Overview of S.R.O. 1245(I)/2026: New Sales Tax Procedure for the Steel Sector

The Federal Board of Revenue (FBR) has issued S.R.O. 1245(I)/2026 on July 31, 2026, establishing a revised procedure for the categorization, tax rates, and collection manners of sales tax for steel melters, re-rollers, and composite units. The framework computes sales tax on the basis of per unit of electricity consumed. Key Highlights and ProvisionsApplicability Date: The notification takes effect retrospectively from July 1, 2026. Electricity-Based Rates for Steel Melters and Composite Units: Manufacturers utilizing remeltable iron, steel scrap, and compressor waste under specified PCT headings must pay sales tax per unit of electricity consumed for producing steel billets, ingots, and mild steel (in addition to standard sales tax under section 3, sub-section (1) of the Act). The rates are structured as follows: Local Scrap Consumers: Rupees 30 per electricity unit consumed. Imported Scrap Consumers: Rupees 5 per electricity unit consumed, applicable if imported scrap exceeds 70% in aggregate over the last 12 months. EFS Licensee Scrap Consumers: Rupees 5 per electricity unit consumed, applicable if scrap supplied by an EFS licensee exceeds 70% in aggregate over the preceding twelve months (starting from June 1, 2026). Captive Power / Self-Generation: Rupees 35 per electricity unit consumed for steel manufacturers operating under captive power or self-generation. Integration Proviso: A reduced rate of rupees 5 per unit applies specifically to steel melters and composite units integrated with the Board's Computerized System for real-time reporting, provided their usage of imported remeltable iron and steel scrap exceeds 70% of total raw material consumed in the preceding twelve months. Tax Adjustments: Steel melters and composite units are entitled to adjust the sales tax paid under this notification against their output sales tax based on electricity units consumed. Business Categorization by Consumption:Manufacturers consuming 500,000 units of electricity or more per month on a single meter are categorized as steel melters or composite units and must declare production and supply accordingly. Manufacturers consuming less than 500,000 units per month fall under the category of steel re-rollers. Enforcement and Disconnection: In the event of a default in sales tax payment by the due date specified on the electricity bill, electric supply companies (DISCOs) are mandated to disconnect the electricity connection, alongside other legal actions by field formations. DISCOs were required to apply these per-unit rates starting July 1, 2026. Administrative Reviews and Notifications:The particulars and names of steel melters and composite units are subject to review and updating every three months. Manufacturers falling under specific imported and EFS scrap categories will be officially notified through a sales tax general order issued by the Board, detailing taxpayer names, NTN/STRN, electricity reference numbers, and DISCO names.