notice is given to such
person.
 Destruction of Excisable Goods [Rule 20]
1. Where
a. any excisable goods are rendered unfit for consumption or for further
manufacture and
b. the owner intends to claim immunity from duty thereon,
he shall, after obtaining the permission in writing of the Collector, destroy them in
the presence of the officer deputed by the Collector for the purpose.

2. Immunity includes repayment of duty already paid on the sale of goods in case such
goods have been received back from or returned by the buyer due to genuine
reasons.
 Power to forgo duty on excisable goods lost or destroyed while
lodged within registered premises [Rule 21]
1. If any excisable goods lodged within a registered premises or during movement
therein are lost or destroyed by any unavoidable accident, the Collector may after
such verification as he may deem necessary to satisfy himself about such incident,
forego duty which might be payable on their future sale had they not been so lost
or destroyed.

2. No adjustment of duty paid on the inputs shall be admissible or allowed under any
circumstances in respect of excisable goods lost or destroyed under these rules.
 Registration [Section 13]
1. Any person engaged in
 production or manufacture of goods liable to FED; or
 providing or rendering services liable to FED;
is required to obtain registration in the prescribed manner regardless of his annual
turnover or volume of sales of such goods or services.

2. A person already registered under STA-1990, is not required to take separate

registration for FED purpose and his sales tax registration shall be deemed to be a
registration for the purpose of FEDA-2005.

3. However, provisions of STA-1990, including those relating to exemption threshold

shall not apply where a person obtains or is liable to obtain registration for the
purposes of FEDA-2005 but does not have or is not liable to registration under STA-
1990.
 Records [Section 17]
1. Every registered person shall maintain and keep the following records of excisable services and
excisable goods purchased, manufactured and cleared (including those cleared without
payment of FED) by him or by his agent acting on his behalf;
a) Records of clearances and sales made indicating the description, quantity and value of
goods, name and address of the person to whom sales were made and FED charged;
b) Records of goods purchased showing the description, quantity and value of goods, name,
address and registration number of the supplier and FED, if any, on purchases;
c) Records of goods cleared and sold without payment of FED;
d) Records of invoices, bills, accounts, agreements, contracts, orders and other allied business
matters;
e) Record relating to gate passes, inward or outward, and transport receipts;
f) Records of production, stocks and inventory;
g) Records of imports and exports; and
h) Such other records as may be specified by FBR.
2. The above mentioned record shall be kept for
 6 years or
 till such further period the final decision in any proceedings is finalized.
3. The above mentioned records shall be kept at his business premises or registered office.
4. The above mentioned records shall be maintained in English or Urdu language in such form
and manner as would permit ready ascertainment of his liability of FED.
 Filing of return and payment of duty etc. [Section 4]
1. Monthly Return - For every month, a registered person shall furnish a true and correct return
for every month by due date (i.e. 15th of the following month) in prescribed manner and
form.

2. Payment of Duty due - Registered person shall deposit the duty due for the dutiable supplies
made or services rendered during a month in the designated branch of the bank by the
prescribed date. (i.e. at the time of filling of return).

3. Revised Return - Registered person may, subject to approval of CIR having jurisdiction, file a
revised return within 120 days of the filing of the first (normal) return, to correct any omission
or wrong declaration made therein.
However, approval of CIR shall not be required if revised return is filed within 60 days of
filing of the original return and either the duty payable as per the revised return is more than
the amount paid or the refund claimed therein is less than the amount as claimed, under the
return sought to be revised.

1. Special Return - FBR may, by notification in the official Gazette, require any person or class of
persons for any goods or class of goods to furnish such summary or details of particulars
pertaining to imports, purchases, utilization, consumption, production, sales or disposal of such
goods during any month or months in specified format and manner and these provisions may
be invoked mutatis mutandis in respect of services.
 Invoices [Section 18]
1. A registered person shall issue for each transaction a serially numbered invoice at the time of
 clearance or sale of goods, including zero rated goods; o
 providing or rendering services
containing the following particulars:
a) Name, address and registration number of the seller;
b) Name, address and registration number of the buyer;
c) Date of issue of the invoice;
d) Description and quantity of goods;
e) Description of services;
f) Value exclusive of FED;
g) Amount of FED; and
h) Value inclusive of FED.
2. Where a registered person is also engaged in making supplies taxable under STA-1990, such person is not be
required to issue a separate invoice for FED purposes and the amount of FED and other related information
may be mentioned on the invoice issued for sales tax purposes.
3. FBR may, by notification in official gazette, specify modified invoices for different persons or classes of
persons as it may deem necessary.
[SRO 821(I)/2011 dated 6th September 2011 – Registered manufacturer, importers and exporters, making
dutiable supplies to unregistered persons, shall issue an invoice containing CNIC or NTN of such unregistered
persons.]
4. FBR may, by notification in official gazette, specify goods in respect of which a copy of invoice shall be
carried or accompanied with the conveyance during their transportation or movement.