Fresh Handling Services Limited v Uganda Revenue Authority (Civil Appeal 72 of 2020) [2022] UGCommC 193 (31 March 2022)

Full Case Text

## THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA

## (COMMERCIAL DIVISION)

## CIVIL APPEAL No.72 OF 2020

# (ARISING FROM TAT APPLICATION No. 83 OF 2019)

# FRESH HANDLING UGANDA LIMITED::::::::::::::::::::::::::::::::::::

#### **VERSUS**

# **UGANDA REVENUE AUTHORITY::::::::::::::::::::::::::::::::::::**

# BEFORE: HON. JUSTICE CORNELIA KAKOOZA SABIITI

## **JUDGMENT**

This is an appeal from the decision of the Tax Appeals Tribunal delivered on 21st day of December, 2020.

Background of the appeal.

The appellant in 2007 instituted TAT Application No.17 of 2007 objecting to the respondent's assessment of Value Added Tax on their services. The appellant deals in cold storage, air freight and door to door delivery of horticultural products at destinations outside Uganda. The respondent carried out VAT audit on the appellant for the periods of June 2000 to August 2003 and December 2005 to appellant for the periods of June 2000 to August 2003 and December 2005 to June 2006. Following the audits, the respondent assessed Shs. 147,178,711/= and $\sqrt{3}$ 133,878,540/= respectively and on 22nd January 2007, the Agency Notice against the Applicant's bank, Barclays Bank (U) Ltd, of Ushs. 281, 057,257/= as tax due by the applicant.

The Tribunal in the Ruling held in favour of the appellant that the service it provided constituted an export service and the VAT assessment of Ushs. 147,178,711 for the period of June 2000 to August 2003 and Ushs. 133,878,540 for December 2005 to June 2006 be vacated. The Tribunal further ordered that funds of the applicant were unlawfully collected from the bank and should be refunded with interest from the date of the issue of the agency notices.

Subsequently, the respondent appealed to the High Court in Civil Appeal No. 13 of 2008 against the TAT decision. The High Court upheld the decision by Tribunal and dismissed the appeal with costs. The respondent further appealed to the Court of Appeal in Civil Appeal No. 5 of 2009 and the same was dismissed with costs.

Following the Court of Appeal decision, on 26th June 2019, the appellant's lawyers made a refund claim to the respondent of Ushs 6,950,605,178. The Respondent after reviewing the claim replied on 11th July 2019 that the amount refundable was Ushs. 5,590,114,964/= to which the appellant agreed and payment of the same was made on $31^{st}$ July 2019.

Following the payment, the respondent on 16th August 2019, acting on the basis that it had erroneously not capped the interest to the principal sum of UShs. 281,057,251 as per Section 44 (5) of the VAT Act issued agency notices for Ushs. $5,028,000,450$ to the appellant's bankers and collected Ushs. $4,105,362,665/=$ leaving a balance of UShs. 922,637,797.

The appellant being dissatisfied with the respondent's actions filed TAT Application No. 83 of 2019. In that matter the issues as raised at the Tribunal

were that; $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$ $\frac{1}{3}$

- b) Whether the respondent was entitled to collect UShs. 5,028,000,450/= from the applicant. - c) Whether the issuance of third-party agency notices was lawful. - d) Whether remedies are available to the parties.

The Tribunal in its Ruling decided in favour of the respondent, it found that the respondent is entitled to UShs. 922,637,797/=. The Tribunal however faulted the respondent for using a wrong recovery method and awarded the applicant general damages of Ushs. $20,000,000/=$ and each party to bear its costs.

Being dissatisfied with the decision by the Tribunal, the appellant instituted this appeal, and the grounds as per the amended Notice of Appeal are that;

- $i)$ The learned members of the Tribunal erred in law when they decided that the Value Added Tax does not define a refund or over payment. - ii) The learned members of the Tribunal erred in law when they held that the money collected by the respondent was both an over payment and a refund. - The learned members of the Tribunal erred in law when deciding iii) that the refund applied for cannot exceed the principal. - The learned members of the Tribunal erred in law when they held $iv)$ that the respondent was entitled to refund of Ushs. $922,637,797$ in disregard of evaluation of evidence on computations. - The learned members of the Tribunal erred in law when they held $\mathbf{v}$ ) that the Court of Appeal did not uphold the decisions of the High Court and the Tax Appeals Tribunal.

$cNS$ $31/3)2n^{vi}$

The learned members of the Tribunal erred in law when they wrongly applied Constitutional principles.

- The learned members of the Tribunal erred in law when they held $vii$ that interest accrues from the date of the judgment of the last court that settles a matter. - viii) The learned members of the Tribunal erred in law when they failed to properly evaluate the evidence on record thus arriving at an erroneous decision.

The appellant further prayed that court allows the appeal and order that it is entitled to interest amounting to $5,028,000,450/=$ and costs of the appeal be granted.

The respondent opposed the appeal and further filed a cross appeal challenging the Tribunal Ruling on the ground that the Tribunal erred in law when they exercised their discretion unjudiciously and awarded general damages of UGX. 20,000,000 to the appellant without legal basis.

