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TF Jan Bulldozing Company Ltd v Fiji Revenue and Customs Authority [2014] FJHC 685; HBT01.2014 (19 September 2014)

IN THE TAX COURT, HIGH COURT OF FIJI
AT SUVA

HBT Action No. 01 of 2014

BETWEEN:

T. F. JAN BULLDOZING COMPANY LIMITED
a limited liability company having its registered office at Rarawai, Ba.
Plaintiff

AND:

THE CHIEF EXECUTIVE OFFICER, FIJI REVENUE AND CUSTOMS AUTHORITY of National Revenue and Customs Complex, Queen Elizabeth Drive, Nasese, Suva.
Defendant

Appearance : Ms Natasha Khan, for the Plaintiff
Ms Rayawa T for the Defendant

Date of Judgment: 19 September 2014

INTERLOCUTORY JUDGMENT

1. The Originating Summons filed by the Plaintiff on 22 April 2014 and sought the following Orders:

(1) An Order that the Assessment of VAT and Income Tax issued by the Defendant be wholly set aside.

(2) An Order that the Defendant do forthwith raise an Amended Assessment of VAT and Income Tax based on the amended Vat Returns lodged with the Defendant on 17/1/2012 and 24/4/2013 for the 2010 and 2011 financial years.

(3) An Order that the Defendant determine the VAT and Tax liability of the Plaintiff in accordance with the Plaintiff's objections lodged on 27/11/13.

(4) A declaration that the Defendant is required and/or has a duty by the provisions of the Income Tax Act Cap 201, Laws of Fiji and Value Added Tax Decree 1991 to serve on the Plaintiff a demand notice or any other notice notifying the Plaintiff of the amount due under the Income Tax Act and/or the Value Added Tax Decree and/or to give the Plaintiff reasonable time to pay before the issue and service of a notice under Section 75 of the Income Tax Act and Section 63 of the Value Added Tax Decree.

(5) An Order that the Defendant cannot decline an application under Section 25 of the Tax Administration Decree 2009 and only has powers to either accept the application or require the Plaintiff to pay the tax due in such installments as the Defendant may determine.

(6) An Order that the Defendant cannot disallow the Plaintiff's amended returns lodged with the Defendant on 17/1/12 and 24/4/13 for the 2010 and 2011 financial years.

(7) An Order that the Defendant's objection decision dated 20/3/14 is ultra vires the Tax Administration Decree 2009 and therefore void.

(8) An Order that the Defendant cannot institute any recovery proceedings based on its void objection decision.

(9) An Order that the Defendant is not entitled to claim penalty under Section 46 of the Tax Administration Decree 2009.

(10) A declaration that the Value Added Tax Decree, Income Tax Act, Tax Administration Decree and all relevant laws, assumes or is based on the premise and/or directs the Defendant that:

(a) An assessment will be properly made;

(b) The position of the Commissioner of Inland Revenue will at all times be held by a person who acts reasonably and fairly in all the circumstances;

(c) Any objection made to any assessment will be determined within the time frame stipulated in the Tax Administration Decree; and

(d) If any objection decision is not made within the time frame stipulated, the objection shall then be deemed accepted.

(11) A declaration that the Garnishee Orders issued to the Plaintiff and/or its directors bank accounts and its debtors on 5/11/13 and 2/4/14 were void and of no effect.

(12) A declaration that the Defendant is required to process and pay refunds for Income Tax and Value Added Tax, in the event that any is refundable to the Plaintiff at compound interest under Common Law on all monies to be so refunded, alternatively, interest under the Law Reform (Miscellaneous Provisions) (Death & Interest) Act at such rate and for such period as this Honorable Court shall deem just, alternatively, interest or penalties using the same formula that the Defendant used for the Plaintiff or any other payer.

(13) A declaration that the Defendant is entitled to the following heads of damages:-

(a) Damages for acting in bad faith

(b) Damages for unlawful issue of the Garnishees;

(c) Special damages; and

(d) Punitive and exemplary damages.

(14) An Injunction restraining the Defendant and/or its servants and/or agents from taking any recovery proceedings based on its amended assessment and objection decision.

(15) An Injunction restraining the Defendant/or its servants and/or its agents from issuing or serving any further notices to the Plaintiff's debtors or to any other 3rd party related to the Plaintiff in relation to the matters which are subject of these proceedings until the determination of these proceedings.

