Turyagarukayo v Uganda Revenue Authority (Civil suit Case No. 82 of 2010) [2013] UGHCCD 870 (17 February 2013)

Full Case Text

# THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA

## $(CIVIL DIVISION)$

### HCT CIVIL SHIT NO. 82 OF 2010

EDWARD TURYAGARUKAYO ::::::::::::::::::::::::::::::::::::

#### **VERSUS**

UGANDA REVENUE AUTHORITY::::::::::::::::::::::::::::::::::::

### BEFORE HON. MR. JUSTICE J. W. KWESIGA

#### JUDGMENT

The Plaintiff sued the Defendant for informer's fees amounting to Sh. 711,573,687/ $=$ , interest thereon, general damages and costs of the suit. He alleged that he supplied information to the Defendant regarding concealing and refusal to pay taxes due to the Defendant in two categories and that following the information supplied the Defendant recovered taxes as follows:-

(a) Ministry of works paid Sh 384,425,561/ $\overline{ }$

(b) 23rd Metallurgical construction company of non-Ferrous Metal Industry (U) Ltd (Here-in referred to as "23rd MCC") paid 6,731,311-311/=. The Plaintiff pursuant to section 7 of the Finance Act (Cap 187) claims 10% for the tax recovered namely Shs $(38,442,556/= plus 673,131,131/=)$ whose total of Sh. 711,573,687/= he prayed for interest at 25% per annum, General damages and costs of the suit.

The Defendants case, according to its written statement of Defence, is a general denial and that no taxes were recovered and that any audit carried out on tax liabilities of the tax-payers was in the Defendant's ordinary course of business and not prompted by the plaintiff's information.

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judgment. The parties failed to file a joint scheduling memorandum and the tw P pH to file sworn witness **memoranda shall be adopted.** The par'ieS **°** fo(fowed by written statement and brief cross-examination was t-mtpd the proceedmas as a submissions which were filed and these cons i whole that I will examine and referred to without **reproducing** , The following issues were agreed upon for det^rrnm.

- 1. Whether the Plaintiff suoolied the information ita-+ IpH to thp recovery of the taxes horn the Minhuv of Works. of - **2.** Whether the Plaintiff supplied information . « taxes from 23- MetaUurgicai construction company (2s >• - 3. Costs of the suit.

ill Each of the parties filed scheduling notes/memoranda on 18l" May, 2012 which severally contain agreed facts which I will set down as non-contested facts and therefore call for no further proof as follows--

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- **(i)** On 24th August, 2005, the Plaintiff supplied information of suppliers to ministry of works and that there was tax evasion of withholding tax. He was issued with TIT No. 000171 (date not deal) PE X 18 stamped by URA 20/9/2005. - (ii) In September, 2006 the Plaintiff reported to Defendant Evasion of withholding tax by 23rd MCC from 2005 to 2006 under contract No. MOH 502/04. The Report by the informer was received by URA on 10th September 2006 (see PE . 4) It is agreed that No. TIF form was given to the Plaintiff. - (iit) The 23rd MCC and Ministry of Works made payment of taxes assessed by the Defence.

From the a reported information greed **facts** it is settled **that** the two **named** tax **payers-were** to the Defendant for tax evasion r-d i ich.kui supplied to the Defendant W rhe un ps;r| i i- . 1 olw i ic>t m contention

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that the tax payers paid the taxes assessed by the Defendant. For the Plaintiff to succeed in the claim of the informant's award of 10% pursuant to the provision section 21 of the Finance Act, 1999 he has to discharge the burden of proof to satisfy the court that the Plaintiff supplied the information that led to recovery of any or all the tax recovered from the Ministry of Works and 23rd Metallurgical construction company of non-ferrous metal industry (U) Ltd (23rd MCC). The reward of informers is provided in Section 21 of The Finance Act 1999 that "the Commissioner General shall reward any person who provides information leading to the recovery of tax or who seizes any goods or by whose aid goods are seized under any Law in relation to tax or duty, with a reward of ten percent of the tax recovered."

The Defendants contention is that it carried out a comprehensive audit in normal course of its duty as a tax administration body and was not prompted by the Plaintiff and that tax recovered was not based on any information supplied by the Plaintiff I will examine the testimonies and exhibit tendered by both parties make the necessary interence on whether or not the comprehensive audit was following the information given by the Plaintiff.