## Representations.

$\ddot{\cdot}$

The appellant was represented by M/s Birungyi, Barata & Associates and the respondent was represented by its Legal Services and Board Affairs **Department**. Both parties filed written submissions to the appeal and made brief oral submissions to highlight the key issues.

Preliminary Objection; the amended Notice of Appeal was filed outside time.

The respondent counsel raised a preliminary objection, which I shall first address.

Counsel for the respondent relied on Section 27 of the Tax Appeals Tribunal Act that appeals must be made within 30 days after being notified of the decision of the Tribunal. That the appellant lodged an appeal by Notice of Appeal on the 30th December, 2020 but later filed an amended Notice of Appeal outside the 30

days rule. That the ruling of the Tribunal was on 21st December, 2021 as per Section 34 of the Interpretation Act, the 30days elapsed on 20th January, 2021, the amended Notice of Appeal was filed on 21st day January, 2021, one day late without seeking for extension of time by the Court. That the amended Notice of Appeal is therefore incompetent and ought to be struck out. Alternatively, court should consider the first Notice of Appeal filed on 30th December, 2020.

In response to the above, counsel for the appellant averred that the 1st Notice of Appeal was filed on 30th December, 2020, within the 30days requirement. That the Amended Notice of Appeal was filed on 21st January 2021 and it was also within the 30 days allowed under Section 27 (1) of the Tax Appeals Tribunal Act.

I have considered the above arguments and the facts on record. The decision of the Tax Appeals Tribunal in TAT Application No.83 of 2019 was delivered on 21st December 2020. The amended Notice of Appeal in contention was filed on 21st January 2021.

Section 34 of the Interpretation Act Cap 3 on computation of time for the purposes of any act, is to the effect that;

- *a) a period of days from the happening of an event or the doing of any act of* thing shall be deemed to be exclusive of the day in which the event happens or the act or thing is done; - b) if the last day of the period is a Sunday or a public holiday (which days are in this section referred to as "excluded days"), the period shall include the next following day, not being an excluded day.

This court takes Judicial notice of the fact that 25th December and 1st January are re-known public holidays. These two days having been public holidays that fell on a Friday, ought to be excluded from the computation as per the interpretation act. It therefore, follows that the appellant ought to have filed its Notice of Appeal by 22nd January, 2021. Since the appellant filed its amended Notice of Appeal on 21st January, 2021, the appellant was still within the 30 days limit. Additionally, the appellant had a grace period of 23 days under Order 51 rule 4 of the Civil Procedure Rules which is to the effect that the period running from 24th December to 15th January shall not be reckoned in the computation of time allowed for filing of any pleadings unless otherwise directed by court.

The preliminary objection is therefore overruled. I shall proceed to the merits of the appeal.

#### Appellant's submissions on the grounds.

Counsel submitted on grounds one and two concurrently. Counsel averred that the matter before the Tribunal involved the interpretation of the Court of Appeal orders in Court of Appeal No. 25 of 2009 out of which the respondent had made a tax decision. That the respondent was not making a refund on an overpayment in the ordinary sense of the word, it was making a payment that arose out of a court order against the respondent's own wrongful interpretation of the Third Schedule of the VAT Act in 2007. Counsel emphasised that the grammatical meaning of the word should align with the context of the legislation in which it lies. Counsel cited the case of Fuelex (U) Ltd Vs Uganda Revenue Authority Constitutional Petition No. 3 of 2009.

Counsel submitted that the Tribunal in TAT Application No.17 of 2007 found that the exports services of the then applicant should not have been subjected to VAT and therefore the respondent was to refund the money paid by the appellant. That the respondent's action to retrieve the due amount it had paid to the appellant by Court order is not same as a repayment or a refund and neither was it a late refund. Counsel relied on Section 44(4) of the VAT Act and stated that the money $\frac{1}{2}$ $\frac{1}{3}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ $\frac{1}{2}$ collected, the interest was as a result of TAT Application No. 17 of 2007, upheld

by High Court in Civil Appeal No. 13 of 2008 and Court of Appeal No. 25 of 2009.

Regarding the third ground, counsel submitted that Section 44(5) of the VAT Act is not applicable in this case as it applies to interest due and payment on overpayments and late refunds. That the matter at hand was premised on the respondent's wrongful collection of monies from the appellant's accounts. Counsel cited Black's Law Dictionary 8th Edition at page 116 which defines a payment as the; performance of an obligation by the delivery of money or some other valuable thing accepted in partial or full discharge of the obligation. An overpayment is a payment that is more than the amount owed or due.

