IN THE STATUTORY TRIBUNAL, FIJI ISLANDS
SITTING AS THE TAX TRIBUNAL

Action No 23 of 2010

BETWEEN:

A SUVA SUPERMARKET (Company F)
Applicant

AND:

FIJI REVENUE & CUSTOMS AUTHORITY
Respondent

Counsel: Mr R. Naidu, Naidu Law for the Applicant 
Mr S. Ravono, FRCA Legal Unit for the Respondent

Date of Hearing: Wednesday 12 December 2012
Date of Judgment: Thursday 3 January 2013

JUDGMENT

VALUE ADDED TAX DECREE 1991- Section 15(2) – Zero Rated Supply; Clause 24 of Second Schedule; Requirement to maintain records. 

Background

1.	This an application for review against the Objection Decision of the Respondent dated 30 November 2010, in which the Authority confirmed the Amended Assessment Number 2 issued to the Taxpayer, in the amount of $168,856.24.

2.	The Agreed Facts that have been prepared by the parties in this matter are as follows:

•	The Respondent raised two assessments on the Applicant which were the Original Notice of Assessment and Notice of Amended Assessment Number One. These were issued on the same date, 1 July 2010.

•	The Respondent conducted interviews and a raid on the Applicant.

•	The raid resulted in the discovery of a cash register #2252 and documents relating to the income of the Applicant. The cash register was given to the Respondent upon their request. 

•	The Respondent raised an Amended Assessment #1 dated 1 July 2010, for VAT payable for the month of April 2010, on the grounds that Company F did not bank all its sales as per Cash Register #2252 and according to the Respondent, the Applicant owes the Respondent:-

Total VAT Payable for month of April	$208,215.49	
Total Penalties Imposed 	$207,236.43	
Less Payments Made 	$ 979.06	
Net VAT Payable for month ending 30/4/10 	$414,472.86 	

•	On the same day, the respondent issued a Departure Prohibition Order (DPO) against the Applicant Directors, in accordance with Section 31 of the Tax Administration Decree 2009.

•	On 6 July and 30 July 2010, the Applicant wrote to the Respondent advising of its objection to the VAT Assessment #1, on the basis that it had properly paid all the required VAT.

•	On 14 July 2010, the Applicant's Directors paid the full VAT amount of VAT due as claimed by the Respondent, 'without prejudice', in order to have the DPO against it lifted as the Directors needed to travel abroad.

•	As of 14 July 2010, the DPO was still not lifted by the Respondent.

•	Another meeting was arranged with the Respondent in which the Applicant was informed that the DPO would only be lifted once a full review of the VAT payable was completed. In the same meeting the Respondent requested from the Applicant all the required records and source documents including Cash Book, Bank Statement Cahiers and Record Books. 

•	The DPO was lifted on 13 August 2010 and on the same day, the Respondent issued an Amended Assessment #2 for VAT for the period ending 30 April 2010 claiming as follows:-

VAT Payable 	$136,064.05	
Late Payment Penalty 	$33,771.25	
Less Payment Made	$ 979.06	
VAT Payable 	$168,856.24	

•	On 3 September 2010 the Applicant objected to the 2nd Assessment on the grounds that it did not have any VAT liabilities as assessed and that the amount should be full refunded to it.

•	On 30 November 2010, the Respondent informed the Applicant that its objection to the 2nd Assessment was wholly disallowed on the grounds that no source documents were provided so as to support their claim. Furthermore, the Applicant was informed of the right to appeal the decision to the Tax tribunal as provided under the Tax Administration Decree.

•	Apart from the normal retailing business the Applicant is also involved in wholesaling rice, oil and tin fish. 

Issues Before the Tribunal 

3.	The application is heard in accordance with the relevant provisions of the Tax Administration Decree 2009 and the Magistrates Court (Amendment) Decree 2011. The central issue to be determined, is whether or not the Taxpayer has now accounted for and paid in full, all Value Added Tax payments, up and until the period ending April 2010. 

4.	It should be noted by the parties that the Statement of Agreed Facts as it relates to the discovery of the cash register, does not accurately accord with the evidence of the Respondent's witness, nor its submissions relating to the seizing of the register from a car park in Nasese. I would encourage parties before this Tribunal to be clear on what they say are non-contested issues of fact.

The Evidence of the Taxpayer

5.	The evidence of the Taxpayer was put before this Tribunal by its Managing Director, Mr P. According to Mr P, his supermarket store has two main Divisions; a retail arm and a large wholesaling division that trades in such items as rice, oil and split peas. 

6.	Mr P indicated that Cash Register #2252, was brought to the attention of the Respondent, following a complaint that had been received from a disgruntled worker. According to Mr P, that person had been accused of theft. He claims the worker subsequently made a complaint to the Respondent claiming that the Taxpayer had not been declaring sales receipts from Cash Register #2252. The witness stated that this cash register was one of 11 registers used in the Supermarket. He claims that it represented only 2% of the recorded sales of the store and pertained to unbanked sales. That is, sales where the cash was utilised for payment to various traders and local suppliers, as well as used for cash wages. 

