Taslaf Consultants Limited v Uganda Revenue Authority (Application 119 of 2019) [2021] UGTAT 30 (16 July 2021)

Full Case Text

## THE REPUBLIC OF UGANDA IN THE TAX APPEALS TRIBUNAL AT KAMPALA **APPLICATION NO. 119 OF 2019**

TASLAF CONSULTANTS LIMITED ======================APPLICANT **VERSUS**

**UGANDA REVENUE AUTHORITY =====================RESPONDENT**

BEFORE: DR. ASA MUGENYI MS. CHRISTINE KATWE MR. SIRAJ ALI

## **RULING**

This ruling is in respect of a decision by the respondent adjusting the periods in which the applicant declared output tax.

The applicant provides consultancy and professional services. It receives retainer fees for some services. Sometime in August 2019, the respondent issued VAT assessments of Shs. 4,525,000 on the applicant which it objected to. The respondent contended that the applicant's returns had been declared in the tax periods in which payment for its services had been received instead of the periods when the tax invoices for the said services had been issued.

The applicant was represented by Mr. Elisha Tayebwa and Ms. Winnie Begumisa while the respondent by Mr. George Ssenyomo and Mr. Stuart Aheebwa.

The following issues were set down for determination.

- 1. Whether the applicant is liable to pay the tax assessed? - 2. What remedies are available to the parties?

The applicant's witness, Ms. Cordelia Akahirwa, its Senior Tax and Accounts Associate testified that in August 2019, the respondent issued VAT assessments arising from a desk audit which adjusted output tax invoices declared by the applicant into tax periods from

which the invoices were dated. She testified that the applicant did not account for output tax on the invoice dates because it provides legal and tax services using annual retainer or ad hoc agreements which provide for periodical payments or installments. She contended that the agreements are not envisaged under S. 14(2) of the VAT Act. She contended further that under S. 14 of the Act, where payment is not periodic, the time of supply occurs on the earliest of either invoicing, payment or performance/delivery. However, where services supplied are invoiced periodically and payments made accordingly, the time of supply shifts to the date due for payment as per the payment terms in the invoice, or the date the payment is received, whichever comes first.

She testified that the seven assessments in dispute had corresponding invoices, while four were supported by retainer agreements. She testified that the retainer agreements provided that payment shall be upon the issuance of an invoice which in turn state the time of payment. She testified that in circumstances where payments were not provided for in the retainer agreements declarations of tax invoices were made on the period in which payments were received.

The respondent's witness, Mr. Conrad Senfuma, an officer in its Objections Unit, testified that in August 2019, the respondent issued additional assessments on the applicant following a return examination which established that the applicant had purportedly made late VAT declarations contrary to S. 14 of the Act. The applicant objected to the assessment on the ground that it provides a continuing supply of professional services and that the time of supply under S. 14(2) of the Act is the earlier of the date on which payment is due or received. The objection was disallowed on the grounds that some of the supplies did not fall under S. 14(2) of the Act as the invoices did not have supporting documents while for others the applicant did not account for taxes on the due dates in the agreements.

In its submissions, the applicant submitted that it rightly declared and accounted for the output tax in the tax periods when payment against the invoices were due. The applicant contended that S. 14 (2) and (3) of the VAT Act, prescribes the time of supply for goods and services that are supplied under an agreement which provides for periodic or

installment payments. S. 14(2) provides that services are treated as successively supplied for successive parts of the period of the agreement and each successive supply occurs on the earlier date on which payment is due or received. S. 14(3) provides that where two or more payments are made or are to be made for a supply of services which are not provided under an agreement that provides for periodic payments, each installment payment is regarded as made for a separate supply to the extent of the amount of payment on the earlier of the date the payment is made or received. Relying on S.14(2) and (3) of the Act, the applicant submitted that it accounted for output tax in the tax period when payment is received or when payment is due as specified in the tax invoice issued for the services, whichever is earlier. The applicant submitted that provides legal and tax services to clients on annual retainer or ad hoc basis.

