J. Wray & Nephew Ltd v Commissioner of General Consumption Tax
| Jurisdiction | Jamaica |
| Judge | COURTENAY ORR J. |
| Judgment Date | 17 December 1999 |
| Judgment citation (vLex) | [1999] 12 JJC 1701 |
| Date | 17 December 1999 |
| Court | Revenue Court (Jamaica) |
REVENUE LAW - General Consumption Tax - Whether defendant failed to make claims for imput tax - Whether respondents wholly disallowing claim for allowances rightfully done
The Background
The appellant carries on its sole business as blenders bottlers and distributors of fine rums and spirits and wines.
As a part of the contract of service specified employees are required to wear uniforms provided by the Appellant as a condition of employment.
The Appellant is not in the business of providing uniforms or promoting functions for the benefit of third parties whether for consideration or not.
The Appellant is a registered tax payer under the General Consumption Tax Act, (hereinafter referred to as "the Act").
The Appellant is required to file returns and pay tax each calendar month in accordance with Section 33 of the Act and Regulation 6 of The General Consumption Tax Regulations, 1991 (hereinafter referred to as "the Regulations"). The Appellant filed returns for the taxable periods between July 1, 1993 and September 30, 1996, inclusive; and upon examining the said returns, the Respondent through his authorized officers, conducted an audit of the Appellant's business for the period July 1, 1993 to September 30, 1996.
Arising out of the said Audit, the Respondent determined, inter alia, that:-
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(i) The Appellant had claimed full input tax credit in respect of amounts expended on:-
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* uniforms which it provided for members of its staff
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* Staff entertainment and lunches
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(ii). the Appellant had, in certain instances, failed to make claims for input tax credits, to which it was entitled. As a consequence, the Respondent, acting under Section 38 of the Act, raised an assessment in the sum of $9,224,894.00.
The Respondent arrived at the said sum by:-
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(i) crediting the Appellant's account with the sum of $4,269,153.68 as input tax credit which it had failed to claim, as set out above.
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(ii) applying Regulation 14 (5)(a)(ii) to amounts claimed for third party entertainment.
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(iii) wholly disallowing the amounts claimed in respect of uniforms and staff entertainment and lunches.
Included in the sum assessed is $745,484.16, which is the actual amount of the input tax credit claimed by the Appellant in respect of uniforms, staff entertainment and lunches. The Appellant's objection, however, referred to an amount of $744,602.34 and this latter amount comprises the subject matter of this appeal.
The Appellant was notified of the Assessment by Notice of Assessment dated May 14, 1997, the said Notice incorporating an Audit Report and a summary of adjustments. The Notice duly advised the Appellant that, inter alia, "penalty, surcharge and interest will be charged on all unpaid balances... in accordance with Section 54 of the Act".
By letter dated June 25, 1997 the Appellant objected to the Assessment, contending that it "has not made supplies to employees in terms of the General Consumption Tax Act... definition of 'supply'.
The Respondent's Decision not to allow the aforesaid $744,602.34 claimed as input tax credit was issued on December 1, 1997 and served on the Appellant.
The appellant now brings this appeal against the respondents decision: "whereby it was Decided that the Appellant is not entitled to claim as a tax credit any input tax which it is charged in respect of any materials or and any goods which it supplies to any employee by way of the provision of uniforms for employees and staff functions free of charge, pursuant of Regulation 14 (7) (b) of the General Consumption Tax Regulations 1991.
And whereby it was determined:
that the assessment in the sum of $744,602.34 allegedly due for the period October 1, 1993 to September 30, 1996 in respect of input tax claimed by the Appellant be confirmed."
The Relevant Statutory Provisions
Input tax" is defined in section 2 of the GCT Act in relation to a registered taxpayer, to mean, inter alia;
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(a). tax charged under section 3 (1) on the supply of goods and services made to that taxpayer or on the importation into Jamaica of goods and services by that taxpayer being goods and services required wholly or mainly for the purpose of making taxable supplies.
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(b). ...................
Section 3 of the GCT Act provides for the imposition, subject to the provisions of the Act, of GCT, on inter alia,
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(a). The supply in Jamaica of goods and services by a registered taxpayer in the course or furtherance of a taxable activity carried on by that taxpayer.
