R v The Commissioner General of the Malawi Revenue Authority ex parte The Pankunvar Will Trust (Judicial Review 2 of 2019) [2019] MWHC 135 (9 August 2019)

ARCS a A tay Met ee, = oy i HIGH COU, ; OPIS ORT NE Niet tins ory IN THE HIGH COURT OF MALAWI PRINCIPAL REGISTRY REVENUE DIVISION JUDICIAL REVIEW CAUSE NO. 2 OF 2019 BETWEEN THE STATE AND THE COMMISSIONER GENERAL OF THE MALAW!I RESPONDENT REVENUE AUTHORITY EX-PARTE THE PANKUNVAR WILL TRUST CLAIMANT (ALSO KNOWN AS DOSSANI TRUST). CORAM: THE HONOURABLE JUSTICE JOSEPH CHIGONA MR. SAUTI PHIRI & MS. MASANJALA, OF COUNSEL FOR THE APPLICANT MR. KAMBUMWA, OF COUNSEL FOR THE RESPONDENT MR FELIX KAMCHIPUTU, OFFICIAL COURT INTERPRETER “4 JUDGMENT INTRODUCTION This is an application brought by ‘The Pankanvur Will Trust (also known as Dossani Trust) (herein referred to as the Claimant) for judicial review of decisions of the Commissioner General of the Malawi Revenue Authority (MRA) hereinafter the Defendant. The decisions which the Applicant are seeking this Court to review on which their reliefs are sought as set in the Form 86A are as follows: 1. Failure to submit a reply to the taxpayer’s grounds of appeal to the Special Arbitrator within 42 days of receiving the Appellant's ground of appeal as is required by law, which failure still subsists; The decision by the Commissioner General of the MRA to apply interest to a tax amount before the tax is actually payable. The decision by the Commissioner General of the MRA to calculate interest using the formula IR=N (0.75+0.25 (n-1), which is not in the Taxation Act. The decision by the Commissioner General of MRA to apply pre-2016 provisions of the Taxation Act to tax years 2016, 2017 and 2018. The decision by the Commissioner General of the MRA to calculate interest on both the tax due and the penalties, contrary to the law. The reliefs sought by the Applicant in form No. 86A in application are as follows: this judicial review 1. A declaration that the Commissioner General’s failure to reply to the Appellant's grounds of appeal is unlawful: A declaration that the Commissioner General's decision to claim interest before tax is due and payable is unlawful: A declaration that the Commissioner General's decision to calculate an interest rate formula not contained in the Taxation Act is Unlawful; A declaration that the Commissioner General’s decision to apply pre- 2016 provisions of the Taxation Act to tax years 2016, 2017 and 2018 was unlawful; A declaration that the Commissioner General's decision to calculate interest on both the tax due and the penalties was unlawful: A mandatory order requesting the Commissioner General to file a reply to the said Applicant's grounds of appeal; 7. An order similar to certiorari quashing the decisions by the Commissioner General of the MRA to: (a) claim interest before tax is due; (b) to use an interest formula not contained in the Taxation Act; (c) apply pre-2016 provisions to 2016 provisions to 2016, 2017 and 2018 tax years; (d) to calculate interest on tax and penalties combined: 8. Further or other relief; and 9. An order for costs. FACTS OF THE CASE On 215t September 2015, the Claimant lodged an appeal to the Special Arbitrator against a decision of the Malawi Revenue Authority for MK77,98,761 tax and MK20,970,992.85 penalties in relation to interest income. On several occasions the Claimant reminded the Commissioner General that it is required to file its Reply with the Special Tax Arbitrator. The last reminder was by email dated 8" April 2019. The appeal on merits is unable to commence because of the absence of a reply from the Commissioner General. By letter dated 17' January 2019, the Claimant received a final demand notice from the respondent, threatening enforcement, the total tax demanded was MK760,565,044 which was made of MK539,407,844 for tax and penalties and K221,158,200 for interest. Of this amount, tax accounts for MK539,407,844 did not become payable at the same time as it covered five years ending, from 30 June 2014 to 30 June 2018. In the letter to the Commissioner General dated 18° March 2019 the Claimant protested and brought to the Commissioner General's attention that there were errors in the calculation of interest totaling MK221,157,200 and requested his consideration of deferring this portion, the Defendant has refused or ignored the request. It is against this background that the Applicant applied to this Court for leave to apply for judicial review. THE APPLICANT'S CASE 10, Box Blantyre who told The Applicant filed a sworn statement in support of the application for judicial review. The sworn statement was deponed by Mr. Hari Prakash Jivan Kanabar of a businessman and P. O. philanthropist, and trustee September 2015, the Applicant lodged an appeal to the Special Arbitrator against a decision of the Commissioner General of Malawi Revenue Authority. Mr. Kanabar then told this Court that