Birungyi Barata and Associates v Fresh Cuts Limited (Application No. TAT 24 of 2021) [2021] UGTAT 5 (24 June 2021)

## **THE REPUBLIC OF UGANDA IN THE TAX APPEALS TRIBUNAL AT KAMPALA TAXATION APPEAL NO. 24 OF 2021 [ARISING FROM TAT APPLICATION NO. 25 OF 2017]**

## **BIRUNGYI, BARATA AND ASSOCIATES =================APPELLANT VERSUS**

**FRESH CUT LIMITED ================================RESPONDENT**

## **BEFORE DR. ASA MUGENYI, DR. STEPHEN AKABWAY MR. GEORGE MUGERWA**

## **RULING**

This ruling is in respect of an appeal from a taxation ruling by the Registrar on an advocates- client bill of costs.

The appeal is brought under S. 62(5) of the Advocates Act, Regulations 3(1) of the Advocates (Taxation of Cost – Appeals and References) Regulations and S. 98 of the Civil Procedure Act. The appellant is challenging the taxation ruling of the Registrar delivered on 19th March 2021. It is for orders that decisions awarding Shs. 10,978,469 as instruction fees under item 1, Shs. 38,019,311 on items 22 and 25 be abandoned or set aside or varied. The appellant also prayed for Value Added Tax (VAT) on items 1, 22 and 25.

The application was supported by the affidavit of Mr. Martin Mbanza. He contended that the taxing officer did not address himself on the facts and the scale provided under the law. He also did not address himself to the facts relating to the value of the subject matter. He failed to apply the scale under the Sixth Schedule of the Advocates (Remuneration and Taxation of Costs) Amendment Regulations. He contended that item 25 was not abandoned by the appellant. He contended also that the award of Shs. 55,727,780 was manifestly low and unjustified. He contended further that an award of Shs 43,239,312 for item 22 and Shs. 22,719,130 would be reasonable and justified. That items 1, 22 and 25 should attract VAT.

In reply, Mr. Amos Tindyebwa, the managing director of the respondent contended that he was advised by their counsel that item 25 of the Bill of costs had been agreed upon. Item 25 is part of the instruction fees that is covered under item 1. The respondent has never instructed the appellant to recover the 30% deposit from Uganda Revenue Authority. He also contended that the amended bill of costs cannot be part of the taxed bill of costs. He averred that the award by the taxing officer is not low. He further deponed that the appellant has never undertaken to reconcile the purchases of Shs. 1,900,965,589 or it did so it was on its own volition.

In rejoinder, Mr. Marin Mbanza deponed that two pre-taxation meetings were held and that no item was agreed upon. He also averred that in February 2019, the appellant was dully instructed by the respondent to claim 30% of the deposit from Uganda Revenue Authority. It was also instructed to reconcile outstanding purchases.

The appellant submitted that the respondent applied for a withholding tax refund of Shs. 548,923,472 but was instead assessed tax of Shs. 3,104,385,865. It cited *Western Highland Creameries Limited and another v Stanbic Bank Uganda* Appeal 10 of 2013 where Justice Madrama emphasized instruction fees are calculated on the basis of the subject matter. The respondent submitted that the said amounts fall within paragraph 1(g) of the 6th Schedule of the Advocates (Remuneration and Taxation of Costs) Amendment Regulations 2018. The appellant contended that the instruction fees when computed using the Regulations is Shs. 78,886,186.74.

On item 22, the appellant contended that the Registrar failed to properly apply the Sixth Schedule. The appellant cited *Western Highland Creameries Limited and another v Stanbic Bank Uganda* (supra) where the court stated the value of the subject matter can be ascertained from the judgment or claim. Using a value of Shs. 1,900,965,589 the appellant computed the tax amount as Shs. 43,239,312.

On item 25, the appellant contended that the Registrar misconstrued the record of proceedings and came to the wrong conclusion that item 25 was abandoned. The appellant contended that it carried out activities in respect of the claim for the 30% deposit. It claimed that it was entitled to fees of Shs. 22,719,130.

The appellant contended that it was entitled to VAT in respect of items. 1 22 and 25. The items were within the meaning of S. 18 of the Value Added Tax Act which defines taxable Supplies and S. 6 which defines a taxable person.