The applicant submitted that under S.29 of the Act, it is a tax invoice and not an agreement or any other document that serves as evidence of a taxable supply by a taxable person who made the supply. The applicant submitted that S. 29 read together with paragraph 2 of the 4th Schedule requires a taxable person making a taxable supply to provide the recipient with an original tax invoice in respect of the supply; and the tax invoice must contain specified particulars including the terms of payment.

The applicant submitted that the adjustments made by the respondent even if lawful do not result in any additional principal tax payable by the applicant because the applicant had already declared and accounted for the output tax and paid the principal tax to the respondent. The applicant submitted the adjustment would only result in a charge for interest for late payment. Without prejudice, the applicant contended that S. 40(C) of the Tax Procedures Code Act 2014 (amended) waived any interest and penalty outstanding as at 30th June 2020. Therefore, there was no tax liability to be suffered by the applicant.

In reply, the respondent submitted that S. 40C of the Tax Procedures Code Act waived interest and penalty outstanding as at 30th June 2020, and came into force after the application had been filed. Therefore, the application had been overtaken by events and was moot.

The respondent contended that the applicant declared its output VAT invoices late contrary to S.14 of the Act. The applicant's objection was disallowed because some of its supplies did not fall under S.14 (2) as there were no supporting documents and the applicant did not file returns on the dates in the agreements.

The respondent contended that invoices nos. 1261, 1220 and 1218 were not supported by agreements. Invoice 1218 was issued before the contract. The invoices stated that payment was due within 60 days from the invoice date. The respondent submitted that basing on the terms of the invoices; payment was due upon issuance of the invoice. The respondent submitted that under S. $14(1)(c)$ of the Act, a supply of goods or services occurs on the earliest of the date on which payment for the goods or services is made or a tax invoice is issued. The respondent argued the three invoices showed that the time of supply was on the date the tax invoices had been issued and as such the applicant was under an obligation to declare them.

In respect of the invoices that were supported by agreements the respondent submitted that these agreements did not fall under S. 14(2) of the Act and that the applicant had not filed their VAT returns based on the dates stipulated in these agreements. In the agreement between the applicant and Wildlife Conservation Society of 1st March 2018 the applicant issued an invoice of US\$ 2,213 instead of US\$ 3,750. In the agreement between the applicant and the International Centre for Transitional Justice of 27th September 2017 the applicant issued the invoice in July 2018 but declared in September 2018. In the agreement of the applicant and Cozy (U) Ltd. of 1st January 2018 the first invoice was issued on 12th June 2018 but was declared in September 2018. The respondent contended that the agreement between the applicant and Yunus Social Business Foundation of 1st January 2018 for a retainer fee of US\$ 8,000 payable in four equal instalments does not fall under S. 14(2) of the VAT Act. The respondent contended that the applicant issued an invoice on 17th January 2018 but declared it declared it in February 2018

In rejoinder, in respect of the submission that the application had been overtaken by events under S. 40 C of the Tax Procedure Code Act which waived interest and penalty

the applicant submitted that it was assessed to pay principal tax in VAT assessments A1, A4, A7, A10 and A16. The applicant contends that no penal tax was charged.

The applicant contended that the basis of evidence of a taxable supply is a tax invoice and not an agreement. The applicant contended that S. 29 of the VAT Act read together with paragraph 2 of the 4th Schedule of VAT Act clearly show that necessary information about a supply must be stated in the invoice.

The applicant submitted that those invoices which did not have supporting documents were rightfully declared under S. 14(3) of the VAT Act because two or more payments were made for the supply of services. The applicant argued that it is possible for consumer to make a payment for a supply in a tax period different from that when the invoice was provided. The applicant argued that it would be unfair to require to make a payment of a tax when the invoice was raised but no payment received by it.

Having heard and perused the evidence of the parties and read the submissions the following is the ruling of the tribunal.