(16) An Injunction restraining the Defendant and/or its servants and/or agents from taking any further action on and for an Interim Order Staying any notices that may have been purportedly issued and served pursuant to Section 75 of the Income Tax Act and Section 63 of the Value Added Tax Decree.

(17) An order requiring the Defendant to pay the Plaintiff's cost on a Solicitor Client Indemnity basis.

2. The Affidavit in Support dated 22 April 2014 sworn by Faiz Javed Jan a Director of the Plaintiff Company was filed on 22 April 2014.

3. The Affidavit in Reply dated 5 June 2014 sworn by Selai Nava was filed on 6 June 2014 and the Affidavit in Response by the Plaintiff sworn by Faiz Javed Jan was filed on 19 June 2014. On 30 July 2014, the Plaintiff tendered a Supplementary Affidavit dated 29 July 2014 annexing a copy of the letter dated 28 July 2014 and the Plaintiff's counsel raised a preliminary issue.

Preliminary Issue
4. The Plaintiff submitted that pursuant to Section 12(3) of the Tax Administration Decree 2009, if the CEO declines an amended tax return must do the same by advising the tax payer in writing within 60 consecutive days and that an amended tax return is treated in all respects as a Tax Return for the purposes of the Decree 2009.

5. 5.1 The Plaintiff submitted the CEO had failed to decline the amended returns within 60 days and the Audit and/or the amended audit failing to have considered the amended return the audit must be dismissed forthwith with prejudice and the Defendants accept objection lodged by the Plaintiff.

5.2 The Plaintiff states the amended returns were filed by the Plaintiff on 17 January 2012 for the year 2010 and on 7 March 2013 for the year 2011. Annexure FJJ 17 to the Affidavit.

5.3 On 17 September 2013 the Defendant wrote to the Plaintiff informing that an audit had been purportedly carried out by them for the Taxable periods for the year 2010 and 2012 and the time given to respond was only up to 24 September 2013.

5.4 The Plaintiff informed the Defendant that the Defendant ought to have been given 60 days within which to reply and not 7 days and same was ultra vires the Section 16(1)9 Tax Administration Decree 2009.

5.5 On 1st October 2013, the Defendant responded attaching the amended Income Tax and Vat Assessment, which was increased and advised the Plaintiff considering the omission by the company is serious and the period of demand was shortened (Paragraph 2 of the letter dated 1 October 2013 annexed to the Affidavit of the Plaintiff dated 22 April 2014).

5.6 It was further submitted on 4 October 2013 the Plaintiff was advised amended returns were not considered since the Defendant had not taken permission from the CEO of the Defendant to lodge same (Paragraph 7 of the Plaintiff's Affidavit dated 22 April 2014). (This was admitted by the Defendant however, stated in the Affidavit dated 5 June 2014 the lodgment of the amended returns does not mean those returns are accepted and CEO may either accept or return the amended returns).

5.7 The Defendant's solicitors lodged an objection on 27 November 2013 with Aliz Pacific Accountants report (FJJ 17 to the Affidavit dated 22 April 2014).

5.8 The 20 March 2014, the Defendant received the decision on the objection disallowing same. The grounds were detailed in the letter dated 20 March 2014 which was summarized by the Plaintiff in its submissions. However, I wish to reproduce the contents of the said letter in my Judgment:

"Dear Sir,

Re: Objection Finalization – T F Bulldozing Co. Ltd

I refer to your objection letter of 22nd November 2013 in respect of income tax for the year ending 2010 and Vat for the periods 2010, 2011 & 2012. I wish to advise your company that the objection has been wholly disallowed in line with Section 16(6) of the Tax Administration Decree 2009.

The reasons for wholly disallowing the objection are as follows as in line with your above-mentioned letter:

1. For the lodgment of the amended returns for December 2010 on 17th January 2012 & December 2011 lodged on 24th April, 2013 nevertheless it was stamped – the returns are invalid as we have no record of it as per our FITs system. In addition – there was also no relevant payment made to our office to reflect the new payable figures of the respective amended returns. The amended returns provided to us show not the original stamp given but a photocopy. Thus taxpayer's objection ground on this issue is disallowed.

2. According to Section 12 of the Tax Administration Decree 2009 an amended tax return can be either accepted or declined by the CEO. Objection on this ground is disallowed.

