Saturn Sales Ltd v Commissioner General Tax Administration Jamaica
| Jurisdiction | Jamaica |
| Judge | C. Barnaby J |
| Judgment Date | 13 October 2022 |
| Neutral Citation | [2022] JMRC 02 |
| Court | Supreme Court (Jamaica) |
| Docket Number | APPEAL NO. 2021 RV 0005 |
JM 2022 SC 173
[2022] JMRC 02
APPEAL NO. 2021 RV 0005
IN THE SUPREME COURT OF JUDICATURE OF JAMAICA
REVENUE COURT
General Consumption Tax — Section 38 General Consumption Tax Act — Section 17(I) Revenue Administration Act — Whether there was a basis for an audit of taxpayer's returns and in raising GCT assessment — Whether assessment to additional GCT was a best judgment assessment — Whether assessment was wholly unreasonable and should be set aside.
Tana'ania Small Davis and Kerri-Ann Allen Morgan instructed by Livingston Alexander and Levy for the Appellant
Cecilia Chapman-Daley and Noelle Gaye Miller, Attorneys-at-law for the Respondent
The Appellant, Saturn Sales Limited is a registered taxpayer under the General Consumption Tax Act and was engaged in the domestic purchase and resale of telephone cards. On conclusion of an audit process by the Respondent of the Income Tax, GCT (General Consumption Tax) and P.A.Y.E returns made by the self-assessed Appellant for the period January 2011 to December 2013 (the relevant period), the Respondent assessed the Appellant to GCT in the amount of Five Hundred and Sixty-Eight Million One Hundred and Thirty-One Thousand Eight Hundred and Ninety-Seven Dollars ($568,131,897.00) which was increased on objection to Five Hundred and Sixty-Eight Million Two Hundred and Twenty-Two Thousand Eight Hundred and Ninety-Seven Dollars ($568,222,897.00). The Respondent Commissioner is responsible for the administration of GCT under the GCT Act.
On appeal to the Revenue Appeals Division (RAD) on the grounds of “[f]lawed assumptions on the part of TAJ; [l]ack of knowledge or ignorance of the sector laws; [and] [n]on-correlation with the Company (sic) financial records”, the assessment was reduced to Ten Million Five Hundred and Ninety-Four Thousand Two Hundred and Ninety-Three Dollars and Ninety-Three Cents ($10,594,293.93).
The results of that hearing were communicated by decision of the RAD dated 31 st March 2021 from which Appellant now appeals to this court. The appeal was heard on the 18 th and 19 th July 2022 and judgment reserved to 13 th October 2022. The decision of the court and reasons therefore are set out below.
Having regard to the parties' cases, which are set out later, I regard the following three issues as dispositive of the appeal.
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(i) Did the Respondent have a basis for making an assessment against the Appellant in respect of returns furnished for the years 2011, 2012 and 2013?
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(ii) Was the assessment raised against the Appellant by the Respondent a best judgment assessment?
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(iii) Was the assessment by the Respondent wholly unreasonable and to be set aside?
I find that the Respondent did have a basis for making an assessment against the Appellant for the relevant period but that the assessment raised was not a best judgment assessment, was wholly unreasonable in the Wednesbury sense in failing to give effect to a relevant revenue measure contained in Ministry Paper for the Fiscal Year 2013/2014 which addressed accounting for GCT on phone cards with effect from March 2013, and in incorrectly using GCT inclusive figures produced by the Appellant's suppliers instead of net GCT figures which were also available in estimating the Appellant's purchases for the accounting periods in each relevant year, upon which the additional assessments were premised. The assessments being wholly unreasonable, it is unfair that the Appellant should be made to answer a case in respect of them. Accordingly, the appeal is allowed and the assessments set aside.
The Appellant asks that its appeal be allowed; the decision of the RAD be set aside; and that the assessments to additional GCT made against it for the period 2011 to 2013 be discharged. It also seeks costs in the appeal and such further or other relief as the court deems just. These reliefs are sought on the
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(a) … grounds of Appeal stated in the Notice of Appeal to the Revenue Appeals Division dated 21 November 2016 … namely [that]:
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(i) Assumptions made by Tax Administration of Jamaica are flawed;
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(ii) The decision reveals a lack of knowledge or ignorance of the sector laws; and
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(iii) The decision displays a non-correlation with the Company's financial records…
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(b) The Respondent's assessment of additional tax was disallowed to the extent of 98.15% from $568,222,897 down to $10,594,293.93 for the three years. This fact is sufficient to demonstrate the gross, careless and inexcusable errors that were made in the initial assessment. In their decision, the Revenue Appeals Division described the Respondent's work as “fraught with errors” many of which were evidenced a fundamental misunderstanding of principles. The revision by which the initial assessment has been significantly reduced on appeal took a period of five years. It is therefore unconscionable and an abuse of process to subject the Appellant taxpayer to further review process.