In reply, the respondent partly conceded that the Registrar failed to take into account the value of the subject matter when computing item 1 on the instruction fees. However the respondent disagreed with the appellant on the value of the subject matter. The respondent contended that the value of the subject matter should be Shs. 3,104,285,865 which when taxed returns a figure of Shs. 67,307,717.

The respondent contended that the Registrar erroneously awarded Shs. 38,019,311 on items 22 and 25. It contended that they are part and parcel of the instruction fees. The respondent contended that it did not give further instructions to the appellant to reconcile the outstanding purchases. The respondent cited Regulation 12 of the Advocates (Remuneration and Taxation of Costs) Amendment Regulations which that the scale shall include all the work necessarily and properly done in connection with the case. The appellant contended that any further award of instruction fees shall be a departure of the established principles of taxation.

The respondent also contend that amended bill of costs was done without its consent nor leave of the court. It cited Regulation 49 which provides that no addition or alteration shall be made to a bill of costs except by the consent of the parties or by permission or direction of the court or taxing officer.

The respondent argued that the appellant at the hearing of the taxation of bill of costs did not submit on the issue of Value Added Tax nor did they render a valid VAT certificate. The respondent cited Regulation 4 which provides that while filing a Bill of Costs a party shall attach a VAT certificate to assist the taxing matter address the issue.

In rejoinder, the appellant contended that the respondent was relying on the consent to establish the value of the subject matter. It contended that correct value of the subject matter is the aggregate the respondent sought from Uganda Revenue Authority Shs. 548,923,472 and what the respondent claimed from it was Shs. 3,104,385,865.

In respect of items 22, the appellant contended that the respondent did not lodge an appeal or cross appeal. The respondent cited *Joseph B. Byamugisha v National Social Security Fund* Civil Reference 191 where it was stated that costs in a bill of costs should be for services rendered whether in respect to proceedings in court of law or for some other transactions outside the court of law.

The appellant contended that the bill of costs was amender prior to being lodged for taxation. The bill of cost precedes the earliest date on which the bill could be lo lodged. The appellant argued that the bill of cost was amended prior to the issuance of a taxation notice. It did not offend Regulation 49.

The appellant contended that Rule 47(c) of the Advocates (Remuneration and Taxation of Costs) Rules does not impose an obligation to file a VAT certificate but to indicate the VAT applicable which was done. It submitted that VAT is imposed by law and the respondent is entitle to claim the same as VAT input.

Having read the pleadings, affidavits and submissions of the parties, this is the ruling of the Tribunal.

The first ground in contention was that the Registrar erred when computing the instruction fees of the appellant. The respondent conceded that the Registrar erred when it failed to properly assess the value of the subject matter. The respondent contended that the value the Registrar ought to have considered is Shs. 3,104,385,865 which was the VAT imposed on the appellant. The appellant contended that the Registrar ought to have considered Shs. 3,653,309,337 as the value of the subject matter.

Instruction fees are set out in the Sixth Schedule of the Advocates (Remuneration and Taxation of Costs) Regulations which reads that the fees for instructions to sue, claim, defend or oppose shall be as follows-

"(1) to sue or defend any case, whether commenced by plaint, statement of claim, petition, originating summons or originating motion, or to present or oppose an appeal, where the claim or value of the subject can be determined from the pleadings, settlement, a valuation or the judgment, the instruction fees shall be charged in accordance with the following scale. –"

It provides that the fees shall be determined from the values which may be obtained from the pleadings. In the application it filed the applicant does not state the value of the subject matter. However in the statement of facts and reason in support of the application, the appellant states that it was not agreeable to the corporation tax assessment of Shs. 3,504,090,703 and it objected. Uganda Revenue Authority issued an objection decision dated 10th August 2021 partially allowing the objection and confirming a tax liability of Shs. 3,104,385,865. In its application the appellant prayed for a declaration that the additional tax liability of Shs. 3,104,385,865 is not due and that the assessment to that effect be vacated. Therefore the value of the subject matter in dispute is Shs. 3,104,385,865. The computation under the Regulations of the said value would attract instruction fees of Shs. 67,307,717. Therefore the instruction fees awarded by the Registrar on item 1 are varied to Shs. 67,307,717.