he was reliably informed by his tax advisers that this of Dossani Trust the Applicant herein. On court that he is the appeal before the Special Arbitrator has not been processed yet because the Commissioner General has not filed a reply to the grounds of appeal. He also depones that he was reliably informed that the deadline to file the reply had expired long time ago. It was also the testimony of Mr. Kanabar, that his tax advisor known as Mr. Kelvin Carpenter had personally inquired with Malawi Revenue Authority, and his latest inquiry was an email dated 8th April 2019. The from total threatening enforcement. final demand notice the Applicant received a In the same sworn statement Mr. Kanabar submits to the Court that on 17th January 2019, the respondent, amount demanded is MK760,565,044 out of which MK 539,407,844 was for tax and penalties and MK221,157,200 was for interest. While the interest charge contained in the final demand was MK221,157,200 this was not the amount that had been charged. The actual amount of interest charged is MK226,551,296.60. Further, Mr. Kanabar deponed that the amount of MK539,407,844 contains two errors which are not taxation claimed by the respondent. The first error is about two refunds paid to the Dossani Trust of MK320,829 paid on 15% February 2006 and MK3,190,130 paid on 8'© March 2006 totaling MK3,510,959. On 26h March 2019, the respondent issued a further assessment for MK33,383,181 in respect of the 2017 tax year. After adjusting the refunds and further assessment, the total tax and penalties claimed by the respondent are MK569,280,066 which is made up as follows; as of 12th March 2015 an amount of MK88,256,814 was assessed for the 2014 tax year, on 10" October 2016, it was MK97,116,851.05 for the 2015 tax year; another date of assessment was the 14th February 2018 and the amount was MK108,787,283.97 for the 2016 tax year; the next assessment was on the same date, 14! February 2018 for an amount MK137,774,328.94 for the 2017 tax year and lastly 04tr January 2019 it was MK137,344,787.01 for the 2018 tax year. Mr. Kanabar further told this Court that the Applicant has paid under protest and in good faith the following towards the tax liability under the dispute: 1. MK20,000,000 on 25th February 2019 and exhibited a receipt hereto marked as “HK 9”; 2. MK100,000,000 on 31st January as per receipt exhibited and marked hereto as “HK 10”; 3. MK215,319,712.97 on 27!7 March 2019 as per receipt exhibited and marked hereto as “HK 11”. Mr. Kanabar further stated that the MK215 million was the first installment agreed with the respondent as settlement for the tax in dispute in protest pending the appeal. The Commissioner General agreed through the letter dated 26!" March 2019. In another letter dated 18th March 2019, his tax advisers protested and brought to the attention of the Commissioner General the errors in the calculation of interest totaling MK221,157,200 and requested his consideration for deferring this portion, but the Defendant refused or ignored the request. alleged informed this of the of 42% to the Court Mr. Kanabar then Commissioner General applied the the whole balance of rate MK533,896,885 and treats for example the amount of MK137,344,787 (which is the tax for 2018) as if it arose four years earlier. This does result, and has the effect of applying interest to a tax before it existed (and has become due). Secondly, the N rate of 42% used by the Defendant is incorrect because the formula IR (0.75+0.25(N-1)) is not a formula contained in the Taxation Act. There is a schedule of correct interest rates and amounts for the tax years 2014 to 2018, and also an email from MRA dated 5'* March 2019 confirming the use of IR formula. errors. Firstly, = Thirdly, the Defendant applied pre-2016 provisions of Section 105 Section 105(6) of the Taxation Act to the 2016, 2017 and 2018 tax years. The Applicant’s financial reporting and tax reporting year for these years commenced on 15* July and ended on 30 June of the subsequent year. The 2015 Taxation (Amendment) Act came into force on 1st July 2015 and the 2017 Taxation (Amendment) Act came into force on the Taxation (Amendment) Act which has to be applied to the 2016 and 2017 tax years and Section 105(6) of the 2017 Taxation (Amendment) Act which has to be applied to the 2018 tax year. is therefore Section 105(6) 2017. July of 1st It Lastly, the interest provision in both the repealed and the amended Section 105(6) of the Taxation Act requires that interest and penalties are calculated on the amount of tax outstanding, not on the total tax and penalties outstanding. However, the Defendant has calculated interest on both the amount of tax that was due and the penalties. Thus, the Applicant told this Court that the errors of principle in misapplying the interest provisions of the Taxation Act results in an overcharge of MK143,347,302. THE DEFENDANTS CASE The