Counsel further submitted that Section 44(5) of the VAT Act, on capping of interest does not apply to the instant case as this case does not fall under the overpayments and late refunds envisaged under section 44. That without prejudice, even if section $44(5)$ of the VAT Act was applicable, it can only affect interest on overpayments and refunds made 1st July 2018, when the provision came into force. Counsel relied on Article 92 of the Constitution. He cited the case of Wainwright Vs Home Office 2002 QB1334 where it was held that; the general presumption is that legislation should not be treated as changing the substantive law in relation to events taking place prior to it coming into force. Also, case of Alcon International Limited Vs Standard Charted Bank of Uganda and 2 ors Reference No.6 of 2010, where the East African Court of Justice held that "...a law cannot apply retrospectively unless a different intention is expressly mentioned in the law. Non-retrospectivity is a strong objection. When it is upheld, it disposes of the case there and then." Counsel also cited the case of Male H. Mabiirizi Kiwanuka Vs Attorney General CA No. 3 of 2018.

Counsel further averred that when the Court of Appeal dismissed Respondent's $\gamma$ appeal, in law, the High Court decision and orders remained valid and since the High Court upheld the decision of the Tax Appeals Tribunal, the orders of the

Tribunal remain enforceable. Therefore, the learned members of the Tribunal erred in law when they applied Section $44(5)$ which commenced in 2018 to a matter where interest was awarded in 2008 by a court order.

On ground 4, counsel argued that the respondent in his letter dated 11th July 2019 stated that pursuant to the decision of the Court of Appeal, the amount refundable was Ushs. 5,590,114,964. That the appellant agreed to the figures in its letter of 12th July, 2019 and payment was made. That on 16th August 2019, the respondent, without any assessment issued agency notices for Ushs. 5,028,000,450 to the appellant's bankers and collected Ushs. 4,105,362,665 on top of Ushs. 1,589.810,931 already paid as income tax. That the members of the Tribunal erred in law when they held that the respondent was entitled to a refund of 922,637,797/= in disregard of the evidence on computations.

Regarding ground 5, counsel submitted that by dismissing the respondent's appeal by the Court of Appeal, the only logical conclusion is that the findings of the High Court were found true, uninterrupted and would still stand. That the High Court upholding the Tax Appeals Tribunal's ruling and the subsequent dismissal of the appeal by the Court of Appeal meant that the orders of the TAT Application No. 17 of 2007 remained in force. Counsel relied on the case of John Imaniraguha Vs The Commissioner General, URA and Attorney General (Constitutional Petition case No. 37 of 2012), citing Hadkinson Vs Handkinson [1952]2 ALL ER 567 (CA) where Romer LJ held that; ".....it is the plain and unambiguous obligation of every person against or in respect of whom an order is made by a court of competent jurisdiction to obey it unless and until it is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by an order believes it to be irregular or even void." Counsel concluded stating that the Tribunal erred in holding that the decisions of the Tax Appeal Tribunal and that the High Court were not upheld by the Court of Appeal.

Counsel submitted on ground 6 that; the Tribunal relied on the case of Airtel Uganda Ltd Versus The Commissioner General URA CA No. 40/2013. Where it was stated that a person who has objected to a tax assessed, appealed against it, paid 30% of the assessed tax, paid interest on arrears cannot be penalised for having sought redress by the TAT. Counsel argued that the law protects a person from penalties during the period of dispute resolution.

That the Tribunal in its ruling observed that the decision of the Court of Appeal was made on the 28th of May 2019, the interest had escalated to Ushs. $5,309,057,251$ which was twentyfold. That denying the appellant interest on ground of it being so excessive appearing to be penalizing the respondent and claiming that it amounted to injustice meant that the Tribunal measured justice basing on how much the appellant ought to receive. Justice should not be measured in numbers or figures. Counsel concluded that it was wrong for the Tribunal to hold that awarding the appellant interest amounting to Ushs. $5,028,000,450$ would be penalising the respondent for the period the dispute was in resolution.

Submitting on ground 7, counsel averred that the principle of the law is that an award of interest is discretionary. Counsel cited the Bank of Baroda Vs Wilson Buyonja Kamuganda SCCA No. 10 of 2004 where court held that where there is no agreement between the parties as to the interest rate payable, the award of interest by court is discretionary and that the discretion must be exercised judicially. Counsel also cited the case of Sietco Vs Noble Builders (U) Ltd SCCA No.31 of 1995 where their lordships cited with approval Lord Denning's holding on the law on award of interest in the Harbutt's Plasticine Ltd Vs Wayne Tank and Pump Co. Ltd (1970) 1QB 447 where his lordship held that; an award of interest is discretionary. It seems to me that the basis of an award of interest is that the defendant has kept the plaintiff out of his money and the defendant has had the use of it himself. So, he ought to compensate the plaintiff accordingly.

Counsel further cited the cases of Mukisa Biscuit Manufacturing Co. Ltd Vs West End Distributors Ltd No. 2 1970 EA 469, JK Patel Vs Spear Motors Ltd SCCA No.4/91 and India in Union of India Vs Tata Chemicals Ltd CA No. 6301 of 2011. Counsel added that according to the authorities, the appellant was entitled to interest since it was kept out of use of its money by the respondent. That the award of interest by the Tribunal in TAT Application No. 17/2007 was never overturned by the High Court nor the Court of Appeal. Counsel contended that the Tribunal erred in law when they held that the interest accrues from the date of judgment of the Court of Appeal.

Appellant's submissions on the cross-appeal.

