Batatawala v Malawi Revenue Authority (Civil Cause 211 of 2015) [2015] MWHC 511 (1 September 2015)

IN THE HIGH COURT OF MALAWI PRINCIPAL REGISTRY CIVIL CAUSE NO. 211 OF 2015 BETWEEN: ABDUL KARIM BATATAWALA........... sssuecanecsoccsuessvestucsssesssessess PLAINTIFF “ahi? bop ee oi es MALAWI REVENUE AUTHORITY... = DEFENDANT CORAM: THE HON JUSTICE H. S. B. POTANI. Mr. A. Nampota. and Mr. J’, Mbeta, Counsel for the Plaintiff Mrs. B. Mangwela; Counsel for the Defendant Mr. Kanchiputu, Court Clerk RULING © By way of an originating summons, the plaintiff commenced this action against the defendant seeking the determination of the court on the following questions: a. Whether the Defendant can lawfully object against the payment of the debts due to the Plaintiff by the Malawi Government, Seeey to the Treasury, on account of the = -Plaintiff’s ‘tax liabilities in, view, of. the provisions of the. Consent Order dated 12" December, 2014 in The State v. The Commissioner General, Malawi Revenue Authority ex-parte Abdul Karim Batatawala and 3 Others Judicial Review Number 27 Of 2013 (Zomba District Registry). b. Whether the Defendant’s objection and advice by letter dated 17" December, 2014 to the Secretary to the Treasury not to pay the Plaintiff the sum of MK5.1 billion should be set aside. In the interim; pl : c. An order of interlocutory injunction: restraining the Defendant from objecting to payments being made to the Plaintiff by the Secretary to the Treasury by way of letter dated 17" December, 2014or creating a lien thereon, attaching or executing on the Plaintiff's properties or garnisheeing any of the plaintiff's debtors, appointing any of . the plaintiff's debtors as: collecting agents or in any way interfering with the plaintiff's | peaceful conduct of his businesses until the determination of this Originating Summons or until further order of the court. And d. Party and party costs Ae, SUE REMMI PG, At the commencement of the action, the plaintiff through an ex parte application obtained the interim relief of an interlocutory injunction order sought under paragraph [c] above. The order still subsists. In ‘support’ of the plaintiff’: s'case there:is‘an affidavit’ sworn by the plaintiff himself ‘filed on May 26, 2015. ‘The defendant opposes the plaintiff's case and in that regard there is an affidavit in opposition sworn by Stanford Khundi, Tax Investigations Division Manager in the employ of the defendant. From the affidavits. filed by. the. parties, the -pettinent facts are largely not in dispute. Such facts are that the plaintiff i is in various businesses part of which involves supplying various goods and services to some departments of the Malawi Government in respect of which he is owed money in excess of MK7 billion. As part of its tax collection mandate, the defendant conducted some tax assessments in relation to. ‘the’ plaintiff's S ‘busitiessés ‘and ‘caine’ tip ‘with the. sum of about MK16.7 14 | billion kwacha. as taxes, interest and penalties payable by the plaintiff. It is the plaintifP S averment that before the conclusion of the tax assessment process, the defendant advised the Secretary to the Treasury not to pay any debts the Malawi Government owed him prompting him to commence judicial review proceedings against the defendant’s decision/act. The proceedings were commenced in the Zomba District. Registry . of the High Court under Judicial Review Cause No. 27 of 2013 The State v. The Commissioner General, Malawi Revenue Authority ex- parte Abdul Karim Batatawala and 3 others and the court granted order of interim relief of stay of the decision complained of pending the determination of the. matter. In. the. course, of time, the parties. engaged themselves in some negitiations: on ‘the’ matter culminating i in. the execution.of a consent order dated December 12, 2014, exhibited to the plaintiff's affidavit as ABK3 which was brought to the attention of the Secretary to the Treasury by letter also dated December 12, 2014, exhibited to the plaintiffs aftidavit as ABK4. To the utter surprise: of. the plaintiff, the. defendant: bys letter, dated December 17, 2014, being ‘exhibit ABKS advised the Secretary to the Treasury not to pay him until after the verification of the exact amount of taxes payable by him to the defendant. It is the plaintiffs averment and contention that under the consent order, the defendant should only have access to the sum of MK2 billion which was duly bargained by ‘the parties: andinothing more until such astime as.the objections by the plaintiff to | the tax assessment have been dealt with and further that the defendant cannot seek to enforce the tax assessment in any other manner other than that agreed in the consent order as such the defendant cannot attach any of his funds on account of the ‘tax, liability/assessment. as. the, defendant; didi. in the letter ABKS Henge the - present action, This action was commenced on May 26, 2015, and the hearing of the originating summons took place on August 26, 2015. It is imperative to mention