Edward Turyagarukayo (PW 1) filed a witness statement dated 7th June, 2012. That on 24th August, 2005 that he reported Evasion of withholding Tax and VAT by Ministry of Works. See Exhibits P1 and P2 that gave 18 firms involved. He was given Tax Evaders Information Form TIF 001/00171 dated 20th September, 2005 as date of receiving information. Close examination of this TIF form (Photocopy) shows Date of Report as 28th May, 2005. Under Cross Examination and re-examination he explained the apparent date's inconsistences. That on 24th August 2005 he gave a report and a list of suppliers to Ministry of Works. The Defendant conceded to admission as evidence documents that were marked Plaintiffs exhibits P1 dated 24th August, 2005, P.3 the additional list dated 20th September, 2005 and P.4 dated 10th September, 2006, that supplied particulars of the contract under which there was evasion of withholding tax by 23rd MCCC. The Plaintiff engaged the

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Defendant in protracted correspondences seeking information of the progress of the audit work and recovery of taxes by the Defendant which would be the basis for his reward. This is reflected in exhibits P.4, P.6 and P.7. The Defendant's reply dated 6th August, 2008. P.8 is silent on the information supplied under TIF 00071 and detailed letter dated 24th August 2005. This reply only served to exclude 23rd MCC from the Plaintiffs list of reward claims because 23rd MCC was already known as a tax evader by the Defendant and comprehensive audit was underway. I will deal with each tax payer's case separately. Each of the two cases has its own separate facts and circumstances of reporting and was handled differently on tax evasion by Ministry of Works. The informer was given TIF No. 000171 Exhibit P.18. The Defendant recovered Sh. 384,425,561/= from this tax payer.

The Defendant's Advocates submitted that the Plaintiff failed to prove that it was on the basis of his information that the tax was recovered. The Defendant relied on a holding in the case of URA VS PWAKASHADA & 2 OTHERS CIVIL APPEAL NO. 07 OF 2007 where the Court of Appeal held that the nature and quality of any information allegedly supplied must be proved to the satisfaction of court on the balance of probability. I do agree with and follow the burden of proof and the standard of proof settled by that decision. I must add that each case must be decided on its own cvidence and merits. In the instant case the Defendant's attack on the nature and quality of information is centered on the Form and contents of TIF that appears to have un explained alterations which I will examine here below:

Annexture to the Plaintiffs, witness statement filed on 28th October, $(i)$ 2011, Reports tax evasion by valious firms that supplied goods to Ministry of Works. It states a list of flyms "highly suspect to have been evading to remit takes (VAT) to URA upon payment by Ministry' dated 24/8/2005. This document was admitted as P.1. Supplimentary information dated 20th September 2005 heading: $(ii)$ "Evasion of VAT by various firms supplying goods to Ministry of

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*Works. "It* has Tabulated information on 18 Firms containing names Of the firms, VAT file numbers, items supplied and contract^value. The informer concluded by requesting that these firms be investigated to look at their supplies to Ministry of Works. There is no doubt that the infoimei was Repotting 'he J8 listed firms whos detailed particulars he tabulated for purposes of VAT recovery. £Se Exhibit P.3)

(ill) TIF No. 000171 dated 28,h August. 2005 . This document (Photocopy) cleatly shows feaiutes that tender it suspect. space requiring the name of the tax Evader, consistent with above (i) and (ii) documents the entry shows' *"various suppliers (18) to Ministry of Works of high value materials and equipment, tyres and stationary."* On the evaded there is in same handwriting as above quoted entry the tollowing words:-

7" & *INCOME TAXES between 2001-2005, and estimated output VAT 615,786,235.2."* Further examination or mis document snows that a line was drawn to indicate that the information below the line in this exhibit was not originally there. This inference is further supported by the fact that the -addition of *"\$WHT on payment to contiaciors and suppliers attached" is* in a diffeient handwriting and clearer ink which supports the Defendants argument that Ministry of Works as a tax culprit for not remitting withholding tax was originally not part of the information supplied by the Plaintiff.

of the above evidence I have found no explanation for the In evaluation *following:-*