The respondent raised an objection that this application which had been filed in 2019 had been overtaken by events by virtue of S. 40C of the Tax Procedures Code Act 2014 which provides that any interest and penalty outstanding as at 30th June 2020 is waived. While the respondent's witness Mr. Conrad Senfuma, testified that the tax in dispute is interest due on the late payment of principal tax, the assessments dated 9th August 2019 (exhibits A1 and A16), 2nd August 2019 (exhibits A2, A7, A13 and A19), 5th August 2019 (exhibits A10) were in respect of principal output VAT and not penal tax and interest. If the parties had bothered to read the assessments issued, they would have noticed that the respondent never charged penal tax and interest on any assessment as a result of what it called 'reclassification', therefore this application still stands.

The dispute between the parties revolves around the time of supply in respect of payment of VAT. The word 'reclassification' does not properly describe the actions of the respondent. What the respondent did was adjusting the tax periods to include invoices

which were improperly declared in other periods. The respondent shifted the invoices to what it deemed to be the proper tax periods.

Once a person has made a supply, he has to declare it to the respondent. S. 31A(1) of the VAT Act provides that a taxable person shall lodge a tax return with the Commissioner General for each tax period within fifteen days after the end of the tax period. S. 1(w) of the VAT Act defines a tax period as a calendar month. S. 65(2) provides that a person who fails to lodge a return within the required time under the Act is liable to pay a penal tax.

The resolution of the dispute of the parties turns on the application of $S.14$ (2) (b) of the VAT Act, which provides:

## "14. Time of supply

- (1) Except as otherwise provided under this Act, a supply of goods or services occurs— - (a) Where the goods are applied to own use, on the date on which the goods or services are first applied to own use: - (b) where the goods or services are supplied by way of gift, on the date on which ownership in the goods passes or the performance of the services is completed; or - (c) In any other case, on the earliest of the date on which— - (i) The goods are delivered or made available or the performance of the service is completed; - (ii) Payment for the goods or services is made; or - (iii) A tax invoice is issued. - $(2)$ Where— - (a) Goods are supplied under a rental agreement; or - (b) Goods or services are supplied under an agreement or law which provides for periodic payments, the goods or services are treated as successively supplied for successive parts of the period of the agreement or as determined by that law and each successive supply occurs on the earlier of the date on which payment is due or received. - (3) For the purposes of this section, where two or more payments are made or are to be made for a supply of goods or services other than a supply to which subsection (2) applies, each payment shall be regarded as made for a separate supply to the extent of the amount of the payment on the earlier of the date the payment is due or received. - (4) A person making a supply to which subsection (1)(a) or (b) applies shall keep a record of the date on which the supply occurred as determined under this section. - (5) In this section, "rental agreement" means any agreement for the letting of goods, including a hire-purchase agreement or finance lease."

The dispute between the parties is that the applicant was purportedly lodging its returns and paying the taxes late.

The dispute between the parties relates to six invoices. The applicant's major contention was that it was providing professional/ legal services under retainer arrangements which involved periodic payments under of S. 14(2)(b), which the respondent disputes. The Tribunal will establish the tax period during which output tax ought to have been declared in respect of the invoices.

The first batch of invoices we shall look at are those the respondent contended did not have supporting documents: invoice 1220 dated 19th January 2018 (exhibit A33) and invoice 1261 dated 9th April 2018 (exhibit A32). S. 14(4) of the VAT Act requires a person making a supply to keep a clear record of the date on which the supply occurred in respect of S. $14(1)(a)$ and (b). The record the Section envisaged in relation to time of supply are documents such as invoices, receipts as record for payment and delivery notes, certificates of completion for delivery of goods or performance of services. However a record of supply is also useful in discerning which of the three, payment, invoice or completion of service is earliest in time. A perusal of the applicant's agreements and invoices show that the dates on which payment is due in the invoices is different from those in the agreement. In order to resolve this the Tribunal will look at the receipts when payment was received.