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(b). ...............
by reference to the value of those goods and services.
"Taxable activity" is defined to mean- (so far as is relevant to this case).
"any activity being an activity carried on in the form of a business, trade, profession, vocation, association or club which is carried on continiously or regularly by any person whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services (including services imported into Jamaica) to any other person for a consideration; but does not include -
(a)...............
(b)...............
(c)..............."
"Taxable supply" means - (section 2)
"any supply of goods and services on which tax is imposed pursuant to this act."
Except as otherwise provided, a taxable supply takes place, inter alia, when:
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(a) an invoice for the supply is issued by the supplier; or
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(b) payment is made for the supply; or
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(c) the goods are made available or the services are rendered, as the case may be, to the recipient whichever first occurs."
9. Section 63 (1) (k) of the GCT Act empowers the Minister of Finance to make regulations prescribing the circumstances in which a registered taxpayer may be given credit against output tax paid by him. The Minister has, by regulation 14 of the GCT Regulations, 1991, prescribed the circumstances for the grant and the quantum of such credit. Regulation 14 provides, inter alia, that:
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"(1) Subject to paragraphs (2), (3), (4), (5), (6) and (6A), a registered taxpayer shall, in respect of a taxable period, be entitled to claim as a credit any input tax payable by him during the period and any other amounts specified in this regulation.
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(2) For the purposes of paragraph (1), the input tax in relation to which a credit may be claimed shall be the sum of:
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(a) any amount stated as tax on a tax invoice issued to the registered taxpayer in respect of taxable supplies made to him during a taxable period and
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(b) any input tax paid by that registered taxpayer on the importation of taxable supplies into Jamaica, being supplies used by the registered taxpayer in carrying out his taxable activity.
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The Decision, Grounds of Appeal and Subsequent Pleadings
In his letter of decision addressed to KPMG Peat Marwick, the respondent gave the following reason for his decision:
"We have reviewed your case, Howerer, the previous position of the department has not changed, and rules that Regulation 14 (7) (b) applies in the circumstances covered by the assessment."
The letter continued:
"We therefore will not discharge the amount of $744,602.34 of the assessment which relates to the provision of uniforms for employees and staff functions."
The appellant filed a notice and grounds of appeal. The grounds of appeal read as follows:
"(3)............
(i) That Pursuant to the provisions of Regulation 14 (1) and 14 (2) (a) and (b) the Appellant is entitled to claim as a credit input tax paid by it in respect of taxable supplies made to it during a taxable period, being supplies used by it in carrying out its taxable activity.
(ii). That the provisions of Regulation 14 (7) (b) are not applicable because the provision of uniforms to employees is not a supply within the meaning of section 18 of the General Consumption Tax Act."
(iii). That the provisions of Regulation 14 (7) (b) are not applicable to the Staff functions arranged for employees of the Appellant as such functions do not constitute supply within the meaning of Section 18 of the General Consumption Tax Act."
The respondent thereupon filed a statement of case, and later on an amended statement of case, in which he prayed that the decision should be confirmed for the following reasons:
"4..............
(i) The tax charged to the Appellant in respect of the provision of uniforms and lunches for its employees cannot be interpreted to be input tax as defined in section 2 of the Act, not being tax on goods and services required wholly, or mainly for the purpose of making taxable supplies.
(ii) The Appellant is not entitled to claim the said amounts as tax credits since they are not amounts specified in Regulation 14.
(iii) The Appellant is not entitled to claim the said amounts under regulation 14 (2), said amounts being neither input tax nor amounts paid by the Appellant in respect of "supplies used in carrying out [its] taxable activity.
(iv) The Respondent agrees with paragraph 3 (ii) and (iii) of the Notice of Appeal; (supra), and contends similarly that Regulation 14 (7) (b) is not applicable to the provision of lunches."
By leave of the court, the appellant filed an amended reply to the respondent's amended statement of case. In the amended reply the appellant challenged some of the averments of the respondent and in particular stated at paragraph 1 (e) as follows:
"Further ....the Appellant says:
"That such uniforms and lunches as it provides for its employees are provided pursuant to its agreement with the National Workers Union and the University and Allied Workers Union in respect of its...
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