Pakistan Electronics Manufacturers

Association
__________________________________________________________
Head Office: A/615, Tower ”A”, Saima Trade Tower I.I Chundrigar Road. Karachi.

Ref: PEMA/R2A/2020 August 5, 2020

Mr. Muhammad Javed Ghani

Chairman
Federal Board of Revenue
Islamabad

Subject: REPRESENTATION ON APPLICATION OF RULE 2 (A) OF GRI ON

IMPORTS OF RAW MATERIALS, SUB-COMPONENTS, COMPONENTS,
INTERMEDIARY GOODS, ETC. BY PEMA

Respected Sir,

Pakistan Electronics Manufacturers Association (PEMA) represents all the major stakeholders
of appliances manufacturing industry of Pakistan i.e. Haier, PEL, Orient, Kenwood / Homage,
DWP / GREE / Eco-Star, Singer / Waves, TCL, Samsung, Super Asia, Hisense, National, etc.
Home appliance manufacturing has now become one of the most important contributing sectors
for the country’s economy generating not only huge revenues but also creating employment in
large measures. Our members are bonafide and well-established manufacturers/tax payers.

PEMA solicits your intervention for the issuance of a uniform clarification with regards to the
interpretation / application of Rule 2(a) of General Rules for the Interpretation and our
submissions and concerns in this regard are summarized here under for your kind consideration:
1. Recently the industries of this very important sector of the economy have been facing
huge difficulties at the customs clearance stage mostly owing to varied interpretations
/ applications of Rule 2(a) of GRI. Such practices have increased difficulties in
carrying out legitimate business while leaving an open space for the grey market. It
has also increased litigations, caused huge losses to the industry due to heavy port
demurrages and container detentions besides frequent supply chain disruptions
leading to shut downs and labor layoffs. Moreover, due to such practices the
confidence of foreign investors in Pakistani market has also dwindled irreparably.
2. Our members are importing raw materials, sub-components, components,
intermediary goods, etc. in their respective headings / PCTs from different sources
and countries for manufacturing / assembling of finished products such as
Refrigerators, Deep Freezers, Visi Cooler, Washing Machines, Water Dispensers,
Air-conditioners, Microwave Ovens, LED TV, etc. at their own manufacturing
facilities that have been purpose-built for such undertakings through huge
investments.
3. The industry is not importing complete kits and most of the components, sub-
components and parts are assessed as per prevalent Valuation Rulings issued by the
Directorate General of Customs Valuation, Karachi.
4. Our members are facing serious problems on account of whimsical and varied
application of Rule 2(a) of General Rules for the Interpretation by various field
formation. Consignments are being held up at the ports on one pretext or the other.
Pakistan Electronics Manufacturers
Association
__________________________________________________________
Head Office: A/615, Tower ”A”, Saima Trade Tower I.I Chundrigar Road. Karachi.

This has created an uncertainty and caused discomfort, fear and panic amongst not
only the members but foreign investors / principals.
5. Our Industry is putting huge efforts in local value addition despite that we are
regularly facing hurdles from customs officials at ports by wasting our time by
making unnecessary justification. This only tantamount to undue high-handedness
and resulted in diverting industry’s focus from its potential plans to go into high-tech
manufacturing and new value addition due to unnecessary entanglements at clearance
stage. Some of our members were also in negotiations with foreign buyers and were
planning to export home appliances from Pakistan but all this has been badly
obliterated.
6. FBR has issued a number of clarifications on this subject clarifying that Rule 2(a) of
GRI may not be applied in isolation and that it is not applicable on imports of
complete knockdown or semi knockdown materials, components, etc. of household
appliances, separately packed and in identifiable form, if imported by bonafide
manufacturers / assemblers. The considered policy guidelines of the Board
communicated vide Board’s letter C.No. 1(29) Survey-I/2005/ /164398-R dated 26th
December 2012 is attached, for ready reference. Such clarifications are not being
taken into consideration.
7. Collector, MCC-Appraisement West, Karachi vide letter C. No. SI/MISC/242//2015-
VI dated 31.01.2020 has offered their valuable views in the following manners:
“The contents of the subject representation have been examined wherein PEMA has raised
the issue of tariff classification of home appliances (Refrigerators, deep freezers, washing
machines, water dispensers, air conditioners, microwave oven, LED TV etc. In this regard, it
is stated that as per the scheme of Pakistan Customs Tariff, separate PCT Headings exists for
CBU, CKD /SKD and parts of such electrical appliances. This Collectorate classifies the
goods, as presented, in the relevant PCT Heading”.
8. Collector, MCC, Lahore vide letter C. No. V.Cus/Misc-241(IV)/2017/916 dated
20.12.2019 has categorically summarizes the whole issue, in the following manners:
“Application of Rule 2(a) of General Rule of interpretation needs to be made fairly on
imports of household electric appliances in cases where items imported in a consignment
attain the shape of a complete article and meet the essential characteristics irrespective of
the fact that import consignment is CKD/SKD form, raw materials, sub-components and
components. sub-assembly etc. whereas, the imports under variance consignments having all
essential characteristics of a finished product should not be clubbed together for the purpose
of application of Rule 2(a). Further, Imports with incomplete essential items may not be
preferred for application of Rule 2(a) of GIR.
The Collectorate is of the view that incomplete/unfinished articles either imported separately
or in CKD/SKD form which does not meet the criteria of the finished products are required
to be assessed in their respective headings without application of Rule 2(a) of General Rules
of Interpretation.
For the sake of uniform application of Rule 2(a) of GIR, it is proposed that clear policy
guideline may be issued by the board regarding its keeping in view the above inputs of MCC
(Appraisement) , Lahore or some other criteria based on their inputs of other Collectorate(s)
to secure / safeguard the general interest of the industry by some undue / uncleared
application of Rule 2(a) of GIR”
9. Umpteen times, our members have tried to explain this issue to high ups of Customs
who are leading the field formations but our pleadings have so far gone unheard and
resulted in additional hardships for tax payers rather than facilitation.
Pakistan Electronics Manufacturers
Association
__________________________________________________________
Head Office: A/615, Tower ”A”, Saima Trade Tower I.I Chundrigar Road. Karachi.

In view of our above submissions, the honorable Chairman is requested to take stock of this
serious situation and direct the concerned to issue a fresh clarification as to what type and sort
of presentation of goods at import stage may or may not attract application of Rule 2(a) keeping
in view the WCO based framework of classification under the HS system, international best
practices, rulings issued by various customs administrations, national / international judicial
fora and current tariff scheme.

Your prompt indulgence in the matter will be highly appreciated.

Thanks and kind regards,

On behalf of Pakistan Electronics Manufacturers Association (PEMA)

Shah Faisal
Chairman

Enclosures:
1. Copy of letter issued by Collector, MCC-West, Karachi
2. Copy of letter issued by Collector, MCC, Lahore
3. Copy of a clarification issued by FBR
4. Copy of Valuation Ruling of Parts for AC
5. Copy of Valuation Ruling of CBU AC