Defendant filed its sworn statement in opposition to the application to the judicial review. The sworn statement in opposition was deponed by Mr. Samuel E. J. Mwale who submits that he is an employee of the Defendant and works as Manager MTO in the Domestic Taxes. In his sworn statement Mr. Chambukira informed this court that on or about the 15!" September 2015, the Claimant filed with the Commissioner General the Notice and Grounds of Appeal in this matter. The Appeal was against MRA's claim for MK77,98,761.00 tax and MK20,970,992.85 penalties in relation to interest income. The appeal herein was filed later than the 30 days period within which the Appellant is required to file the appeal with the Commissioner General. The Appellant, meanwhile, did not seek permission from the Commissioner General for extension of time within which to file the appeal out of time with the Special Arbitrator. Had the Commissioner General granted the extension of time within which to appeal out of time, the respondent was supposed to file the said appeal by 2.4 November 2015. They were however, transfers in the Technical Section of the Domestic Taxes Division where appeals are processed such that there was a lapse on the matter in terms of advising the Appellant on the procedure. and Mr. Mwale further informed this Court that Commissioner for Domestic Taxes (Technical) himself were in constant engagement and had several conversations with the Claimant’s Consultant/Accountant namely Mr. Kelvin Carpenter on this matter and one of the Trustees for Dossani Trust Mr. Harish Kanabar, whereupon both were advised that the respondent will facilitate the application to file the appeal out of time with the Special Arbitrator owing to the lapse of time. In April 2019, the Defendant engaged their legal department on the issue of the Claimant's appeal and the Commissioner General's reply thereto. Mr. Mwale told this Court that he was reliably informed that the Legal Department would commence the court process with the Special Arbitrator and would seek permission to the Special Arbitrator to lodge the appeal out of time. Then Counsel for the respondent made an application before the Blantyre Principal Resident Magistrate Court sitting as Special Arbitrator for extension of time within which to file the appeal on 17'h April 2017, and the same was granted on 9h May 2019. The Special Arbitrator in granting leave to appeal out of time, ordered that the respondent files the appeal within 14 days. Essentially, the Special Arbitrator granted an abridgment of time considering the circumstances herein. Mr. Mwale thus averred that it is clear from the above that the respondent is desirous of disposing this matter by way of Appeal with the Special Arbitrator so that the alternative remedy duly provided for under tax laws is fully pursued so that the matter should be determined on merits, and the respondent has also taken further steps in fulfilling promised undertakings made to the Claimant. It is also clear that the Defendant did not solely occasion delay herein, such that the inordinate delay or failure to file the appeal with the Special Arbitrator was not out of disrespect to the court or the Claimant. The interest of justice demands that this matter should be referred back to the Special Arbitrator for adjudication. There are serious technical issues, which require further investigation. Replying to the sworn statement of the Claimant in support of the Judicial Review application, Mr. Mwale told this Court that the applicable rate on the interest of is true there were errors about the two refunds; 42%, he conceded that indeed it the problem has since been rectified and the interest so charged will change. Further, the assessment stated by the Claimant were duly sent to them and the assessment for this year will have been submitted in May 2019. Mr. Mwale further informed this Court that indeed the Claimant has been paying taxes in good faith and the next payment was due in May 2019. As for the issue of 42% interest charged on all taxes due, the same was duly revised and the issue was rectified. In conclusion, Mr. Mwale told respondent in remained sanctioned by the Laws of Malawi including Section 43 the this case has always been procedurally fair, reasonable and of the the decisions taken by this Court that Constitution of the Republic of Malawi. An application for judicial review should only be granted very rarely against public authorities like the Defendant herein since they embody interest of the public at large - being a creature of statute and hence the representative of the will and intention of the populace. Of course, the interests of the Claimant need to be respected and protected, they however cannot tally with/or override the public interest in the need and utilization of taxes for public amenities by the Malawi Government - the very essence why the Defendant is