Invoice 1220 was issued on 19th January 2018 by the applicant to Wollstra Geo Tech SMC Ltd for payment for the registration and filing of Board resolutions. The VAT liability was Shs. 138,000. Payment is indicated as being 'due within 60 days from the invoice date'. The time when the board resolution was registered and filed is not disclosed. The applicant contended that the invoice 1220 fell under S. 14(3) of the VAT Act where the terms of a supply require payment to be in two or more instalments. A perusal of the invoice 1220 shows that payment was due in one installment. There is nothing in the $7$ | Page

invoice to show that the payments are periodic under S. $14(2)$ or are two or more as required under S.14(3). Hence the provisions of S. $14(2)$ and (3) do not apply to the invoice. S. $14(1)(c)(iii)$ of the VAT Act applied as the earliest time of supply was when the invoice was issued. The applicant issued the invoice on 19th January 2018 and ought to have declared it by 15th February 2018 for the tax period of January 2018. Assessment CRO12000043199 which was made on 9th August 2019 'reclassified the invoice' to the tax period of January. There was no penal interest charged in the assessment, therefore the applicant did not suffer any loss. If any interest or penal tax was payable it would have been waived as already discussed.

Invoice 1261 was issued on 9th April 2018 by the applicant to John Snow Project as the first installment of 50% of professional fees for consultancy on employment questions. It stated that payment was due within 60 days from the date of the invoice. It does not indicate about the payment of the second installment. The applicant stated that the said invoice was paid on 7th May 2018. The respondent shifted the tax period of the said invoice from May 2018 to April 2018. S. 14(3) provides for where two payments are made the supply each payment shall be regarded as made for a separate supply to the extent of the amount of the payment on the earlier of the date of the payment. The applicant did not attach a receipt of payment or adduce evidence to show payment in May 2018. The tribunal does not fault the respondent from making the adjustment to the tax period when the invoice was issued. Without prejudice, there is no evidence as a result of the adjustment, the applicant was charged penal tax and or interest, which is not indicated in assessment CRO12000038358.

The respondent contended that the remaining invoices had supporting documents. Invoice 1218 was issued by the applicant to Yunus Social Business Foundation Uganda Ltd on 17th January 2018. It was issued as a 60% payment of professional fees for services rendered by the applicant. The invoice is stated as being 'due within 60 days from the invoice date'. This invoice is supported by a retainer agreement between the applicant and the client. The agreement provides that the fees due to the applicant will be paid out in 4 quarterly instalments upon the presentation of an invoice by the applicant.

The applicant did not tender in a receipt to show when payments was made. For this reason we agree with the respondent that the applicant ought to have declared this invoice in January 2018 and not February 2018. The applicant was not charged penal interest and tax in assessments CRO12000043199 and CRO12000043201.

Invoice 1229 was issued by the applicant to Wildlife Conservation Society. The invoice is dated 1st March 2018. Payment is stated as 'due within 60 days from the invoice date'. The invoice is supported by a retainer agreement. The agreement sets out an annual retainer fee of US\$ 7,500. Under clause 1.4.1 payment of the retainer fee is required to be made in two installments. 50% of the retainer fees to be invoiced at the signing of the agreement and the remainder at the beginning of the last six months of the engagement. It is clear from the terms of the agreement that the supply in question falls under $S.14(2)$ of the Act. Under this provision the tax point occurs on the earlier of the date on which payment is due or received. From clause 1.4.1 it is clear that payment is due at the signing of the agreement. The applicant did not tender in a receipt to show when payment was made. The respondent was justified to declare the time of supply as March 2018 when the invoice was issued and not April 2018 the month the applicant alleges to have made payment. The record of time of supply is not clear in the absence of a receipt. However the adjustment made by the respondent on the tax periods in respect of the above invoice did not affect the applicant as it was not charged penal tax and interest in assessment CRO 12000038421.

Invoice 12104 was issued by the applicant to International Centre for Transitional Justice. The invoice is dated 1st July 2018 and is for the second installment of the retainer fee. The invoice is supported by an agreement which provides for payment of retainer fee in two installments, the first on the issuance of an invoice at the execution of the agreement and the second at the beginning of the last six months of the contract. The agreement provides for periodic payments and therefore the time of supply falls under S. 14(2). The applicant alleges that it was paid in September 2018 for the said services, however no receipt was tendered in as evidence. There is no witness testimony to that effect. The respondent was justified to consider the invoice date of 1st July 2018 as the time of supply.

