Digital Auto Imports Ltd v The Commissioner General of Tax Administration Jamaica
| Jurisdiction | Jamaica |
| Judge | C. Barnaby, J |
| Judgment Date | 31 July 2020 |
| Date | 31 July 2020 |
| Docket Number | REVENUE COURT APPEAL 2019 RV 00005 |
| Court | Supreme Court (Jamaica) |
[2020] JMRC 1
IN THE SUPREME COURT OF JUDICATURE OF JAMAICA
REVENUE COURT
REVENUE COURT APPEAL 2019 RV 00005
Ms. Zara Lewis instructed by Zara Lewis & Co., Attorneys-at-Law for the Appellant.
Ms. Gabrielle Warren and Mrs. Cecilia Chapman-Daley, Attorneys-at-Law, Tax Administration Jamaica.
Appeal from the Revenue Appeals Division — General Consumption Tax Act — Income Tax Act — assessment raised by Commissioner General after tax payer filed returns — burden of proof.
Direct verification of Income and Output Tax — duty of taxpayer to keep and produce complete and accurate records — unreliability of sales invoices as the direct verification method of the taxpayer's Income and Output Tax — unreliability of bank deposits alone as a method of verification of taxpayer's Income and Output Tax.
Indirect verification of Income and Output Tax — registered liens — bank deposits — mark-up — whether the Commissioner General exercised his best judgment in arriving at the additional assessments.
C. Barnaby, J (AG)
The Appellant, who now challenges additional assessments to GCT and Income Tax which were raised by the Respondent for the year 2016, is a limited liability company duly incorporated under the laws of Jamaica. Among its principal activities is the importation and sale of used or preowned motor vehicles from Japanese suppliers.
In 2017, the Respondent advised the Appellant of its intention to attend at its offices to conduct an audit of its General Consumption Tax (hereinafter called “GCT”) and Income Tax returns for the period January 2016 to December 2016 (hereinafter called “the relevant period”). The Appellant was also advised that it should make available all documents and records used to prepare its returns, and which would enable it to substantiate its income for the relevant period. A number of documents were requested, among them were invoices, bank statements and import entries for the Appellant's business.
On conclusion of that audit, verified Output Tax and total sales in excess of that reported by the Appellant were ascertained. This resulted in additional assessments of both GCT and Income Tax for the relevant period. Both assessments were objected to by the Appellant and at the close of that process, the GCT and Income Tax assessments raised on the audit were confirmed and the Appellant notified of the decision.
The Appellant, being a person aggrieved, appealed to the Revenue Appeals Division (hereinafter called the “RAD”) in respect of both assessments. The appeal was heard on 27 th February 2019. By Notices of Decision dated 18 th October 2019, the RAD confirmed the method of verification used by the Respondent to ascertain the Appellant's Income and Output Tax for the relevant period; and varied the sums arrived at by the Respondent, making provision for two expenses related to Input Tax Credits for GCT. While these expenses had been noted during the objection process, they were not granted and no explanation was provided by the Respondent for their exclusion. For ease of reference, the liability of the Appellant at the objection and RAD stages are set out in the table which follows.
| TAX TYPE | LIABILITY ON OBJECTION | LIABILITY ON APPEAL | VARIANCE |
| GCT | $3,729,286.00 | $2,806,448.67 | $922,837.33 |
| INCOME TAX | $5,818,044.00 | $4,351,186.15 | $1,466,857.85 |
By Notice of Appeal filed on the 25 th November 2019, the Appellant challenges the decisions of the RAD relative to its GCT and Income Tax Liability. The appeal, which is by way of rehearing, was heard on the 13 th July 2020, and a decision thereon was reserved to today's date.
The decisions of the RAD are challenged on a number of grounds, which are summarised below for convenience and with the expectation that the substance of the Appellant's pleadings are not in any way diminished. It is the Appellant's case that the RAD Commissioner erred in fact and law in,
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(i) agreeing with the Respondent that the Appellant's sales invoices were unreliable as the primary method of verifying its income and taxes payable for the relevant period;
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(ii) concluding that the Appellant's bank records were incomplete;
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(iii) placing too much weight on the lien amounts that were listed on the Respondent's motor vehicle database, in circumstances where motor vehicles were purchased from the Appellant prior to liens being obtained on them; and
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(iv) treating lien amounts as final sales prices; and applying a markup percentage of 46.59% in calculating final sales prices for vehicles which had no lien amounts, and bank deposits treated as final sales prices.