7.	The witness claims not to have been in attendance at the supermarket at the time when the Respondent initiated its raid. Initially the evidence of the Managing Director was that he was overseas and later, this was modified to being out of the office. Mr P advised the Tribunal that he had received a telephone call that same day from the co-ordinator of the FRCA raid on premises, who advised that the cash register was missing. Mr P indicated that he told the investigator he would look into it. 

8.	Through his Counsel Mr Naidu, who patiently assisted this Tribunal in what was on occasions quite confusing evidence, Mr P referred the Tribunal to the Bundle of Documents that sets out a good account of the chronology of events and communications that have transpired between the Taxpayer and the Respondent. 

9.	 Documents 19 to 22, within the 'Applicant's Bundle', sets out the calculations that have been prepared by the Taxpayer for the Respondent, showing the manner in which VAT has been calculated, where the cash register sales have been included within the calculations. 

10.	The calculations have allowed for a nominal treatment of 35% of those sales to be regarded as zero rated supplies, on the basis that these were be exempt from the payment of VAT, by virtue of Section 15(2) and Clause 24 to the Second Schedule of the Decree. The calculations that have been prepared by the Taxpayer, thereafter show a projected adjustment amount, reliant on the 35% zero rated formula, as it is applied across all sales for the period July 2006 to June 2010. The Taxpayer argues that having regard to these calculations, it has overpaid VAT. 

11.	The Taxpayer asks within its pleadings and submissions, that the Respondent review the Taxpayers sales and taxation calculations, having regard to all available information provided to the Respondent. 

The Case of the Respondent

12.	To assist in the Respondent's case, Counsel Ravono called Mr G, a Chief Assessor of the Authority to give evidence. 

13.	The evidence seems to be as follows. Firstly, it is the case that the Respondent had embarked on a raid of the premises of the Taxpayer for the purposes of seizing a cash register and financial records, to ascertain undeclared sales, that may possibly have had VAT implications. 

14.	During the course of the Respondent's inquiry, an examination of the monthly V forms that were submitted by the Taxpayer, showed that at no stage were zero rated supplies claimed within the output tax calculations. The evidence of Mr G was, that the Authority accepts such forms at face value. If a taxpayer seeks to claim no zero rated supplies, that is how they are treated.

15.	To reach its calculations for the April 2010 period, what seems to have transpired is this. The Respondent has totalled the amount of undeclared sales from Cash Register #2252 for the relevant period to April 2010. That amount has been added to the declared total supplies figure and a nominal amount of 35% offset against the figure of undeclared sales, to establish the estimated zero rated supplies. 

16.	The value added tax was thereafter calculated and offset against the input tax for the April 2010 period. The result is that the Taxpayer's amended assessment yields a debt due to the Respondent. 

Reconciling the Position of Parties

17.	 As the calculations that have been prepared by the Taxpayer within Documents 19 to 22 reveal, the manner in which the Respondent has 'lumped together' four years worth of undeclared sales into the VAT calculations for a single month period, has caused an apparent anomalous result. The case of the Taxpayer is that if the allocation of a 35% zero rating discount was allowable across all of the reporting months for the 4 year period, the result would be very different. In ordinary circumstances, had the Taxpayer correctly filled out its returns, then the additional tax to be paid arising out of the Cash Register #2252 could have been determined that way. The problem is though, if all of the calculations for the entire period need to be reviewed, then the position reached by the Respondent, ceteris paribus, would appear somewhat unjust. 

18.	Much of the problem of this case, arises because of the negligent way in which the Taxpayer has kept its records in relation to sales and the fact that it does not appear to have been able to have properly differentiated between zero rated and ordinary supplies. 

19.	In these days of sophisticated technologies, I find it hard to comprehend how a large store would not have been able to code the various activities at point of sale, so that such accounting tasks were fairly elementary. In any event we are now faced with what we have. 

20.	The case of the Taxpayer is further not assisted by the fact, that it would appear that its employees deliberately sought to obstruct employees of the Respondent from discharging their responsibilities and in fact, going to the length to hide the register in question. It is quite understandable if the Respondent was suspicious about any further representations made by the Taxpayer, in light of the earlier conduct.

Moving Forward 

21.	At the end of the day, the onus is on the Taxpayer not the Authority to prove and identify the claims that it now makes. In doing so, I do not see that the Authority should be required to apply any nominal zero rated discounting (35%) that it offered in the case of the undeclared sales and use that figure for all purposes over the four year period. As the Respondent correctly identifies, the Applicant had positive obligations to maintain its records in accordance with Section 79 of the Decree as follows:-

(1) Every registered person who supplies in Fiji goods and services shall keep in Fiji sufficient records in the English language to enable ready ascertainment by the Commissioner or any officer authorised by him, of that person's liability to tax and shall retain in Fiji all such records for a period of at least seven years after the end of the taxable period to which they relate:

Provided that the requirement for the preservation of any records may be 
dispensed with –

(a) if the Commissioner gives written notice that preservation is not required;
(b) in the case of a company which has been wound-up and finally dissolved.