- *(a) works It* is not reflected in the eartier documents Pl and P2 that *is a tax culprit. y* - (b) Why is it in part 'B' of the form that the name of M.0.w (Ministry . Works) which is indicated as the first entry in this box shou(d *(* forced, in writing, over the words printed to guide the person fil(ing the

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ls is circumstantial evidence that Ministry of Works was entered in the form as an after thought. ' .•

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- hy was the entry of *"\$WHT"* entered below the cut off line that was drawn after VAT & INCOME TAXES? This further provides circumstantial '-■vidence of aheraiiorr of original tepon of rhe tax evader which is a fraudulent act. - *(d)* DW ] David Mugyenyi testified that TIF No nno.171 originally was dated 20 September, 2005 and was stamped on 20th September, as date when information was received but when the Plaintiff showed him TIF now P.18 he noticed added information. DW 1 attempted to photocopy this document, the Plaintiff violently grabbed the document and ran away. The conduct of the Plaintiff was not consistent with conduct of a genuine informer who had a genuine claim to pursue. It is unfortunate that the Defendant failed to tender ID DI in evidence as an exhibit. The explanation is that one Nymkd who issued the TIF on 20th September has since left URA employment. It is not clear whether he is a witness who could not be found and even if this was the case there are provisions in the Evidence Act allowing such a document to be tendered by another witness. Be that as it may, I observed DW 1 as he testified undercrossexamination, he impressed me as a .truthful witness. He maintained his sworn statement paragraphs 2, .14, 16 and 2.1 and I believed the evidence that P.18 is a forged document. From the foregoing, this court is required to answer *"Whether the Plaintiff supplied information that led to the recovery oftaxes from the Ministry of Works?*

out the basis of the information. Ministry of Works but by the suppliers. the TIF stated as follows: The Plaintiffs information was clearly on 18 firms which had dealings with Ministry of Works, had been paid by Ministry of Works but the firms had not paid the appropriate tax namely VAT and income tax. The particulars of the f \$ clearly set ofinformation. The evaded tax was not yable by Minictrvof Worl<s tbe The informers final /A comments on

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"it is suggested that a comprehensive audit be done on the companies and possibly cover other companies which we have not been able to recover details about." This can not be understood to be information seeking to audit Ministry of Works for withholding tax. I have already examined and evaluated the contents Pub relied on by the Plaintiff and I hold that reference to withholding tax as against Ministry of Works was inserted in the form fraudulently. The date of Report was altered from 20th September 1/2 2005 as shown by URA stamp on the reverse of the form to read 28th August, 2005. The unchallenged evidence of DW 1 is that TIF is issued upon receipt of information and not later as claimed by the Flaintiff, I accept this evidence because TIF is the only proof of receipt of the informer's information and a basis for his claim of reward. After elimination of what was fraudulently added in the TIF (P18) would leave the Plaintiff entitled to a reward based on the tax recovered from the 18 firms that were reported as evaders of VAT and income tax. The Plaintiff most prove that tax was recovered from these companies/firms. I have considered the Plaintiffs Advocates submission that the Defendant cannot rely on allegations of forgery unless they have been proved in court of Law and the Plaintiff is convicted after the due process and that for this reason I should disregard the allegation of forgery. I am un able to agree with this reasoning. My view is that where the witness written statement (see DW 1), the testimony under-cross-examination and the documental evidence such as P.18 portray alteration or additional entries to favour the Plaintiff to the detriment of the Defendant this court's hands are not tied because no conviction exists and take the contents of the questioned. exhibit as Gospel truth. This court has the duty to evaluate all evidence adduced to prove a fact and make the appropriate inference whether the fraud has been investigated and conviction done or not.