that as the hearing was about to commence, counsel Nampota for the plaintiff raised a preliminary point namely that in so far as the issue of delay by the plaintiff in submitting his accounts to the defendant for tax assessment purposes as raised at length in the affidavit in opposition is concerned, that is water under the bridge as those accounts have since been submitted as a result of which the parties have had some meetings on the correct amount of taxes to be paid. This position was confirmed’ by counsel for the defendant. In essence, therefore, the parties are in agreement that the issues about delay by the plaintiff in submitting accounts to the defendant as averred at length in the defendant’s affidavit in opposition should be disregarded. Counsel for the defendant went a step further to inform the court that in fact there 1 is some impending, mediation. involving the parties and the Treasury which will most likely result in the disposal of the case. Such being the case, counsel seemed to be of the view that depending on the wishes of the plaintiff, the hearing of the matter could as well be stood over, It pleased the plaintiff to proceed with the hearing of the matter. In as far as ‘te sot a “fathom, the main question at the core of this matter revolves around a narrow campus and that is is whether the purported lien placed by the defendant on sums due to the plaintiff from the Malawi Government by way of the letter to the Secretary to the Treasury exhibit AKBS5 is legitimate when looked at _ within the framework . Ese, consent ‘order ABK3 executed by the parties. eee - It is the plaintiffs contention that the ‘uscosied lien by the defendant is illegal for being against the framework of the consent order as well as clear statutory provisions. In advancing the stand that the purported lien offends the consent order, counsel’s submission is that by its very nature a consent) order is a contract and therefore binding on the parties and reliance has been placed on a number of cases in support of such a proposition among them Knich v Walcott [1905] 1 Ch 140 and Malawi Broadcasting Corporation V Patrick D. S. Khoza t/a Parre Communications Civil Cause No. 2753 of 2000 [unreported]. With regard to the eontantion ‘that the purported Tien is against clear legal provisions, to begin with, counsel has submitted and rightly so, that the manner in which taxes due or payable are to be paid and or collected is prescribed by law and in this regard reliance has been placed on sections 105, 107, 107A and 108 of the Taxation Act. and sections 37; 39 and 40 of the Value Added Tax Act. The court finds it naeeeany for ease of | reference to reproduce the relevant parts of the sections. TAXATION ACT _ Section105 - Payment of Tax on assessment Y : (1) Any tax chargeable under this Act is payable by the due date as provided in this Act. (2) Notwithstanding that an appeal against an assessment has been made under section 97 the tax shall be paid as provided in subsection () unless the Commissioner otherwise 4,40 eb dir eeise) ae 2 a } a ah AN 2 e! 5 ee al pu: 1 Oe ee wn Section 107 - Recovery of tax (1) Any tax shall when it becomes due or is payable, be deemed to be a debt due to the Malawi Government and shall be payable to the Commissioner in the manner and at the place prescribed, and way, be aied 2d Jot: and necovered ne the Commissioner i in any court of bad jurisdiction. (2) Notwithstanding anything contained in any Malawi law relating to magistrates’ courts any amount whatsoever due and payable under this Act shall be recoverable by action in the court of the magistrate having jurisdiction in respect of the person by whom such amount is payable under this Act. (3)(a) If any person neglects or refuses to pay any tax due.and payable upon demand made by the daltaclor, the collector may, upon the authority of a eertifieale by the Commissioner that such tax is due and payable, for non-payment thereof distrain such person by any of his property, both real and personal without any Surther authority than such certificate and his warrant of appointment. 107A - Creation ofalien (1) If any person liable to pay tax imposed by this Act neglects or refuses to pay the tax after it has become due and payable, the amount (including any interest, additional charge or penalty, together with any costs that may accrue in addition thereto) shall constitute a lien in favour of the Government on all the property, both real and personal, belonging to that person. (2) If in the opinion of the Commissioner it is in the best interest of the Government so to do, he may cause to be filed a notice of the lien created under subsection (1) in the appropriate public records. 