The revenue board has instructed taxmen to detect the companies, which evade VAT by declaring the supply of goods to local projects to be exports.
A number of big companies are taking this undue VAT rebate facility bypassing the existing law for a long due to legal ambiguity.
To address the issue, the VAT policy wing on Monday, issued a notice explaining who should be eligible for the rebate.
In the letter, the VAT wing made it clear that the supply of goods and services under sub-contract arrangement to local projects being implemented with foreign funds would not be considered exports.
The notice said local firms must win the work order through participating in local or international tenders to avail the benefit of exports.
A provision of VAT law was being misused by some of the local firms that have availed exemption or rebate for the supply of goods and services to foreign-funded projects after winning bids and for having payment method in foreign currencies, said a tax official
There was confusions at the field-level VAT offices about the issue and a legal dispute arose on this, he said.
The NBR has offered the VAT rebate facility to local companies to increase their competitive edge over their foreign counterparts in international tenders, officials said.
Another major intention of offering the benefit was to minimise the scope for siphoning off foreign currency abroad from overseas loans and grants, they said.
Some steel and cement companies have allegedly taken the VAT rebate illegally misinterpreting the provision.
Officials alleged that these firms took the benefit misdeclaring their supply of goods to some mega projects being implemented with foreign fund or foreign contractors, though they did not participate in international tenders.
Instead, these companies supplied goods as sub-contractors bidding in tenders floated by the main contractors, they added.
The issue has remained disputed since 2018, despite the issuance of several clarifications by the board.
Officials said the issue has now been cleared by the court.
Earlier, Chattogram Customs Excise and VAT Commissioner ate in an investigation found the evidence of misuse of the provision by some of the firms.
The officials of the VAT office found that the firms did not participate in the main tenders, rather they supplied the goods to the projects as sub-contracts. NBR officials said.
Even the tenders for appointing sub-contractors were published in some little-known newspapers, they said.
In the notice, the VAT wing asked the field offices to conduct audit and intensify monitoring to find out such VAT evasion by large firms.