The Appellate Tribunal Inland Revenue has ruled against exporters of cooking oil and vegetable ghee to Afghanistan in an important withholding tax dispute involving the DTRE Scheme. The Tribunal held that the exemption under clause (47C) of Part IV of the Second Schedule was conditional upon actual collection of advance tax under section 148 and could not be claimed merely because the amount had been secured through an indemnity bond or an un-encashed post-dated cheque.
The distinction proved decisive. The taxpayer argued that import-stage taxes had been adequately “secured” under the DTRE arrangement, whereas the Tribunal focused on the statutory words requiring tax to have actually been “collected”. Since the post-dated cheques were admittedly never encashed, the Tribunal concluded that the express condition for exemption had not been fulfilled and restored the withholding tax liability under section 162. The decision is an important reminder that tax exemptions are driven by their precise statutory conditions. Commercial equivalence or procedural security may not substitute for a requirement expressly written into the law. Businesses relying on exemption clauses should therefore test every documentary and substantive condition independently instead of assuming that compliance with the broader regulatory scheme automatically secures the income tax exemption.