7 (3) Upon filing, a lien shall be valid against all other rights, and have priority, over all subsequently filed liens. “ , Section108 - Form of proceedings ete) Proceedings ‘in any ‘court. for the recovery of any tax shall be deemed to be proceedings for the recovery ofa debt validly acknowledged in writing by the debtor. (2) In any action or proceedings for the recovery of any tax it shall not be competent for the defendant to question the correctness of any assessment, notwithstanding that an appeal may have been lodged thereto. id THE VALUE ADDED TAX ACT Section 37 - Recovery of Value Added Tax due (I) Any Value Added Tax due under this Act, and any penalty and interest which remains unpaid after the due date under this Act, or-under any other written law in respect of Value Added Tax, may be recovered by the Commissioner General as a debt. (2) Any amount shown on an invoice as Value Added Tax on a supply of goods or services shall be recoverable as Value Added Tax due from the person issuing the invoice, whether ornot— .___. “i eget duvehatidy rok Piss Giscd ed fs ates Ge thee (a) the invoice is a tax invoice issued under this Act or in accordance with regulations made under this Act; or (b) an amount of Value Added Tax is chargeable on the supply; or - (od the person issuing f the i. invoice is.a jaxqble person. Section 39 - Garnishment Where any Value Added T. aX, penalty or interest is due and sani from a taxable person, the Commissioner oatral HRY © order— (a) any individual or » business from whom any money is due or is accruing or may become due to the taxable person; or (b) any individual or business who holds or who may subsequently hold money for or on account of the taxable person, to pay the Commissioner General that money, or so much of. it as is suffi icient to discharge the. Value Added Tax, interest or penalty due and payable. Be Section 40.- Distraint for liability — (1) The Commissioner General may in writing authorize the levying of distress in accordance with this section. (2) Where any Value Added Tax, penalty or interest due under this Act remains unpaid after the time By which this Act requires it to be paid, the Commissioner General may in . writing and with notice to the taxable person authorize the levying of distress— - (a) upon the goods, chattels and effects of the taxable person; and (b) upon— ithe Orsi: all assets, property, building, factory, machinery, plant, tools, means of transport and entbnnaniondan, accessories, animals, and all goods used in Malawi in the manufacture, production, sale or distribution of any taxable supplies; (ii) any commodity or items found in any premises or any land owned by or in use or in possession of the taxable person or of any Person: on his or her behalf or in trust for him or her. is ay a According t to counsel for the plaintiff, as section 107(1) of the Taxation Act provides that taxes shall be paid to the Commissioner General ‘in the manner and at the prescribed place’ and section 105 gives the Commissioner the power and discretion to, direct, the manner, of, paying, taxes. due then. where a tax payer proves ‘that a diferent manner of paying’ taxes due on an. assessment was directed the application of section 107, that is the manner of paying the taxes, must be in accordance with that direction or directive. It is therefore counsels’ argument and submission that the consent order in this matter contains details on the manner the taxes due" from. the plaintiff would be paid and that such details are effectively | directions by the Cotnmissioner General on how the taxes due would be paid. Such being the case, it been further argued, the Commissioner General having exercised his discretion to accept payment of MK2 billion at a particular stage of the matter there was a legitimate expectation that the rest of the taxes, if found due after the determination of the objections to the tax assessment, would be payable from any other source other than through a lien. To drum up the point home, it is the subthission of counsel that the underlying spirit in the consent order was to avoid situations under which the Commissioner General would exercise his other powers such as a lien or distrain. The plaintiff has also attacked the legality of the purported lien by drawing the -court’s attention to the fact that under section 107A (1) of the Taxation Act, the right to a lien is only exercisable where there has been neglect and or refusal by the taxpayer to pay tax after it is due and payable which could not be the case in this ‘matter as the parties had agreed, through the consent order, on how the tax liabilities woule be handled. wh i Stee FEE APE WT Oy OF Cee as PLC TS ty rit: r The plaintiff has further faulted the puimported I lien a by the defendant on 5 ihe ground that it does not comply with the requirements laid down in section 107 A (2) of the Taxation Act which requires a notice of a lien to be filed in the appropriate public records which appears not to have been done i in this case. Besides, serious doubt has beei ‘easted as to wea! ‘the (eee ‘ABKS Constitutes a proper ‘notice’ as required under section 107A of the Taxation Act. The position taken by the defendant in response to the plaintiff's case is that the declarations sought by the plaintiff are irregular, baseless and that the application is a total abuse of the court