Counsel relied on Section 21(6) of the Tax Appeals Tribunal Act which empowers the Tribunal to award damages, it provides; a Tribunal may make an order as to damages, interest or any other remedy against any party, and the order shall be enforceable in the same manner as order of the High Court. That the Tribunal made a finding that the respondent's issuance of third-party notices was improper. That the respondent was therefore penalized in general damages of 20,000,000/= for issuing agency notices on the appellant's banks and collecting monies without proper procedures. Counsel prayed that court finds that the Tribunal exercised its discretion judiciously when they awarded general damages of 20,000,000/ $=$ to the appellant.

#### Respondents submissions on the grounds of appeal.

Counsel for the respondent asserted that the grounds as raised by the appellant are unnecessarily wide and not informed by the real issues in controversy at the Tribunal. Counsel proposed three issues instead;

- $i)$ whether the Tax Appeals Tribunal erred in law in holding that the respondent was entitled to collect/recover Ushs. $5.028,000.450$ from the appellant? - ii) whether the Tax Appeals Tribunal erred in holding that the respondent was still entitled to recover Ushs. $922.637.797/$ = - iii) whether the Tax Appeals Tribunal erred in law in awarding the appellant's general damages?

Counsel argued that the respondent was entitled to recover the excess sum paid to the appellant as interest and the Tribunal was right in its holding. That a similar matter was considered by Hon. Justice Stephen Mubiru J in the case of The Commissioner General, URA Vs Edulink Holdongs Ltd, Stanbic Bank (U) Ltd Diamond Trust Bank Ltd, Civil Appeal No. 0178 of 2021. That in that case court dealt with a matter where the 1st respondent had attached the appellant's (URA) bank accounts held in the two banks, purporting to recover interest on a tax refund, over and above interest capped by law. The 1st respondent had succeeded in a suit to recover VAT of Ushs. 392,168,204/=. URA paid the amount and computed interest which it capped at the same amount. Edulink proceeded to execute for the balance. The Registrar of the Court had allowed execution, prompting the appeal by URA.

Counsel further contended that Justice Mubiri gave a deeper exposition of Section 44(5) of the VAT Act and held that the same applied to the particular matter. Court held that the interest payable to Edulink was properly capped by law and the argument that the law was being applied retrospectively was rejected. Counsel invited court to apply the Edulink's case.

Counsel submitted that it is true that the respondent computed interest refundable instead of capping it to the principal sum of Ushs. 281,057,251, meaning the interest should have also been Ushs. 281,057,251. That the grand total refundable to the appellant should have been Ushs. 562,114,502 but instead the respondent in error, refunded Ushs. 5, 590,114,964/=. That the respondent could not allow taxpayers money to be lost and neither could the Tribunal. Counsel relied on the case of Makula International VS His Eminence Cardinal Nsubuga & Anor CA No. 4 of 1981 and Belvoir Finance Co. Ltd Vs Harold G. Cole Ltd [1969] 2 ALL ER 904 at page 908.

In response to the appellant's arguments that the Tribunal erroneously decided that the VAT Act does not define a refund or overpayment and that the money collected by URA was both an overpayment and a refund, counsel asserted that these are semantics. That the VAT act does not define those terms and the Tribunal correctly adopted the literal meaning of those terms. The Tribunal found that this was a case of overpayment.

On ground 3, respondent counsel submitted that the Tribunal was correct to accept that the interest computed ought to have been limited to the principal tax amount under Section 44(5) of the VAT Act. That the law was enacted in 2018 and thus applied to the Court of Appeal Decree which was issued in 2019. Counsel argued that the VAT law should be read as a whole and not in isolation or piecemeal. That the complaint about the retrospective effect of $S.44$ (5) was ably discussed by Mubiru J in the Edulink precedent which court should adopt as a persuasive authority of this court on the subject.

Counsel further submitted that the arguments about Article 92 of the Constitution is misplaced. The Parliament did not make a law to overturn any court decision while enacting Section 44(5) of the VAT Act. The subsection was made in 2018 and the last decision in URA Vs Fresh Handling was by Court of Appeal in 2019. That the authorities cited by the appellant on retrospectivity of the law are inapplicable.

Regarding ground 4, respondent counsel contended that there is no justification for the appellant holding money it is not entitled to. The appellant was paid in

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excess of the due interest amount; therefore, it cannot be allowed to unjustly enrich itself with Government money at the expense of Ugandan taxpayers. Counsel added that following the dismissal of URA's appeal by court of appeal, interest had to be computed on that tax refund amount but interest had to be capped. URA did not cap, in error and sought to recover the excess but partially succeeded. Thus, the Tribunal stated and captured the correct figures.

While arguing grounds 5, 6 & 7, respondent counsel respectively submitted that these were not serious grounds on issues framed by the Tribunal. The complaint that the Tribunal held that the Court of Appeal in URA Vs Fresh Handling Ltd did not uphold interest award, is misplaced. The ground has no substance and does not affect the overall conclusion of the Tribunal which is sound and supported. The Tribunal did not purport to upset the decision of the Court of Appeal and did not purport to hold that no interest was at all payable to the appellant, following the Court of Appeal final decision and orders.