The second contention was that the Registrar erroneously awarded an amount of Shs. 38,019,311. This was in respect to item 22. A perusal of the first bill of costs show item 22 as to attending reconciliation meetings, and the fee charged was Shs. 300,000. However the appellant alleges that it filed an amended bill of costs which sought instruction fees to reconcile purchases worth Shs. 1,900,965,589. The respondent contended that the said amendment was not consented to by the parties nor was it allowed by the taxing officer. Regulation 34 of the Advocates (Remuneration & Taxation of Costs) Amendment Regulations provides:

"No addition or alteration shall be made to a bill of costs by the party submitting the bill of costs after the bill has been lodged for taxation, except by the consent of the parties or by permission or direction of the court or taxing officer."

The appellant contends that that the bill of costs was amended prior to being lodged for taxation. A perusal of the amended bill of costs shows that it does not bear any stamp as evidence that it was lodged in the Tribunal registry. Nor does the first bill of cost bear any stamp. As such it is difficult for the Tribunal to ascertain whether the amendment was done before lodging. Regulation 48 of the Regulations states that every bill of costs shall be lodged with the Registrar and shall be endorsed with the name and address of the advocate by whom it is lodged. It is surprising that the Registrar was taxing bills of costs that were never lodged in the Tribunal. Such bills of costs should not have been accommodated by the Registrar. The respondent ought to have raised it as an objection as to how the Registrar was taxing bills of costs that were never lodged.

The appellant sought instruction fees for reconciling the respondent's outstanding purchases worth Shs. 1,900,965,989. The said figure arose from a consent order which provided that the applicant and respondent shall conduct further reconciliation of the figure of Shs. 1,900,965,989. It does not indicate that it is the appellant who has to do the reconciliation. The first contention in respect thereof by the respondent was that it never instructed the appellant to reconcile. Where there is a dispute as to an advocate being instructed, the dispute should first be resolved. That does not fall within the ambit of the taxing officer to decide whether instructions were issued as his job is to tax. The matter of instructions is handled by the court or Tribunal. That is why leave to tax advocate-client bill of costs is granted by court. Secondly without prejudice, the said consent arose from the application filed by the appellant where it was awarded instruction fees in item 1, the reconciliation of purchases arose from opposing the assessment, and therefore, the instruction fees already awarded cover the work done by the appellant. If the appellant felt that reconciling purchases made the matter more complex, then it ought to have addressed the Registrar as such so as to increase the award due to the complexity of the matter. On another note, if reconciling of purchases was after the matter had been consented in court. It is difficult for a taxing officer to tax such an item as it may involve fresh instructions and work yet to be done.

If reconciling was not part of the suit, the Tribunal notes reconciling outstanding purchases is work done by accountants, auditors and the like. As already stated, bill of costs lodged under the Sixth Schedule are in respect of contentious matters. The Regulations states that the Sixth Schedule provides for fees for instructions to sue, claim, defend or oppose. Therefore if the appellant provided services outside defending or opposing the objection, it cannot claim them under the Sixth Schedule or under a bill of costs filed under the said Schedule. It should seek other avenues for legal redress.

The appellant also sought instruction fees to claim the 30% deposit under item 25. A perusal of the application shows that the appellant sought for declaratory orders that the additional tax liability of Shs. 3,104,385,865 is not due and that the said assessment be vacated. It does not show that respondent had filed that application seeking for recovery of 30% deposit. The consent order filed does not show that the appellant was required to recover the 30% deposit as separate work. In the event, the respondent paid 30% before or during the course of the application, the instruction fees awarded in item 1 include any work done in respect of a refund of the 30%. If Uganda Revenue Authority declines to refund the 30% deposit and a taxpayer files an application in the Tribunal in that respect, the advocates would be entitled to instruction fees. This is not the case.

In respect of Value Added Tax, in both bill of costs, the original and the amended, there is no item on VAT. The appellant did not seek to recover VAT in the bill of costs. A registrar cannot tax an item that is not in the bill of costs. The appellant ought to have included it. However, the appellant can issue an e-invoice outside the bill of costs to collect VAT as it a tax due to the state.

Since the appellant was successful, we allow the appeal with costs.

Dated at Kampala this 24th day of June 2021.

**DR. ASA MUGENYI DR. STEPHEN AKABWAY MR. GEORGE MUGEWA CHAIRMAN MEMBER MEMBER**

**\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_**