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The holding in J. W. Kazoora Vs Rukuba Martin C. A 13 of 1992 (SCU) is that allegations of fraud must be specifically pleaded and proved. The degree of proof of fraud required is one of strict proof, but not amounting to one beyond reasonable doubt. The proot must, however, be more than a mere $-pg.7$ $-16$

. P labilities. This holding cited by the Plaintiffs Advocates actually ^ll" irst misleading submission that this court should disregard the fraud because there is no prosecution and conviction through a tr^' This would be calling for proof beyond reasonable doubt which Ie b'a||(idid of piuof in ihi.s &lt; ivil liiioriiion Tile finuduleiiT pailiculais were set out and understood by this court to have been alteration of dates and inserting WHT against the Ministry of Works tn render the Plaintiff rewardable based on Sh. 348,425,561/= that was paid bv the Ministry of Works *f J* to the Defendant. This tax was not recovered based on the information earlier supplied under TIF 000171 before alteration and therefore the Plaintiff is not entitled to a reward of 10% of the collected tax. The evidential value of the TIF 000171 was perverted by the fraudulent alterations observed by this court hereinabove and despite the fact that no ciiminal investigations were concluded and no prosecution done this court is entitled to evaluation made aild it would be ii isei iSttiVe fol the LOuit to let the litigant take benefit of this illegality and be allowed payment of a reward from public funds based on what is clearly fraudulent.

**rd** Did the Plaintiff supply information ronrpining 2Srd metallurgical ronstrurtion of non-Ferrous metal *Inrhictry* (IJ) ltd? Did his information to recovery of tax? If the answer to these questions is in affirmative he would be entitled to a reward of 10% of the Recovered tax as provided by the Law (see Section 21 of Finance Act of 1999). The Plaintiff in paragraph 9 of his witness statement states he made a report on 10th September, 2006 to the Defendant giving details of tax evasion. He wrote a number of letters (P.4, P 5, 6 and 7j whose dates range from 10lh September 2006 to 4;l1 August 2008 ddressed to different employees of the Defendant, throughout this period th Plaintiff was never given TIF identification number. He states he learnt , and he also received a letter from the Defendant P8 that there from the press emu already an on going audit and that the information the Plaintiff provided

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URA domain . was already in informer. and the Plaintiff could not be rewarded as an

id Mugyenyi in paragraphs 8 and 9 of the witness statement shows efendant carried out a comprehensive audit in its normal or ordinary se of duty as a tax administrator and not led by the Plaintiff. I appreciate veial decisions of tills couit that the Plaintiffs Advocates cited. They were quite helpful on statutory interpretation of section 21 of The Finance Act, 1999. The test in this case is whether the Plaintiff gave *"information that leads to recovery of tax." \* have examined the Plaintiffs letters P.4 and P.7 together with P.8 regarding the Defendants' position on the plaintiffs claim to be the informer. .,.< '

In my view, once there is an on going Audit by Uganda Revenue Authority (Defendant) regarding a none compliant rax payer, information supplied over rhe same case by an infomiei, does nor quality io ue u non nation leading to recovery of tax to merit reward by the Uganda Revenue Authority. To hold to the contrary would be creating room for insiders of URA to collude with the 'informers' to unfaiily be paid public funds. The tax evadeis infoi mation Foim (TIP) is veiy clear and in its absence this court, in rhe circumstances of this particular case, is unable to find that based on the Plaintiffs submitted letters, was the informer whose information led to recovery of the tax in question. Exhibits P.17, P 12 and P.9 indicate that the Defendant carried put a comprehensive tax Audit covering 23rd Metallurgical construction Company for the period of 2004 to 2008 for various taxes.

+ ^iQ=>r as to the date of the Audit's commencement. The II is not Clear mmunication between the tax payer and the Defendant p.17, P.12 are dated 18th September, 2007 and 13th August, 2008. However they indicate that audit d t ken place much earlier. My view is that the fact that the Plaintiff had nicated with the Defendant earlier than the letter of the Defendant to

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,the tax payer does not perse prove that the Audit in question was prompted by the Plaintiff's information. The Plaintiff must specifically P allegation that his information caused the audit of the tax paye been recovery of tax which, in my view of the evidence as a-whole, . ... ipi-nedv available is to proved on ihe balance of piM'Dabillnp^ inn &lt; , dismiss the Plaintiff's suit as a whole and I award costs Defendant which I do hereby order.

| at Kampala this DatPd | J7 <->*?' of February, 2013. day | | |--------------------------------|-------------------------------------------------|--| | | \/ | | | | J. W. KWtSJGA | | | | JUDGE | |

This Judgment shall be Jeliveied io the Division at the convenient date. by Lite Deputy Re^istiai, Civil

J. W. [\WESIGA

JUDGE

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