process. and therefore prays that it be dismissed with costs. In the main, it is the contention of the defendant that decisions of the defendant the plaintiff seeks to challenge are not covered by the consent order. According to the defendant, it is important to remember that relationship between the Pia and the Cor is duly governed by tax. laws namely t the Taxation VEAP the lai ter Ay Bags SOOLTSA: higfoue oo 03: Act and the Value Added Tax [VAT] Act and that under these laws the Commissioner General is thandated to execute certain powers. According to the defendant, the decisions complained of were made within the powers conferred to the Commissioner General by the law. It is the averment of the defendant that if the consent order had envisaged that the Commissioner General may not exercise the, -powers conferred upon, him. by the tax laws for securing payment of taxes it | could have expressly SO provided and that the plaintiff should not be allowed to read into it that which is not provided therein. | The defendant has also submitted that the letter of objection ABKS5 and the placing of a lien against the plaintiff s property area move to securing revenue so that at eee plaintiff Would Be required to liquidate his ‘outstanding tax liabilities there should be money available to cover the same. According to the defendant, the plaintiff has demonstrated that he is not capable of paying the liability thereby leading to the drawing of the consent order herein binding the Secretary to the Treasury to pay. the initial sum. of MK2 billion, abeit the failure by the Secretary to the Treasury to honour the payment. The defendant therefore contends and submits that the objection in the letter ABKS5 and the placing of a lien against the plaintiff's property are only temporary measures to be determined at the end of the determination of the plaintiff's objections against the assessment. In other words, it has been submitted, all the defendant is doing is'to preserve property and money at the cliseasal of the plaintiff as security for payment of taxes at the end of the determination of the objection to the assessment of the plaintiff's tax liability. The defendant has also sought to argue that the » plaints s action should be disinissed. as he. has He come to ‘court with clean’ hands i in ‘that he has not raised the objections within reasonable time as he ‘undertook in the consent order and that such being the case he is merely trying to buy time. It should be hastily pointed 10 out that this argument falls by the way side in view of what has been stated earlier _ in this ruling as confirmed by counsel on both sides that in so far as the issue of delay by the plaintiff in submitting his accounts to the defendant for tax assessment purposes as raised at. length i in the affidavit i in opposition. is concerned, that is water under the bridge as those aécounts have since been submitted as a result of which the parties have had some meetings on the correct amount of taxes to be paid. In summing up the case for the defendant, it has been submitted that the decision of the defendant complained of is sanctioned by law such that the sought declarations are irregular and tantamount to interfering with the statutory mandate of the defendant under the guise of the consent tse which in effect would amount to suspension of tax laws hence the prayer to have the mater dismissed and plaintiff condemned in costs. AS ‘stated earlier, the main, question at. the core of this matter revolves around a narrow campus and that is whether the purported lien placed by the defendant on sums due to the plaintiff from the Malawi Government by way of the letter to the Secretary to the Treasury exhibit AKBS5 is legitimate when looked at within the framework of the consent order ABK3 executed by the parties. lorctinks afe rveoular gad tantamount fy piterferino wiht The first point the court wishes to make in the determination of the matter is that the law is well settled that a consent order is binding on the parties thereto until it has been set aside. The case of Knich v Walcott cited by counsel for the plaintiff Supports this chee gen and thee court Hag ie to ae “a “salto 1 or avdlip by consent is s binding ¢ on the parties until set atte It also acts as estoppel.” Such being the legal position, as there is no dispute whatsoever that the plaintiff and. the defendant freely, yoluntarily, and good faith executed the consent order i herein they are and ought to be bound by it. What this means is that any party purporting to act contrary to and/or outside the terms of the consent order would be estopped from so acting. On the one hand, ‘the plaintiff alleges that by issuing the letter ABKS5 thereby placing a lien on sums due to the plaintiff, the defendant acted contrary to the framework of the consent order ABK 3 while on the other hand the contention of the defendant is that its decisions or acts complained of are not covered by the consent order and are within its legal mandate therefore do not offend the