In consequence, the Appellant prays that the decisions of the RAD as to its Income Tax and GCT liability for the relevant period be set aside; that its sales invoices be used for calculating the income earned and the taxes payable for the relevant period; costs against the Respondent on this appeal and below; and such further relief as the Court deems fit.
In its Statement of Case filed on the 24 th December 2019, the Respondent refutes the allegations of the Appellant.
The Respondent contends that there were several discrepancies on the invoices presented to him, which made them unreliable as the primary method for verifying the Appellant's Income and Output Tax. This was on the basis that:
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(i) Most of the invoices did not contain the customer's name;
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(ii) There were invoice numbers which were duplicated, however the substantive information on duplicate invoices did not match;
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(iii) The price/subtotal on the sale invoices did not include the GCT paid at Customs and Stamp Duty, however it did include the service charge of $15,000.00 — $35,000.00.
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(iv) The invoices did not reflect the market value of the motor vehicles;
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(v) There were significant discrepancies between the sums invoiced and the corresponding motor vehicle lien in that the lien sum was greater than the invoiced amount in all instances.
(Sic)
In response to the Appellant's position that deposits in its bank account should have been used to ascertain its income, the Respondent states that this method was also unreliable, as twenty to thirty percent (20% – 30%) of the deposits made were not reflected in the bank account initially submitted by the Appellant.
The Respondent goes further to say that while the Appellant's Income and Output Tax were verified using three methods, invoice, bank deposits and mark-up, the latter was deemed by the Respondent as being the most reliable. The verification exercise was approached in two ways by the Respondent's auditors. In the first instance,
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(i) The purchase prices were ascertained using the information which was present on the Jamaica Customs system, and C87 custom import forms submitted by the Appellant.
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(ii) Sales prices (less GCT) were determined by:
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i. Lien amounts registered on the Automated Motor Vehicle System (AMVS);
and/or
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ii. Deposits recorded on bank statements supplied by the Appellant.
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(iii) The mark-up percentages from (i) and (ii) above were then averaged to arrive at the 46.59% mark-up applied by the Respondent.
In the second instance, where there was no lien or no identifiable deposit record on bank statements supplied by the Appellant for relevant motor vehicles, the percentage mark-up of 46.59% was applied to those vehicles. During the objection process, that mark-up was adjusted by eliminating the high and low mark-ups which resulted in a reduced average of 42%.
The Respondent therefore asks that the appeal be dismissed; that the decisions of the Commissioner of the RAD be confirmed; that he be awarded the costs of and incidental to this appeal; and such further and other relief as the Court deems fit.
Having considered the parties' positions on their Appeal and Statement of Case, it is my view that the following three (3) issues, which will be addressed sequentially, now arise for determination on this appeal. They are:
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(i) Whether the sales invoices upon which the Appellant seeks to rely are reliable and therefore capable of being used as the primary method for verifying its sales income for the relevant period.
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(ii) Whether the Appellant's bank records were complete and could be relied upon to verify the Appellant's sales income.
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(iii) Whether the Appellant's additional assessments for GCT and Income Tax were made in exercise of the Respondent's best judgement.
On the instant appeal, the parties are enjoined as to the quantum of GCT and Income Tax payable by the Appellant for the relevant period.
Pursuant to section 41 (4) of the GCTA and section 76 (2) of the ITA, on an appeal to the Revenue Court, “[t]he onus of proving that the assessment complained of is erroneous shall be on the objector”, which proof “… must be based upon the nature and quality of the evidence which the taxpayer is able to provide.” 1
It was concluded by Morrison JA (as he then was), in D.R. Holdings Ltd. v the Commissioner of Taxpayer Appeals 2 that the word “erroneous” was “wide enough to embrace both a complaint that the assessment is wrong in principle and that it is excessive in amount.” Morrison JA then proceeded to quote with approval an extract appearing at page 172 of Dr. Claude Denbow's work, Income Tax Law in the Commonwealth Caribbean, which, though written in the context of income tax law, is equally applicable to an appeal against the Revenue's assessment of GCT. It is this,
“The taxing statutes in the Commonwealth Caribbean invariably provide that, in a tax appeal the burden of proof rests on the taxpayer to show that the assessment in dispute is wrong or...
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