Legal Opinion for VAT

Mr. Z

Address….

Dear Sir,

RE:     DEEMED EXPORT OF GOODS.

We act for Company 1. Our client received on 16.07.2002 at 6-00 p.m. your letter No. 4/G(26)f¨vU/Ave/91/Ask-3/99/942 dated 15.07.2002 requesting our client to deposit an amount of Tk. 47,14,325.00 (Taka Forty seven lac fourteen thousand three hundred twenty five) only as unpaid VAT in connection with supply of 1,654.50 metric tons of construction materials within three working days. A copy of the said letter has been forwarded to us for reply as follows:

1.                  That your said letter dated 15.07.2002 has been issued in continuation with the letter No. 4/G(2)f¨vU/Ave/91(Ask-3)/99/353 dated 20.03.2002 issued by Mr. X, Inspector. In reply to his letter dated 20.03.2002 we gave reply vide our letter dated 02.04.2002 explaining how and why the supply in question is “Deemed Export” and as such no VAT is payable. But unfortunately in your instant demand you have not referred anything about our reply either mistakenly or intentionally. However, for your understanding we once against explain the position of our client.

2.                  That our client supplied 1,654.50 metric tons of construction materials to the following organizations:

a)      Company 2.

b)      Company 3.

c)      Company 4.

d)      Company 5.

3.                  That our client supplied the construction materials to the aforesaid organizations against tender notices published in the newspapers. The tender notices contained the name, description and quantity of the goods to be purchased and the condition to make payment in foreign currency.

e)      That foreign currencies against the aforesaid supplies were received by our client from (a) Company 2, (b) Company 3, (c) Company 4, (d)Company 5, through (1) Bank 1, (2) Bank 2, (3) Bank 1 and (4) Bank 3 respectively. The above Banks are Authorised Dealers under license from BANK 1to deal with foreign currencies. The aforesaid Banks issued encashment certificates in favour of our client and necessary returns were filed by the aforesaid Banks with BANK 1 regarding the receipt of the foreign currencies by our client.

4.                  That section 3(2) of the Value Added Tax Act, 1991 provides as follows:

Dcaviv (1) G hvnv wKQyB _vKzK bv †Kb, wbæewY©Z cY¨ ev †mevi Dci kY¨ nv‡i Ki Av‡ivwcZ nB‡e, h_vt-

(K)     evsjv‡`k nB‡Z ißvwbK‚Z ev ißvwbK‚Z ewjqv MY¨ †Kvb cY¨ ev ‡mev

Rule 31(1) of the Value Added Tax Rules, 1991 provides as follows:

‡Kvb evsjv‡`kx wbewÜZ e¨w³ KZ©„K ¯’vbxq ev AvšR©vwZK `ic‡Îi wecix‡Z ˆe‡`wkK gy`ªvi wewbg‡q †Kvb cY¨ mieivn ev †Kvb †mev cÖ`Ë nB‡j D³ cY¨ ev †mevi wewbg‡q cÖvß ˆe‡`wkK g`ªv ißvbxi mvaviY bxwZ Abyhvqx evsjv‡`k e¨vs‡Ki gva¨‡g cÖZ¨vewmZ nB‡j AvB‡bi aviv 3 Gi Dc-wewa (2) Abyhvqx ißvbxK…Z ewjqv MY¨ nB‡e|

5.                  That the National Board of Revenue has given an explanation vide its Memo No. 1(61)cÖZ¨vcb/gmK-1/92/87 dated 19.09.93. In the said memo the National Board of Revenue explained that any notice published in the news papers for purchase of products shall be treated as a “Local Tender” for the purpose of Rule 31 of the Value Added Tax Rules. The National Board of Revenue also explained that the name, description and quantity of the product to be purchased and the condition to make payment in foreign currency must be stipulated in the notice.

6.                  That all exports from Bangladesh are guided under Chapter 22, Section-I, Volume-1 of the Guidelines for Foreign Exchange Transactions of BANK 4. Pursuant to Clause 5 of Chapter 22, Section-I of the said Guidelines payment for goods exported from Bangladesh should be received through an AD (Authorised Dealer) in freely convertible foreign currency. Please note that all scheduled Banks are the Authroised Dealer of BANK 4. It may be mentioned here that the Authorised Dealers (scheduled Banks) can open foreign currency accounts without prior approval of BANK 1 pursuant to the provision laid down in chapter 10, Section-1 and Section-4 of the Guidelines for Foreign Exchange Transactions of BANK 4. Copies of the relevant provision of the above Guideline are enclosed.

7.                  That it is already stated herein that our client supplied the goods against tender notices published in the newspapers and the Tender Notices contained the name, description and quantity of the product to be purchased and the condition to make payment in foreign currency. Pursuant to the provision of Rule 31(4) of the Value Added Tax Rules, 1991 our client already submitted the following documents to your office (copies of the following documents are enclosed herewith):

a)      Tender Notices

b)      Acceptance of Tenders

c)      Work/Supply Orders

d)      Encashment Certificates from the Authorised Dealers (scheduled banks) of BANK 1evidencing receipt of foreign currencies.

In the premises stated above, there cannot be any confusion that the foreign currencies received by our client through Authorised Dealer (Scheduled Banks) is a remittance/repatriation (cªZ¨vemb) for the purpose of Rule 31(1) of the Value Added Tax Act, 1991.

With regard to the clarification made by the National Board of Revenue vide Memo dated 03.01.2001 in connection with supply of cement by COMPANY 6, the said clarification has not been made any change to the existing legal position. Since supply of the cement by Hyundai Cement did not fulfill the precondition of “Deemed Export” as explained herein above, the supply was not accepted by the National Board of Revenue as “Deemed Export”. But in the instant case the supplies made by our client fulfills the legal precondition of “Deemed Export”.

Therefore, it is clear that the above supplies made by our client are “Deemed Exports” under section 3(2) of the Value Added Tax Act, 1991 and Rule 31 of the Value Added Tax Rules, 1991 and as such no VAT is payable against the said supplies. As such your claim of Tk. 47,14,325.00 (Taka Forty seven lac fourteen thousand three hundred twenty five) only as unpaid VAT in connection with the supplies in question is not tenable in law.

You are therefore requested to withdraw/rescind your claim of Tk. 47,14,325.00 (Taka Forty seven lac fourteen thousand three hundred twenty five) only as unpaid VAT vide your letter No. 4/G(26)f¨vU/Ave/91/Ask-3/99/942 dated 15.07.2002.

Yours faithfully

………………….

For: “The Lawyers & Jurists”

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