Counsel further contended that the Tribunal was not dealing with a constitutional matter but while reasoning in respect to Section 44(5) of the VAT Act, the Tribunal correctly applied the principles on fair play. On the issue that the Tribunal held that interest accrues from the date of judgment of the last Court which settles the matter. Counsel concluded by praying that the decisions and orders of the Tribunal are upheld by this Court with costs of this court.

Respondent's submissions on the cross appeal.

$\overline{a}$

Counsel averred that the Tribunal awarded general damages $of$ Ushs.20,000,000/ $=$ to the appellant/respondent to the cross-appeal which was done in error. Counsel relied on the case of Crown Beverages Limited Vs Sendu [2006]2 EA 43 where court held that an *appellate court will not interfere with the* $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{F}$ $\mathcal{$ principles of law or the amount awarded was so extremely high or very low as to

make it an entirely erroneous estimate of the damage to which the Plaintiff is entitled. The amount of general damages which a plaintiff would be awarded was a matter of discretion for the court.

Counsel argued that the discretion has to be exercised judiciously. Counsel relied on Shah Vs Mbogo and Anor [1967] EA 116. Counsel also cited Ms Fang Min Vs Belex Tours & Travel Ltd, SCCA No. 6 of 2013 where court held that; therefore, the correct of the law is that while an issue or ground of illegality or fraud not raised in the lower court, may be raised on appeal, the parties must be given an opportunity to address court on it before the court makes a decision. Even where a Judge wishes to consider an issue after hearing has concluded, the *judge must give the parties an opportunity to address court on the same.* Relating to the said decision, counsel submitted that the award of damages was wrong because the appellant neither pleaded nor prayed for general damages in its application for review before TAT. That parties never addressed the said issue and no evidence was adduced to support it. That the Tribunal denied the crossappellant an opportunity to submit on the matter of damages which defeats Article 28 & 44 of the Constitution on right of fair hearing. Counsel concluded that whereas the Tribunal found that using agency notices was not the correct mode of recovering the interest paid in error, the Tribunal did not offer the best efficient mode available to the cross appellant, counsel prayed that the cross appeal is allowed and the award of general damages is set aside with costs of the cross-appeal.

### Appellant's submissions in rejoinder.

$\mathcal{A}\mathcal{B}$

In rejoinder to the respondent's arguments, counsel submitted that the case of $\frac{1}{2}$ Edulink is distinguishable from the instant matter; that in that case, the respondent had made an application for VAT refund on the basis that the plant, machinery and consultancy services in issue qualified for tax exemption. While, the instant

case, the appellant in TAT Application No.17 of 20017 was challenging wrongful collection of its money by the respondent through agency notices.

Counsel further argued that the Edulink's case, judgment in the main suit was delivered on 20th August, 2019, 12 months after the law on capping of interest had been enacted by the VAT (amendment) Act, 2018. The law on capping was enforceable since the commencement date preceded the judgment while in this case, the ruling of the Tribunal was delivered in August 2008 and decree extracted on 26th August 2008. The appellant's rights had been established and the decision was never overturned by the appellant courts but rather upheld. The amendment to the Act only commenced on 1st July 2018, 10 years after the judgment had been passed, interest at this point had already accumulated. Counsel concluded that the Edulink case is distinguishable from the instant case.

Counsel further submitted that the matter before the Tribunal involved the interpretation of the Court of Appeal orders out of which the respondent had made a tax decision, therefore, the respondent was not making a refund on an overpayment, it was making a payment that arose out of the court order against the wrongful interpretation of the Third Schedule of VAT Act in 2007. Counsel reiterated his earlier submissions.

#### **Resolution of the Appeal**

I have carefully considered the court record, the parties' submissions, the law and authorities relied on by counsel. I have also had due regard to the law and authorities not cited by the parties but relevant to the determination of the present appeal.

## Duty of Court.

It is trite law that an appeal is a creature of statute. Section $27(2)$ & (3) of the Tax Appeals Act establishes this court's duty at this stage;

(2) An appeal to the High Court may be made on questions of law only, and the notice of appeal shall state the question or questions of law that will be raised on the appeal.

(3) The High Court shall hear and determine the appeal and shall make such order as it thinks appropriate by reason of its decision, including an order affirming or setting aside the decision of the Tribunal or an order remitting the case to the Tribunal for reconsideration.

While considering the points of law, this Court has a duty to determine whether the Tribunal while making its decision misapplied or misapprehended of the law, if it got the relevant law wrong or applied it wrongly in arriving at its decision. See: Lubanga Jamada Vs Dr. Ddumba Edward CA No. 10 of 2011.