(2) Without limiting the generality of subsection (3) of this Section, the records 
required to be kept and retained, pursuant to subsection (1) of this Section, shall 
contain a record of all goods and services supplied by or to that registered person showing the goods and services, and the suppliers or their agents, in sufficient detail to enable the goods and services, the suppliers, or the agents to be readily identified by the Commissioner, and all invoices, tax invoices, credit notes, and debit notes relating thereto.

(3) For the purpose of this Section the term ―records‖ includes books of account (whether contained in manual, mechanical, electronic format, or microfilm) recording receipts or payments or income or expenditure, and also includes vouchers, bank statements, invoices, tax invoices, credit notes, debit notes, receipts, and such other documents as are necessary to verify the entries in any such books of account.

22.	The Respondent further argues that the Authority has the discretion set out within Section 44(1) of the Decree, to make an assessment of tax based on a person's anticipated liability and in accordance with Section 44(6) of the Decree. 

the Commissioner may, in the assessment of one taxable period, raise or include assessment of any other taxable period.

23.	This is in effect what has occurred within the Amended Assessment.

24.	It seems what the Taxpayer is seeking beyond that though, is for the Respondent Authority to review the manner in which zero rated tax should have been calculated throughout the entire four year period. This is despite the fact that during that time, the Taxpayer never appeared to have claimed, nor identified, any zero rated taxable supplies. The apparent motivation from a compliance point of view, seems to be that in the calculations that have been subsequently prepared by the Taxpayer, that the method of calculation reliant on the nominal 35% zero rated discounting, would yield a refund owed to the Taxpayer, not an obligation to pay tax. 

25.	In this regard, I note that the formula that the Authority has used in estimating the sales figures from Cash Register #2252 was based on an arbitrary estimate of 35% and not some prescribed formula. The Authority is not compelled to make any such concession when calculating taxes. Out of fairness though to the Taxpayer, the issue needs to be considered with a little more precision. The competing issues appear to be this. The failure of the Taxpayer to keep proper records and to withhold from the Respondent, the totality of the sales of the supermarket and at the other end, the rights of all citizens of the country to be treated fairly and equally, when it comes to the manner in which their tax affairs are assessed.

26.	If it is the case that the Taxpayer is unable to validate and separate the taxable supplies from the zero rated supplies, then I see no reason why the Authority should be made to estimate what the split up between these two sales streams would be. That is not the role of the Authority. The Taxpayer should be required to substantiate any of its claims. On the other hand, the Respondent should provide the Taxpayer the rationale underpinning the manner in which it elects to treat its assessment. The onus would therefore be on the Taxpayer to provide additional evidence of what falls within the sales from the 10 other cash registers. If it is unable to do so, I think that is the end of the matter. 

27.	The conduct of the Taxpayer appears to be less than perfect. The fact that employees saw fit to hide the cash register is simply unacceptable. I am amazed that the Authority has not sought to pursue any persons involved in such activity, as it would seem from the evidence before the tribunal, that a prima facie case would exist against various persons for breach of the relevant provisions set out within SubDivision II of Division VIII of the Tax Administration Decree 2009. 

Conclusions

28.	I am not willing to grant the Taxpayer the relief that it seeks. I do not think that the Respondent should be obliged to impose a 35% figure on zero rated supplies, when the Taxpayer has no information to support that amount. The Respondent needed to come up with an arbitrary figure based on the special circumstances that it finds itself in. It was not intended to be a universally applied measure, nor do I intend to make it such. 

29.	The Tribunal would be happy for the matter to be remitted to the Respondent and ask that it re-assess the manner in which the VAT should be charged during the relevant period, providing that the Taxpayer can validate the calculation of the zero rated supplies it seeks to claim. If not, I am not prepared to compel the Authority to second guess sales. In my mind, it would be a dangerous precedent to set. 

30.	I remit this matter to the Respondent on that basis. The Taxpayer is hereby directed to forward all relevant documentation substantiating its claims to the Respondent within 28 days. The Respondent is thereafter required to provide a further determination of its position, having regard to that information. The determination is only to be made, having regard to the guidelines that I have established within this judgment. 

31.	Finally, given that it is the conduct of the Taxpayer that has caused all of the problems that have led us to this point, I think it should be the Taxpayer not the Respondent that makes any contribution to the costs of these proceedings. In accordance with Section 104 of the Tax Administration Decree 2009, I order that the Taxpayer pay to the Respondent the sum of $3,000.00 for costs unnecessarily incurred as a consequence of the Taxpayer's conduct. 

DECISION

(i)	The matter is remitted to the Respondent to be reconsidered having regard to the determinations made within this decision.

(ii)	The Respondent is required to provide the Taxpayer with its decision in relation to this matter within 60 days.

(iii)	The Taxpayer must pay to the Respondent costs in the amount of $3000.00 within 28 days. 

Mr Andrew J See
Resident Magistrate