3. For the contractual payments in regards to contract DBTW 02/07. We note your comments but this is a non-issue for tax purposes and therefore still upholds our initial audit findings, as the documentary evidences revealed to our office from your tax agents, and other third party records cannot be disputed for reliability. Hence the audit findings are true and correct. Objection on this ground is disallowed.

4. We take note of your comments but yet we were still able to retrieve information in regards to this audit and the company was also able to produce to us during the course of the audit and objection process documents that were alleged to be destroyed by the previous natural disasters. Objection on this ground is disallowed.

5. The audit finding's still upheld the "Accrual accounting" method for income tax purposes, thus the discrepancies imposed are accrual based and not the "Cash accounting" method as construed by our office. As such invoices that were raised in 2010 and 2012 were not recorded in the company system – we have included it so it should be in line with the accrual accounting method adopted by the company. Objection on this ground is disallowed.

6. For VAT purposes – 5.18(1) (b) of the Vat Decree 1991 will apply i.e. whereby all tax invoices issued in the years 2010 up till 2012 irrespective of whether payments have been made or not will all be deemed that a supply had occurred therefore Vatable. This includes all invoices that have been alleged to be fraudulent as well. Objection on this ground is disallowed.

7. For income tax purposes – Recognition of income taxpayer is still upheld by this office and thus the main basis of only taxing the year 2010 for income tax purposes as we have proved after verification that all invoices were issued in 2010 by the company – the relevant services has been completed 100% and likewise payment settled in full. Hence only year 2010 income tax return was amended for audit purposes and initial audit findings are upheld and correct. Objection on this ground is disallowed.

8. The cash book – deposit analysis method provided by Aliz Pacific for the company is disallowed as our audit findings still uphold the "Accrual accounting" method for income tax purposes. For Vat purposes we will uphold the time of supply rules articulated on Section 18(1)(b) of the Vat Decree 1991. The cashbook analysis will be set aside. Objection on this ground is disallowed.

You will need to discuss with Eshobna Chetty & Mr Visoni Penesio of our Lautoka Debt Management Unit on how you intend to settle the company's outstanding tax liability.

Should you decide to appeal against this objection decision you are allowed under Section 17 of the Tax Administration Decree 2009 to do so. You will need to lodge your application with the Tax Tribunal within 30 consecutive days from date of this letter. You are also required to serve a copy of the application to the FRCA CEO within 5 consecutive days of your application.

Please do contact the undersigned for any clarification".

Yours faithfully,

......................

Raijieli Gukisuva

for Chief Executive Officer

5.9 It was submitted by the Plaintiff by the letter dated 4 April 014 CEO was informed amended returns could not be declared invalid by the Defendant because of their office lost them (annexure marked FJJ22 in paragraph 35 of the Defendant's Affidavit dated 22 April 2014).

5.10 The Plaintiff submitted that the Defendant in its Affidavit dated 5 June 2014 in paragraph 35(ii) and paragraph 46 denied the receipt of the amended returns, however, annexure SN7 shows that they received the amended returns from the Plaintiff as per amended returns register.

5.11 It was submitted on 15 July FRCA wrote to the Defendant on 28 July 2014 the Defendant wrote to the Plaintiff and quoted the following part of the letter:

"Re: Amended December 2010 and December 2011 Vat Returns

I refer to the above lodged to us"

The said letter was annexed to the Affidavit tendered to the court by the Plaintiff on 30 July 2014 marked as "A".

5.12 The Plaintiff raised the preliminary issue pursuant to Section 12(3) of the Tax Administration Decree 2009 which states:

"12. (1).................

(2).................

(3) If the CEO declines the amended tax return, the CEO must advise the tax payer in writing within 60 consecutive days."

5.13 In response to the submissions by the Plaintiff the Defendant stated:

1. The Plaintiff was audited by the Defendant for the periods 2010 for income tax and 2012 for VAT o n or about August 2013 when the Defendant was made aware that the Principal shareholder of the Plaintiff Company was prosecuted by the Fiji Independent Commission Against Corruption (FICAC) for offences relating to obtaining financial advantage of resulting in overpayment of $3.1 million.

5.14 The Defendant carried out the audit for the purpose of ascertaining as to whether the overpayment of $3.1millon was declared to the Defendant. The Defendant had referred to the annexure marked "FJJ 23" of the Affidavit filed by the Defendant.

