FIJI TAX TRIBUNAL
Section 89 Tax Administration Decree 2009	

Title of Matter:	TAXPAYER V 
(Applicant) 

v

FIJI REVENUE AND CUSTOMS AUTHORITY 
(Respondent) 
	
Section:	Section 82 Tax Administration Decree 2009	
Subject:	Application for Review of Reviewable Decision 	
Matter Number(s):	Action No 2 of 2014 	
Appearances: 	The Taxpayer representing himself, for the Applicant 
Ms R Malani and Ms S Nasiga, FRCA Legal Unit for the Respondent	
Dates of Hearing: 	Friday 6 March 2015 
Monday 9 March 2015 
	
Before: 	Mr Andrew J See, Resident Magistrate 	
Date of Decision: 	18 May 2015.	

REGISTRATION OF TAXABLE ACTIVITY -Imposition of Tax on Supply-Section 15(1) Value Added Tax Decree 1991; Section 22 Persons making taxable supplies to be registered; Section 39 Calculation on tax payable. Backdating of Registrations and Commencement date of taxable activity.

Background 

1.	The Applicant Taxpayer is the owner and developer of two motel complexes located on two separate lots in Nadi, Viti Levu. Construction on the first lot of 20 units, commenced in July 2011 and was completed in July 2013. The second set of units were completed in May 2014. On 13 June 2014, the Taxpayer received notification from the Respondent, that he had been registered for Value Added Tax purposes in accordance with Section 22 of the Value Added Tax Decree 1991. At issue in dispute before this Tribunal, is at what stage was the Taxpayer eligible to commence claiming 'input tax' as a deductible offset against the 'output tax' otherwise due and payable on the taxable supplies made in furtherance of his registered business activity.

Registration of Supplier of Taxable Activities 

2.	The Value Added Tax Decree 1991 came into force on 1 July 1992. A summary of the scheme and the general taxation principles that affect the operation of the Decree are set out within the judgment of the High Court decision of Punjas Ltd v Commissioner of Inland Revenue. The system works on the basis that taxation takes place on the value added to each stage of the supply chain. The imposition of the cost of tax on supply, is capable of being offset by the taxation on the costs of production. The net result being that there is a system of tax inputs (credits) that can be offset against the tax outputs that are levied on the supplied good or service (the taxable supply), at whatever stage it is provided. 

3.	To understand how and when the taxation is imposed, requires a deconstruction of the relevant provisions within the Decree. In the first place, Section 2 of the Decree defines "taxable supply" as follows:

"Taxable supply" means any supply of goods and services which is charged with tax pursuant to Section 15 of this Decree;

4.	The definition of the meaning of "supply" is provided at Section 3. Section 15(1) in turn determines the rate of taxation, as well as why the taxation is imposed, as follows: 

(1)	Subject to the provisions of this Decree, the tax shall be charged in accordance with the provisions of this Decree at the rate of fifteen percent on the supply (but not including an exempt supply) in Fiji of goods and services on or after the 1st day of July 1992, by a registered person in the course or furtherance of a taxable activity carried on by that person, by reference to the value of that supply.

5.	The definition of "taxable activity" is provided for at Section 4 of the Decree. 

Section 4

Meaning of the term ―taxable activity

(1) For the purposes of this Decree, the term ―taxable activity means -

(a) 	any activity which is carried on continuously or regularly by any person, whether or not for pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to another person for a consideration; and includes any such activity carried on in the form of a business, services, trade, manufacture, profession, vocation, association, or club; and

(b) 	without limiting the generality of paragraph (a) of this subsection, the 
activities of any local authority or public authority.

(2)	Anything done in the commencement or termination of a taxable activity shall be deemed to be carried out in the course or furtherance of that taxable activity.

6.	A registered person gains that status by virtue of Section 22 of the Decree. The basic point being that a person who makes a taxable supply needs to be registered. Relevantly Section 22 provides:

(1) Subject to this Decree, every person (other than a produce supplier) who, on or after the 1st day of July 1992, carries on any taxable activity and is not registered, becomes liable to be registered –

(a) in the case of any person who solely supplies goods -

(i)	at the end of any month where the total value of supplies (not being exempt supplies) made in Fiji in that month and the eleven months immediately preceding that month in the course of carrying on all taxable activities has exceeded one hundred thousand dollars in gross turnover or such other amount as the Minister may from time to time, by Legal Notice declare: 

Provided that a person does not become liable to be registered by virtue of this paragraph where the Commissioner is satisfied that the value of all those supplies in the twelve month period beginning on the day after the last day of the period referred to in the said paragraph will not exceed that amount:

(ii)	at the commencement of any month where there are reasonable grounds for believing that the total value of the supplies (not being exempt supplies) to be made in Fiji in that month and the eleven months immediately following that month will exceed the amount specified in subparagraph (i) of this paragraph:………………………..

(2) For the purposes of subsection (1) of this Section, the total value of a registered person's taxable supplies shall be deemed not to have exceeded any amount specified in or under that subsection where that total value exceeds any such amount solely as a consequence of -

(a) any cessation of, or any substantial and permanent reduction in the size or scale of, any taxable activity carried on by that person; or 

(b) the replacement of any plant or other capital asset used in any taxable activity carried on by that person.

(3)	Every person who, by virtue of subsection (1) of this Section, becomes liable to be registered shall apply to the Commissioner on the prescribed registration form, as may be approved by the Commissioner, within twenty one days of becoming so liable.