mandated to collect and account for taxes. The respondent will suffer the harm of not collecting and accounting for the tax liability demanded. In turn, the utilization of the said revenue in this time of dire need for the same cannot be overemphasized. The Defendant cannot be compensated in damages if the application for judicial review herein is in favour of the Claimant and/or order granting permission to move for judicial review is found to have been erroneously granted. In the premises, the application by the Claimant should not be sustained in this Court as there is an alternative remedy whose wheels are already running and which is fit for determining the subject matter on merit such that it would be irregular to maintain parallel proceedings on the same. This Honourable Court should therefore dismiss the application for judicial review with costs. THE LAW AND THE ANALYSIS The starting point is the Courts (High Court) (Civil Procedure) Rules, 2017. Under Order 19 rule 20 provides for grounds in which a person can apply for judicial review: (a) (b) Judicial review shall cover the review of— (1) a law, an action or a decision of the Government or a public officer for conformity with the Constitution; or a decision, action or failure to act in relation to the exercise of a public function in order to determine— (i) (ii) (iii) its lawfulness; its procedural fairness; its justification of the reasons provided, if any; or (iv) bad faith, if any, legitimate where expectation of the applicant is affected or threatened. (2) A person making an application for judicial review shall the matter to which the in freedom, aright, interests interest or have sufficient application relates. (3) Subject to sub-rule (3) an application an application for judicial review shall be commenced ex-parte with the permission of the court. (4) The Court may upon hearing an ex-parte hearing direct an inter-partes hearing. |remind myself that judicial review, as stated in many cases, is aimed at reviewing the decision-making process and not the merits of the decision itself. is important to remember in every case, that the purpose of the remedy of judicial review is to ensure that the individual is given fair treatment by the authority to which he has been subjected, and that it is no part of the judiciary or individual judges for that of the authority constituted by law to decide the matters in question. Thus, a decision of an inferior court or a public authority, may be quashed where the court or authority acted without jurisdiction, or exceeded its jurisdiction, or failed to comply with the rules of natural justice in a case where those rules the Wednesbury sense. The function of the court is to see that lawful authority is not abused by unfair treatment!. are applicable or where the decision is Unreasonable in It Reverting to the present case, the applicant submitted that the failure on the part of the respondent to file grounds of appeal with the Special Arbitrator contrary to Rule 7 of the Rules of Procedure for Appeals contained in the Eighth Schedule to the Taxation Act is a breach of public duty. Rule 7 mandates the commissioner general to lodge the appellant's grounds of appeal and his response with the Special Arbitrator within 42 days of receiving the taxpayer's grounds of appeal. Counsel submitted that 42 days expired on 2 November 2015 and that the applicant has reminded the commissioner general of the same several times with the latest reminder sent on 8 April 2019. In response, the commissioner general admitted that, due to other internal issues, they failed to file the grounds within the prescribed time. To show that they are desirous of resolving the issues, counsel informed the court that they lodged an application with the Special Arbitrator to file the grounds of appeal out of time on 17%h April 2019 and that the order extending time was granted on 9h May 2019. Counsel submitted that the said order of extension mandated them to file the grounds of appeal and reply within 14 days. Rule 7 of the Rules of Procedure for Appeals, as already stated above, states that within 42 days of receiving the taxpayer's grounds of appeal, the commissioner general shall lodge with the Special Arbitrator the taxpayer's grounds of appeal and the commissioner's reply to them. The word used in Rule 7 is “shall” connoting that it is mandatory to do so. In THE STATE -V-THE COMMISSIONER GENERAL OF THE MALAWI REVENUE AUTHORITY, EX-PARTE BANJA LA MISOGOLO LIMITED2, the Court held that the time limits set in Rules of Procedure for Appeals of the Eighth Schedule to the Taxation Act are mandatory and not discretionary. | am of the * JAMADAR-V-ATTORNEY GENERAL [2000-2001] 175, PP 179-180. See also BLANTYRE CITY ASSEMBLY-V- KAM’MWAMBA & 6 OTHERS [2008] MLR 21, P24; COUNCIL OF CIVIL SERVICE UNIONS-V-MINISTER OF CIVIL SERVICE [1985] AC 374. > CIVIL APPEAL NO. 33 OF 2014, MSCA