5.15 The Defendant submitted that having considered the documents uplifted from the company by FICAC, documents submitted by the Plaintiff's Tax Agents, and returns lodged for 2010, 2011 and 2012 a letter of discrepancy was issued to the Plaintiff on 17 September 2013 imposing a penalty of $1,816,666.14.

5.16 The Plaintiff objected for the assessment by its letter dated 24 September 2014. (Annexure "FJJ 12" to the Affidavit filed by the Plaintiff).

5.17 On 1 October 2013 the Defendant responded to FJJ 12 attaching assessments for income tax and VAT and advised the Plaintiff has 60 days to object (Annexure "FJJ 13").

5.18 The Plaintiff objected to the amended Notice of Assessment on 22 November 2013 Annexure "FJJ 7" to the Plaintiff's Affidavit and the Defendants objection decision was given on 20 March 2014 (Annexure "SN4" to the Affidavit filed by the Defendant).

5.19 The Defendant also submitted that amended returns for December 2011 and December 2010 were not formally lodged by the Defendant and explained the procedure in the paragraph 10 and 11 of the submissions.

The Plaintiff submitted that the Plaintiff denied receiving the amended Returns annexure "SN7" of the Affidavit of the Defendant shows that the Defendant received the amended Returns. I am not in agreement with the Plaintiff for the following reasons:

(a) "SN7" page 2 - 4th row from the bottom states:

"Date - 26/1/2012

TIN - 50-06202-0-3

Name - T.F. Jan Bulldozing

Reason - Amendment

Sent to - Accu.

(b) Received stamps are displayed in the last page of "SN7" which states the Defendants name as FRCA CEC.

(c) On perusal of "SN8" it clearly shows the purported return rubber stamp carries "FIRCA CECII", which, is not the rubber stamp shown in "SN7".

I am satisfied that there is a serious question to be decided at a proper hearing as to whether the Plaintiff filed the returns and the authenticity of the rubber stamp. The evidence placed before me clearly establish that the notation on the register was made on 26 January 2012 and not on 17 January 2012 as claimed by the Plaintiff, which also has to be taken into consideration to decide whether the Plaintiff in fact filed the Returns.

5.20 Furthermore the letter dated 28 July 2014 Annexure "A" to the Affidavit of the Defendant filed in this court on 30 July 2014 does not divulge when the purported returns came into the possession of the Defendant.

It was submitted by the Defendant, the returns in question are lodged only for the months of December 2010 and December 2011. The figures ascertained were for the 12 months for the years 2010 and 2011. In the circumstance, even if the VAT Returns are filed, it is an issue to be decided as to whether such the returns filed could be considered as returns under the provisions of Tax Administration Decree 2009. This issue too has to be decided at a substantive hearing. It is the intention of the legislature to enact into law, how, what, when and where the tax is chargeable or charged on tax payers and then collected or recovered. In this case too, it had to be decided as to whether the Plaintiff had unpaid tax if any. The Plaintiff's argument is on Section 12(3) of the Tax Administration Decree 2009 whether the Defendant had acted in terms of the said Section. I am of the view that the resolving legal tax issues more tools are required than mere acquaintance with the meaning of a word or phrase. The issue to be decided in this case is whether the CEO FRCA acted in terms of Section 12(3) of the Tax Administration Decree. I quote from the decision Lord Wilberforce in case of W.T. Ramsay vs. IRC [1981] UKHL 1; (1982) AC. 300 at 323 stated "A subject is only to be taxed on clear words; not on 'indendment' or on the 'equity' of an Act.......what are 'clear words' to be ascertained on normal principles; these do not confine the courts to literal interpretation. There may, indeed should be considered the context and scheme of the relevant Act as a whole, and its purpose may, indeed should be regarded.....".

To interpret in what context the word "must" being used in the Section 12(3), all relevant factors had to be taken into consideration by this court.

In the present case, the Defendant had dealt with the facts of this matter in paragraphs 16 to 23 of its submission which requires substantive hearing before deciding on the preliminary issue as I stated in preceding paragraphs.

6. Accordingly, I hold in favour of the Defendant, on the preliminary issue and make the following Orders:

1. The preliminary issue raised by the Plaintiff pursuant to Section 12(3) of the Tax Administration Decree 2009 is dismissed.

2. Case to be fixed for hearing.

3. No costs awarded.

Delivered at Suva this 19th Day of September, 2014.

C. KOTIGALAGE
JUDGE