At the hearing before the Tribunal, both parties opted not to call any witnesses but ably relied on their submissions. I agree with respondent's counsel, the grounds are unnecessarily wide. Slightly differing from the issues proposed by respondent, I have established that the main issues to be considered herein are: Whether the interest should be calculated and capped under Section 44(5) of the VAT Act as amended? Whether the Tribunal erred in law when it held that the respondent was entitled to recover Ushs. 922,637,797/= and whether the Tribunal erred in law in awarding the appellant general damages? While I resolve these issues, the grounds of the appeal will be determined;

# Whether the interest should be capped under Section 44(5) of the VAT Act as amended?

The genesis of this issue emanates from the application TAT Application No. 17 of 2007 filed by the appellant against URA. The Tax Appeals Tribunal heard the matter and it decided in favour of the appellant. The respondent appealed to the High Court in Civil Appeal No. 13 of 2008 and the High Court upheld the

decision of the Tribunal. Subsequently, the respondent appealed to the Court of Appeal in Civil Suit No. 25 of 2009 and the same was dismissed with costs. Following the Court of Appeal orders, the respondent agreed to refund the appellant a sum of Ushs. 5,590,114,964/=, which it did. However, in a space of one month, the respondent issued agency notices for Ushs. $5,028,000,450/=$ to the appellant's bankers and collected Ushs. $4,105,362,665/$ =. The appellant being dissatisfied, appealed to the Tax Appeals Tribunal in TAT Application No. 83 of 2019 and the Tribunal held in favour of the respondent.

It was the respondent's contention that the computation of Ushs 5, 590, 114, 964/ $=$ was discovered by URA to have been erroneous reason being that when URA calculated, it did not cap the interest to the principle as per the Section 44(5) of the VAT law. That URA ought to have refunded the principal tax UGX 281,057,257 and the interest of the same amount being UGX 281,057,257 making a total of UGX 562,114,514/ $=$ .

In its ruling, the Tribunal found that the Court of Appeal decision was silent on the award of interest, in the circumstances, the relevant statute applied which is Section 44 of the VAT Act. That the last decision in matter was made by the Court of Appeal on 28th May 2019, therefore the interest ought to have been calculated from that date and capped under Section 44(5) of the VAT Act.

At the Tribunal, the appellant argued that S.44(5) of the VAT Act came into force on 1st July 2018, it could not apply retrospectively since the decision of the Tribunal was made on 28th July 2008. The Tribunal observed that; "the decision of Court of Appeal which handled the matter last should be considered. The said $\bigvee$ of Court of Appeal which handled the matter last should be considered. The said $\bigvee$ $\bigvee$ $\bigvee$ $\bigvee$ $\bigvee$ $\bigvee$ $\bigvee$ $\big$ of Court of Appeal which handled the matter last should be considered. The said as the last decision was made after the Section had come into force."

> According to section 44 (1) of The Value Added Tax Act, provides as follows: 44. Interest on overpayments and late refunds.

Where the Commissioner General is required to refund an amount of tax $(1)$ to a person as a result of a decision of the reviewing body, he or she shall pay interest at a rate of five percentage points higher than the prevailing official bank rate of the Bank of Uganda on the amount of the refund for the period commencing from the date the person paid the tax refunded and ending on the last day of the month the refund is made.

That section was amended by The Value Added Tax (Amendment) Act, 2018 by way of inserting section 44 (5), which came into force on 1st July, 2018 providing as follows; (5) *Notwithstanding sub-sections (1), (2) and (4) the interest due and* payable on over payments and late refunds shall not exceed the principal tax.

Given that there is an earlier decision by the Tax Appeals Tribunal on 2nd day of July 2008 that was upheld by the High Court on 22/09/2008 before the insertion of Section 44(5) and consequently a Court of Appeal decision on the 28th May 2019 after the amendment that capped the interest to the principal, the issue of retrospectivity was argued at the Tribunal and at this appeal. The respondent counsel has firmly invited this court to the decision of The Commissioner General, URA Vs Edulink Holdings Ltd (Supra), that section 44 (5) should be applied retrospectively.

I find it expedient to briefly lay the facts of the Edulink case, they are that; Edulink Holdings on 28th January, 2015 sued URA for recovery of Shs. 392.168,204/= being money paid in taxes over a period of two years in respect of plant, machinery and supplies used in education and health sectors in respect of $\frac{dV}{dS}$ which were VAT exempted under the law. URA denied the claim, stating that for the respondent's services to be tax exempt, they must be of a type that is peculiar to education and health sectors which were not. Judgment of court was delivered on 20th August, 2019, the appellant URA was ordered to refund 392, 168,204/= unlawfully collected as VAT since the items were exempted. Court also awarded interest of 2% per month from 18th November 2012, until payment in full. Following the decision, URA made computations and capped the interest payable. Being dissatisfied with the computation, Edulink sought additional accumulated interest contending the total as at $7/11/2019$ was 2,069,601,866/= yet URA only paid 784,336,408/= that the interest had since accumulated to $1,536,011,198/$ =, and also claimed taxed costs of the suit. URA opposed the computation that it offended Section $44(5)$ of the VAT. One of the issues in the Edulink case was whether court should consider the law at the time of Judgement or at the time of filing. Court held that;

The Value Added Tax (Amendment) Act, 2018 is a remedial statute to the extent that it was designed to correct an existing law, redress an existing grievance, or introduce rules conducive to the public good. Remedial Statutes are those statutes which provide the remedy for a wrongful act in the form of damages or compensation to the aggrieved party but do not make a wrongdoer liable for any penalty. Considering that the mischief for which the Legislature was providing a remedy was a presently existing evil which the Legislature proposed to cure by making the right to recover interest to be capped at an amount not exceeding the principal tax, I am of opinion that this rebuts the presumption that the amendment was intended only to be prospective in its operation. Once rebutted, an amendment, though affecting substantive rights, applies retrospectively (barring any impediment of a constitutional nature) and so can affect existing proceedings.