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(c) The magnitude of the downward adjustment reflects the degree to which the initial assessment was seriously flawed and therefore calls into question the reliability of the revised assessment which was conducted by the same personnel. It is therefore in and of itself a sufficient basis for rejection of the estimations adopted by the Respondent.
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(d) The assessment is entirely based on estimation. By definition any estimation technique is imprecise. The adjustment assessment arrived at by the Respondent represents less than 1% of the total sales. Given the statistical margin of error of 1–2% the additional assessment is wholly inappropriate, inequitable and unreasonable in the circumstances.
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(e) In accepting the Respondent's estimation, where the records are voluminous, the Revenue Appeals Division ought to have given greater weight to its finding that the variance in reported mark-up and margins ‘are very minuscule”. The Revenue Appeals Division erred and misdirected herself in fact and in law by:
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i. failing to properly compute and apply the weighted average mark-up percentages and this led to the erroneous and unfounded finding that the veracity of the information stated in the Appellant's financial statements was called into question.
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ii. Finding that the Respondent's mark-up of 0.0163044348 for Lime purchases are upheld without any proper basis and not having proper regard to the information from the records presented by the Appellant which finding was against the weight of the evidence presented to the Respondent.
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(f) Further and in the alternative, the assessment of additional tax is excessive.
(sic)
The Respondent prays for the dismissal of the appeal; confirmation of the decision of the RAD; costs of and incidental to the appeal; and such further or other relief as deemed just. In the Statement of Case filed in response to the appeal, the Respondent denies the allegations contained in the pleaded grounds of appeal and contends that the decision of the RAD was validly made on the bases:
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(a) [of] the Commissioner's power to make an assessment [under] s. 38 of the GCT Act…;
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(b) The mark-ups determined and used by TAJ in the assessment were not overstated.
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(c) The RAD correctly applied the First Schedule of the GCT Act, Part IV Items 2 and 3 in determining whether the additional sum of $96,450,249.05 was correctly assessed.
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(d) TAJ correctly treated the amounts which were stated to be the total local purchases and expenses in Saturn Sales Limited's returns as being purchases.
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(e) TAJ was correct in its computation of net stock adjustment — by verifying opening and closing stock from the taxpayer's books and records, making adjustments to value the verified amounts at cost based on the discount rates that were stated by the taxpayer as being “within a range of 0.3% to 1%”.
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(f) Based on the records supplied by the Appellant, the RAD acted correctly in adjusting the assessment made by the Respondent on objection for the period January 2011 — December 2013.
(sic)
As observed in Llandovery Investments Ltd v The Commissioner of Taxpayer Appeals (Income Tax) [2012] JMCA Civ 19 at paragraph 15, “…proceeding[s] before the Revenue Court, although stated to be an appeal, is in the nature of…fresh proceeding[s], the parameters of which are set by the by the information contained in the documents which have been filed in that court.”
In these proceedings the burden of proof lies on the Appellant who must satisfy the court, pursuant to section 41(4) of the GCT Act, that the assessment by the Respondent is “erroneous” which Morrison JA (as he then was) stated was “… wide enough to embrace both a complaint that the assessment is wrong in principle and that it is excessive in amount.” 1
On my assessment of the grounds of appeal, the Appellant challenges the assessment on the basis that it is wrong in principle in that it was not made to the best of the Respondent's judgment and that it is excessive in amount. In both instances the Appellant bears the legal burden of showing that the assessment is erroneous.
As stated by Dr. Claude Denbow at page 172 of Income Tax Law in the Commonwealth Caribbean which was quoted with approval by Morrison JA (as he then was) in D.R. Holdings Ltd. and which I concluded is applicable to an appeal against the Revenue's assessment of GCT notwithstanding that the learned author was referencing income tax, 2
“[t] he 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 unfounded. This means that the taxpayer bears the legal burden on the whole of the...
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