Invoice 1290 was issued by the applicant to Cozy (U) Ltd on 12th June 2018, as the first quarter retainer for the months of January to March 2018. The invoice is supported by a retainer agreement which is for a period of 12 months beginning on 1st January 2018. The fees due were to be invoiced on a quarterly basis and were payable within 30 days from the date of the invoice. Both the retainer agreement and the invoice provide for periodic payments. S. 14(2)(b) of the VAT Act is applicable. However the applicant did not provide a clear record of the time of payment in the form of a receipt. Therefore the respondent was justified to consider June 2018 as the time of supply

| (tax Assessment | Tax | of Date | of Date | of Date | Principal | Penal | tax/ | |--------------------|---------|------------|------------|------------|--------------|----------|------| | period) | invoice | invoice | payment | completion | tax tax/ | interest | | | | no. | | | | credit | | | | CR012000043199 | 1220 | 19.1.2018 | No receipt | No record | 475,627 | Nil | | | (January 2018) | 1218 | 17.1.2018 | No receipt | No record | | | | | CR012000043201 | 1220 | 19.1.2018 | No receipt | No record | $-475,627$ | Nil | | | (February 2018) | 1218 | 17.1.2018 | No receipt | No record | | | | | CR012000038421 | 1229 | 1.3.2018 | No receipt | No record | 1,231,169 | Nil | | | (March 2018) | | | | | | | | | CR012000038456 | 1261 | 9.4.2018 | No record | No record | $-1,331,999$ | Nil | | | (May $2018$ ) | | | | | | | | | CR012000038184 | 1290 | 12.6.2018 | No receipt | No record | 1,409,115 | Nil | | | (June 2018) | | | | | | | | | CR012000038331 | 12104 | 1.7.2018 | No receipt | No record | 877,932 | Nil | | | (July 2018) | | | | | | | | | CR012000038318 | 12104 | 1.7.2018 | No receipt | No record | $-877,932$ | Nil | | | (September 2018) | | | | | | | | | Total outstanding | | | | | 1,308,285 | | |

A table of the invoices and assessments show the following liabilities/ credits.

Having looked at the said invoices, the Tribunal notes that the respondent adjusted the tax periods of the invoices so as to increase the tax liability in certain tax periods, while in other periods the applicant gained tax credit. For instance when invoices 1220 and 1218 were shifted from February 2018 to January 2018 they created a tax liability of Shs. 475,627 in January 2018 but a credit of the same amount in February 2018. When invoice 1261 was shifted from May 2018 to April 2018 the applicant gained a tax credit of shs. 1,331,999 in May 2018. The assessment for April 2018 was not tendered in court. When invoice 12104 was shifted from September 2018 to July 2018 it created a tax liability of Shs. 877,932 in July but a similar tax credit in September 2018. After making adjustments, the tax outstanding would be Shs. 1,308,285. However the invoices of April and August 2018 were not adduced in evidence. Therefore it is difficult to determine that actual tax liability outstanding or credit is due to the applicant.

The applicant was not charged any penal tax nor interest in the assessments issued after having adjusted the tax due in the tax periods. It is not clear whether the omission was an oversight or the respondent had a premonition that the amendment to the Tax Procedure Code Act would waive penal tax and interest as at July 2020. The purported "reclassification" by the respondent just shifted tax liability and credit from one tax period to another. The applicant did not suffer any loss as the tax liability/credit remained the same after the respondent had done what it called its reclassification. Therefore the applicant does not have any genuine grievance and ought not to have filed this application. The applicant submitted that the adjustments by the respondent whether lawful did not result in additional tax payable. It indicated that it had paid the taxes due but did not adduce evidence to that effect. If the applicant has paid the taxes due it should avail the evidence to the respondent, if not, it should pay it.

We accordingly dismiss this application with costs.

Dated at Kampala this (6th day of July

DR. ASA MUGENYI **CHAIRMAN**

**MS. CHRISTINE KATWE MEMBER**

2021.

**MR. SIRAJ ALI MEMBER**

$11$ | Page