Court further observed that; ... "intention of the Legislature in enacting section 44 (5) of The Value Added Tax Act is plain; it was intended to cap the maximum interest recoverable on a refundable tax credit at the value of taxable person's *Interest recoverable on a refundable tax credit at the value of taxable person's* refundable tax credit that exceeds tax liability. Interest may be awarded only to $\mathcal{N}$ the extent permitted in the taxing statute. At force, establishment of the respondent's right to a refund was contingent upon the court finding in its favour, therefore only a contingent interest was held prior to the decision."

Court continued to state that; "when a remedial statute is amended or repealed before a final judgment is entered in the pending suit, the court will apply the law in force at the time of the decision. Although the suit was filed on $28^{th}$ January, 2015 the decision on the refund was not made until $20th$ August, 2019. The right to a refund involved was inchoate until then and it can therefore be said that the amendment of the law is not being applied retrospectively. Having considered the statutory purpose and context of the amendment and since provisions which affect existing rights prospectively are not retrospective, the presumption against retrospectivity does not apply to this case. By the time the respondent's claim crystallised by the judgment of $20th$ August, 2019, section 44 (5), of The Value Added Tax Act, which came into force on 1st July, 2018, was the law applicable and it affected that decision prospectively."

I have greatly appreciated the findings of my brother Hon. Justice Stephen Mubiri, and I concur with his conclusion. However, I find that the Edulink case is clearly distinguishable from the instant case.

In the instant case, the parties were before the TAT in July, 2008. The Tribunal held that:

- $i)$ The services provided by the applicant (the appellant herein) constitutes an export service. - The VAT assessments of Shs. $147,178,711/=$ for the period of June ii) 2000 to August 2003 and Shs. 133,878,540 for the period of December 2005 to June 2006 be vacated. - iii) The funds of the applicant were unlawfully collected from the bank and should be refunded with interest from the date of issue of the agency notice. - The costs of the application be paid to the applicant. $iv)$

$\frac{c^{2}}{113^{22}}$

On appeal by URA from the above decision, the High Court in 2008 decreed that:

- $i$ The services rendered by the respondent which were the subject of the audit by the appellants for the periods June 2000 to August 2003 and December 2005 to June 2006 constituted an export of a service which attracted VAT at Zero rate prior to June 2006. - $ii)$ The respondent exported services from Uganda which should not have been subjected to VAT within the meaning of the law prior to the 2006 amendment. - iii) Under Section 14(1) of the Value Added Tax Act, a supply occurs on the issuance of a tax invoice and until then tax liability does not arise because no tax point for VAT liability. - $iv)$ The decision of the Tax Appeals Tribunal is upheld. - $v)$ The Appeal is dismissed with costs.

On further appeal by URA, the Court of Appeal in 2019 held:

- $i)$ The respondent's services were exports within the meaning of Paragraph 2(b) of the Third Schedule to the VAT Act. - $ii)$ The Amended of the VAT Act in 2006, by substitution of Paragraph 2(b) did not exclude other persons who previously were not exclusively engaged in handling goods for export. - iii) The application of Section 14(1) of the VAT Act, was not an issue in the Tribunal and reference to it in the High Court was obiter dictum. - $iv)$ The appeal is dismissed with costs to the respondent.

The appellant's right of interest was created by the decision of the Tribunal, it was further crystallised by the judgment of the High Court, upholding the same. $\mathcal{V}$ The respondent counsel in his submissions conceded that the effect of the Court of Appeal decision is that the High Court decision and the decision of the Tribunal were upheld by the Court of Appeal.

It is trite law that a decision of court is binding until it is set aside or overturned. The question of interest was never before Court of Appeal and section 44(5) of the VAT Act had not yet come into force at the time of filing the appeal. The Court of Appeal never set aside the decision by the High Court, it in fact dismissed the Appeal with costs.

In the same decision of URA Vs Edulink & Anor, Justice Mubiru made a finding, to which I agree, with regard to circumstances such as in the instant case when he stated that; "... The final relief necessary for a vested right occurs when the award is final and any appeals have been concluded by a final judgment. Therefore, the respondent's right to a refund was not vested because it had not been reduced to a final judgment before the amendment to section 44 of The Value Added Tax Act. Until judgment is entered and the appellate process or other proceedings are completed, the matter is not final, and there is no vested right... Where the legislature has conferred a remedy and withdraws it by amendment or repeal of the remedial statute, the new statutory scheme may be applied to pending suits without triggering retrospectivity concerns. Only in those cases in which the decision on the refund was final before the amendment would the parties be able to enforce the award, for which reason a subsequent amendment would not operate to prejudice that vested right. "(emphasis is mine).