BEING MISC CIVIL CAUSE NUMBER NO. 32 OF 2014., considered view that failure to abide by these Rules is a breach of public duty on the part of the commissioner general. The Rules have specifically given the commissioner general that duty of lodging the grounds of appeal and reply within 42 days. The commissioner general is to comply with this duty at all times to make sure that the taxpayer's concerns are addressed by the Special Arbitrator. In the present case, as admitted by the respondent, Rule 7 was not complied with, hence breach of public duty. However, as submitted by the respondent, the Special Arbitrator, upon application by the commissioner general, granted extension of time within which the commissioner general was to file the grounds of appeal and reply. | am of the view that the Special Arbitrator considered alll factors before him and appropriately granted the order of extension. | do not think that my duty at this point is to tamper with that exercise of powers of the Special Arbitrator. Suffice to mention that through that order of extension, the breach of public duty was remedied. However, such a remedy, in my view must always be granted sparingly as the Rules are mandatory that the commissioner general has to file within 42 days grounds of appeal and reply, failing which, the commissioner general is in breach of his public duty. the applicant. The deponent of On the issue of actions of the commissioner general to apply an interest rate of 42 % to the whole of the tax claimed regardless of the date when tax became due, itseems to me that the commissioner general is in agreement with the observation by the defendant's sworn statement in opposition, Mr. Samuel E. J Mwale, in paragraph 24 states that the issue of 42 % interest charged on all taxes due was revised and thus the issue was rectified. | am of the considered view that the commissioner general is admitting that their actions were not in tandem with the law. The commissioner general is not supposed to charge interest on amounts that were not due. in the said case On the issue of formula for calculating interest, by the insertion of “N”, | repeat what | of CHIBUKU PRODUCTS LTD-V-MALAWI REVENUE AUTHORITY, that Section 105(6) of the Taxation Act stipulates that the final rate of interest shall apply for the whole period during which any tax has remained unpaid. | stated that the final rate of interest using the arithmetic progression is to be taken as covering the whole period. There is no need in my considered view to apply this final rate to the whole as doing so, | reasoned, as did the Special Arbitrator, will be or is unjust to the taxpayer. So, this was settled. On the decision by the commissioner general to calculate interest on both tax due and the penalties being ultra vires and beyond its authority, the starting point is Section 105 (5) and (6) of the Taxation Act (as amended), which provides as follows: > CIVIL APPEAL NO. 26 OF 2015 (UNREPORTED) “If tax is not paid on or before the dates provided in subsections (1), (2) or (3), a penalty and interest shall be charged as prescribed in subsection (6).” Section 105(6) of the Act stipulates as follows: “the penalty and interest referred to in subsection (5) shall be- (i) (ii) An additional sum of 20 per centum of the amount of tax which was due to be paid in the first month or part thereof; and A further interest charged on the outstanding amount of tax at the prevailing bank lending rate plus 5 per cent per annum for each month or part thereof during which the tax remains unpaid, and such additional sums together with the amount of the tax shall be summarily recovered by Commissioner General in his own name: Provided that the Commissioner General may reduce or waive the amount of a such satisfactory explanation for the delay is given.” additional sums if is clear from Section 105 (5) of the Taxation Act that any unpaid tax will attract It a penalty and interest. Section 105(6) provides the calculation formula of the penalty and interest. My reading of these provisions is that the determining factor is the unpaid tax. For the commissioner general to calculate penalty and interest, is does not mention calculation of the unpaid tax is to be used. The law as it interest using both the penalty and the unpaid tax. In other words, interest ought to be calculated from the unpaid tax and not the penalty. Calculation of a penalty and interest on unpaid tax and penalty in my view is incorrect and hence ultra vires. This was also the position before the amendment. On the issue of amendment of a Statute, in this case, the Taxation Act, the applicant contends that once an amendment to the Taxation Act was effected, the respondent was not supposed to use the amended provisions in assessment that followed the amendment. It is the contention of the applicant that the 2015 Taxation (Amendment) Act came into force on 1 July 2015 