consent order. While it cannot be denied that the defendant has the legal mandate to collect taxes and make decisions and carry out such acts as are necessary in furtherance of such a mandate that surely has to be done within the confines of the law and if it may hastily be added, with faiicee That said it is ‘Fmportanit to bear in rind that the consent order herein was executed against the background of a dispute over the tax assessment liability of the plaintiff. This point is being made because in the considered view of the court, looking at all the circumstances of the case, it is that dispute which lead to the consent order as it heant the parties were not so too sure about what sums were due and payable by the slainttit The sums due and payable by the plaintiff would only .be ascertained after the re-assessment, so to speak and this is evident from the tenor of consent order particularly clause 4 thereof. It wauld, therefore, not be farfetched, to say, that the defendant | was willing to execute the consent order so as to create an. appropriate alternative manner of collecting the taxes that would be due from the plaintiff in view of the uncertainty on the actual sums due. As rightly argued by counsel for the plaintiff, this was/is within the mandate of the defendant’s Commissioner General within the scheme of section 105 2)..asc-read, with, section; 107€4) ; of, the, Taxation, Act. The, court would, therefore, tend to agree with. counsel for the plaintiff that that the defendant having 12 -exercised its discretion to collect the tax in ‘the manner detailed in the consent order, it cannot renegade from such an arrangement and seek to attach or place a lien over sums due to the plaintiff from the Malawi government or indeed any debtors. It has been argued for the defendant that what it meant to do by the objection in the letter ABKS5 and the placing of a lien against the plaintiffs | property _ only temporary measures to be determined at the end of the determination of the plaintiffs objections against the assessment. In other words, it has been submitted, all the defendant is doing is to preserve property and money at the disposal of the plaintiff as security for: payment of taxes at the end of the determination, of the obj ection to the assessment: of the plaintiff's tax liability. With due respect,t such an argument is not attainable because as rightly argued by counsel for the plaintiff, in terms of section 107A (1) of the Taxation Act the right to a lien only accrues if there has been neglect or refusal by a tax payer to pay taxes due. In the instant case, there can.or, could. not have. been neglect or refusal to pay taxes by the plaintiff when the parties had. executed a consent order regarding the manner of payment. The court has also had occasioned to consider certain observations and sentiments made by counsel I for the defendant the first being that the Secretary to the Treasury has not acted ¢ on ‘consent order. a the ‘letter of SBedtoh: ‘The quick remark the court would make is that that is neither here nor there i in so far as the determination of the issue before the court is concerned. Counsel also said that granting the declaration the plaintiff i is seeking would amount to interfering with the statutory mandate of the. defendant under the | guise ‘of the consent order which in effect “would amount to suspension of tax laws. This statement or sentiment appears to be emotional and not backed by any sound argument. In the court’s estimation, considering the circumstances of the case in totality and the legal effect of a PORIANS bee elt AeA ER 8 ped PUPS a TECH EVE COG Lea consent order; rather what happened here can be said that the defendant, without necessarily suspending its tax collection powers conferred by the law, opted for a particular manner or mode of collecting the taxes due from the plaintiff and the defendant is and ought to be bound by such a manner. ‘In the end result, the court would find and hold that the letter of objection by the defendant purporting to create a lien on the sums due to the plaintiff from the Malawi Government is flawed for being against the framework of the consent order as well as clear statutory provisions. A declaration is therefore herby made that the defendant cannot lawfully object the payment of the debts due to the plaintiff from the Malawi Government, Secretary to the Treasury, on account of the plaintiff's tax arrears in view of the consent order dated December 12, 2014, in The State v. The Commissioner General, Malawi Revenue Authority ex-parte Abdul Karim Batatawala and 3 others Judicial Review Cause No. 27 of 2013 High Court, Zomba District Registry. It is further aidered that the defendant’s letter of objection and advice not to pay the sums due to the plaintiff be aside. On costs, as they normally follow the event, are awarded to the plaintiff. Made this day. of September.1, 2015, at Blantyre in the Republic of Malawi. . S. B. POTANI JUDGE g heeds bobs yeek a ooo: cee Rie haw & Yaw eich de enka cf “14