In this particular case, the right in interest was established in the Ruling by the Tribunal, the High Court appeal confirmed the same before the 2018 VAT law amendment and consequently the Court of Appeal dismissed the appeal and it never set aside the rights of interest established by the lower Court. Therefore, the interest still accrued against the respondent. While Section 44(5) of the VAT is a remedial law, it was never the intent of the legislature to alter already existing rights established by court. Article 92 of the Constitution of the Republic of Uganda is to the effect that; Parliament shall not pass any law to alter the

decision or Judgment of any court as between the parties to the decision or Judgment.

Consequently, in relation to the above, the accumulated interest from the date of issuance of the first Agency Notices (22nd January 2007) is not subject to Section $44(5)$ of the VAT law, because the decision on the refund had been made by the Tribunal and was not overturned by the Appellate Courts and as such the right in the said interest was already vested in the appellant.

## Issue 2: Whether the Tribunal erred in law when it held that the respondent was entitled to recover Ushs. 922,637,797/=?

In pursuant to the Court of Appeal decision, the respondent did its computation and paid UGX 5,590,114,964 to the appellant as the principal amount plus the accumulated interest over the years. The respondent says that the payment to the respondent was done in error because the interest ought to have been capped on the principal in as per Section 44(5) of the VAT law as amended. That it ought to have only paid UGX. 562,113,514/= It then issued Agency Notices to the appellant's bank to recover the excess of $5,028,000,045/$ = but only succeeded at recovering 4,105,362,665/= instead, leaving a balance of UGX 922,637,380/=, The Tribunal ordered the appellant to pay that balance.

Section 42 (1) of The Value Added Tax Act, provides that, for any tax period, a taxable person's input tax credit exceeds his or her liability for tax for that period, the Commissioner General shall refund him or her the excess within one month of the due date for the return for the tax period to which the excess relates. or within one month of the date when the return was made if the return was not made by the due date. section 42 (3) to (5) of The Value Added Tax Act, provide that a person may claim a refund of any output tax paid in excess of the amount of tax due under this Act for a tax period. In such cases, the taxable person is

$\frac{d}{dx}$

entitled to a refund immediately the Commissioner General is satisfied that the person has paid an amount of tax in excess of the amount of tax due.

I would not regard the respondent's payment as an over payment under the VAT Act as proposed by the Tribunal.

The statutory provisions under section 42 to 44 on overpayments refunds and thereon confer rights to the tax payer, the provisions do not relate to these unique circumstances where the Commissioner claims to have sent money in error. I have already established from issue 1 above that section of the 44(5) VAT Act as amended does not apply to the appellant's circumstances, therefore, claims of error on the basis that the interest was not capped are invalid. The Tribunal's finding on the balance of UGX 922,637,380/ $=$ was therefore in error.

Whether the Tribunal erred in law in awarding the appellant general damages?

This was in form of a cross-appeal by the respondent. He contended that the award of damages was wrong because the appellant neither pleaded nor prayed for general damages in its review before the TAT.

Before it awarded general damages, the Tribunal observed that; "...though the respondent did not recover the monies properly, the Tribunal will not order that it refunds it. Because two wrongs do not make a right. However, the Tribunal will penalise the respondent in general damages. The applicant did not adduce evidence to show what general damages it suffered. However, the Tribunal will use its discretion and award general damages of Shs. 20,000,000/=."

The Appellate Court can only interfere with the quantum of damages awarded if in assessing the damages, the Tribunal took into account an irrelevant factor, or $\frac{1}{3}$ test out an account of a relevant one, or that, short of this, the amount is so inordinately low or so inordinately high that it must be a wholly erroneous

estimate of the damage. (See: Lukenya Ranching and farming Co-operative Society Ltd versus Kavoloto, [1979] EA 414.

It is trite law that general damages are awarded to put a given party in the position they would have been in had the breach not occurred and the same are not meant to enrich the party to whom they are being awarded. In my opinion, the Tribunal intended to punish the respondent, which is not the purpose of general damages. These should have been punitive damages which are awarded to serve as a punishment to a party so that he does not repeat the same mistake. The Tribunal awarded general damages based on wrong principle. On this basis I find that the Tribunal erred in law to grant general damages to the appellant.

With regard to costs, the appellant prayed for costs of the appeal and the respondent also prayed pr costs of the cross appeal. Since costs follow the event under Section 27(2) of the Civil Procedure Act and this court has found merit in both the appeal and cross appeal each party will bear its own costs.

In conclusion, this appeal succeeds and Judgment is entered in favour of the appellant and the following orders are made;

- $i)$ The decision of the Tax Appeals Tribunal in TAT Application No. 83 of 2019 is overturned. - ii) The Respondent is to refund the Appellant the sum of UShs. $4,105,362,665$ – that it had recovered unlawfully. - Each party is to bear its own costs. $iii)$

It is so ordered.

Malant

CORNELIA SABIITI KAKOOZA **JUDGE**

$Date: \frac{21}{23}$