and the 2017 Taxation (Amendment) Act came into force on July 2017. The applicant therefore submitted that Section 105(6) of the 2015 Taxation (Amendment) Act which has to be applied to the 2016 and 2017 tax years and Section 105(6) of the Taxation (Amendment) Act which has to be applied to the 2018 tax year. | am of the considered view that the applicant has correctly stated the position at law as to the application of laws. The general rule is that laws once enacted (or amended) apply prospectively and not retrospectively. Immediately the 2015 amendment to the Taxation Act came into force on 1 July 2015, its application was to be prospective. The same applies to the 2017 amendment that came into force on 10 1 July 2017. provisions of the Taxation Act to the 2016, 2017 and 2018 tax years is ultravires. | totally agree with the applicant that application of the pre-2016 On alternative remedies, the respondent argued that the applicant did not exhaust all alternative remedies as availed to them in the law. The respondent argued that the issues are to be dealt with by the Special Arbitrator. The respondent submitted that the present proceedings are an abuse of the court process and ought to be dismissed. In response, the applicant submitted that there is no abuse of the court process as the Special Arbitrator has no power to deal with the 1st ground and illegality issues. The applicant referred the court to the decision in STATE AND THE COMMISSIONER GENERAL OF MALAWI REVENUE AUTHORITY, EX-PARTE EASTERN PRODUCE MALAWI LIMITED4. In the case of THE STATE-V-THE COMMMISSIONER GENERAL OF THE MALAWI REVENUE AUTHORITY EX-PARTE AIRTEL MALAWI LIMITED, the court had the following to say: the other matter general considerations, “First, in respect of the Taxation Act this requires the consideration whether, based on the Taxation Act itself and is amenable to appeal procedure. The appeal procedure is only available to where there was assessment of tax and relates therefore to the assessment. The appeal procedure does not apply to the question, like the one presently before this is payable or the tax payer is the one to pay it. That is not an assessment question and is not covered by the assessment procedure coveted here. Consequently, even if the appeal procedure, the Commissioner General and the special arbitrator, who can only deal with tax assessments, were either not properly or adequately handle the matter the basis of the judicial review.” the matter was amenable to the wrong forum or could court, whether certain tax As | reasoned in the EASTERN PRODUCE MALAWI LIMITEDé, applying the reasoning above in the AIRTEL MALAWI LIMITED CASE”, judicial review is not the ambit of the Commissioner General or the Special Arbitrator. A taxpayer is at liberty to commence judicial review proceedings with or without lodging any appeal with the Commissioner General or the Special Arbitrator. In the present case, the issues, in my considered view, are not the ambit of the Special Arbitrator. | do not think that the applicant had to wait for the determination of the Special Arbitrator to 4 Judicial Review Case No 43/2016, HC, Unrep. > Judicial Review No 5 of 2017 ® Supra 7 Supra commence these judicial review proceedings. | therefore hold that the applicant had no any alternative remedies and as such did not abuse any court process through commencement of these proceedings. RELIEFS SOUGHT | grant the applicant the following reliefs: (a)That of the Rule the Commissioner General to lodge with the Special Arbitrator grounds of appeal and reply within 42 days is mandatory. Failure to comply with the Rules especially Rule 7 is illegal. of Procedure for Appeals requiring Rules (b) That the application of 42% interest rate to the whole tax claimed regardless of the date when the tax was due was illegal. The respondent submitted that they took remedial measures and rectified the error. (c) That the insertion of “N" by the respondent in the formula for calculation of interest as contained in the Taxation Act is unlawful. (d) That the calculation of interest on both tax due and penalties is ultravires and beyond the authority of the respondent. The law is clear that interest is calculated on unpaid tax and not on penalties. (e) That laws once enacted or amended do not apply retrospectively (f) That a taxpayer is at liberty to lodge an appeal before the Commissioner General on assessment and at the same time commence judicial review proceedings in the High Court as these processes are aimed at addressing different issues. All in all, accordingly when he decides on the issue of assessment of tax. | am of the considered view that the Special Arbitrator will be guided Costs are in the discretion of the court. As such, | order that each party should bear its own costs. MADE IN OPEN COURT THIS 914 DAY OF AUGUST 2019 AT PRINCIPAL REGISTRY, REVENUE DIVISION, CHICHIRI, BLANTYRE. 12