(4)	Notwithstanding subsections (1) and (3) of this section, every person who satisfies the Commissioner that on or after the 1st day of July 1992, -

(a)	 that person is carrying on a taxable activity that involves the making of other than exempt supplies; or

(b) that person intends to carry on any taxable activity, which will involve the making of other than exempt supplies, from a specific date, may apply to the Commissioner on the prescribed registration form for registration

(5) Where any person 

(a) applies to be registered pursuant to subsection (3) or (4) of this Section, and the Commissioner is satisfied that that person is eligible to be registered under this Decree, that person shall be a registered person for the purposes of this Decree with effect from such date as the Commissioner may determine; or

(b) has not made application for registration pursuant to subsection (3) of this Section, and the Commissioner is satisfied that that person is liable to be registered under this Decree, that person shall be a registered person for the purposes of this Decree with effect from the date on which that person first became liable to be registered under this Decree:

Provided that the Commissioner may, having regard to the circumstances of the case, determine that person to be a registered person from such later date as the Commissioner considers equitable.

The Application for Registration by the Taxpayer

7.	According to the Applicant's submissions and in the course of his evidence, it was clear that he made application for registration on or around 14 June 2013. The Taxpayer says that he had initially attended the Respondent's Customer Service Centre at Nasese, where he was advised by the customer service officer, that the Respondent would 'back-date' the recognized commencement time for the taxable activity for a period of up to three years, prior to the date of registration. The obvious benefit arising out of that 'backdating' would be to allow the Taxpayer to submit backdated VAT Returns and claim for the input tax he had paid to suppliers during the course of constructing his motel complex. Mr Irshad Ali Shah, a Senior Assessor with the Authority, was called by the Applicant to give evidence in proceedings, as he was the customer service officer who attended to the Taxpayer when he made his initial inquiry at the customer service centre. Mr Shah gave his understanding as to the practice that had been in place at the time. That is, that a three year backdating for the commencement of the taxable activity was available as part of the registration process. As part of his evidence, Mr Shah was able to identify the registration notice that had been issued to the Taxpayer consistent with that advice. 

8.	Exhibit A1 tendered by the Applicant during proceedings, is the Notification of VAT Registration. The letter reads in part: 

This is to notify that you have been registered for Value Added Tax purposes in accordance with the provisions of Section 22 of the VAT Decree 1991. 

You will now be required to: 

(A)	Charge and account for Value Added Tax on all taxable supplies made in the conduct of your taxable activity from 01-JUL- 2011

(B)	Furnish VAT returns and pay Value Added Tax to the Commissioner Inland Revenue Service by the due date

(C)	Comply with all other requirements of the VAT Decree

9.	As it transpires and a point that is accepted by both parties, upon an audit review undertaken by the Respondent, it was identified that the Taxpayer was claiming 'input credits' associated with his taxable activity, prior to the date of registration. Mr Alipate Ledua, Chief Auditor for the Respondent gave evidence to the effect that this should never had taken place. According to Mr Ledua, the issuing of the initial registration notification by the Respondent was an error and that this was a consequence of a computer system that allowed for the 'backdating' of taxable activity dates, to periods prior to the date of registration. He stated, that a taxpayer can only claim input credits from the date of registration. He stated that upon identification of the mistake in the case of the Taxpayer, it was discovered that there was a need to change the computer system and to adjust the records for a few hundred registrants. On the other hand, Mr Shah advised in his evidence to the Tribunal that information provided by the customer service staff, was that registration could in effect be backdated for a period of up to three years, so as to allow Taxpayers to be able to claim for input credits during that three year period. During the course of proceedings, Mr Shah was asked to return to the Tribunal with the Standard Operating Procedure that he said guided staff in their dealings with customers. He returned with a document, entitled Standard Operating Procedures (SOP) Version 2 Effective Date 01/01/2013. It is noted that there is no mention of any retrospectivity provision within that document, only that:

VAT returns prior to the registration date should not be accepted. 

10.	Ms Ece Alfred, an Auditor with the Respondent gave evidence that the case of the Taxpayer was referred to her audit team for verification. According to the witness, there were several communications and assessments that arose following the review. Firstly, there was a revision of the expenses (and as a result, the input credits) that were claimed in the period July 2011 to June 2012. The second revision was for the period July 2012 to June 2013. The third communication dealt with the application of a penalty and final correspondence, the concluded assessment as endorsed by the Chief Auditor. To complete the evidence pertaining to the decision making process, the Applicant called Ms Lice Dobui, a Principal Auditor with the Respondent who provided an insight into the manner by which the final assessment was made. Ms Dobui advised the Tribunal that the final decision to allow a three month period of 'backdating' for the taxable activity, was in recognition of the "set up costs" for establishing the Taxpayer's business. She advised that the decision to allow a three month backdating of the taxable activity at registration, was determined following discussions with the Chief Executive Officer and the Chief Auditor. 

VAT Technical Manual 

11.	During the course of proceedings, Ms Malani of Counsel had cause to refer to the VAT Technical Manual that had been issued by the VAT Unit Inland Revenue Department, ostensibly some time on or before 1 October 1992. As it transpired and as the evidence of Mr Ledua indicated, that manual was likely to have been introduced to coincide with the commencement of the Decree in 1991. According to the National Manager, Revenue Collection, Ms Makareta Ledua, she had last seen the Technical Manual in use around 1998. She attributed the development of the manual to three persons who were involved in the training of staff coinciding with the introduction of the law in 1992. According to Ms Ledua she had not been made aware of the 'backdating' of registrations until it had come to her attention last year. The problem for the Tribunal to some extent, hinged on the fact that the Manual provides prima facie evidence of a policy situation adopted by the Respondent, that did support 'backdating' of the benefit of registration. For example, Section 2.4.2.1 (1) of the Technical Manual addressed the issue of 'backdating' in this way:

In determining the effective date of registration we will need to consider:

(i)	A request for backdating – is it realistic, does any likely claim on inputs correspond to the making of taxable supplies, have appropriate records been kept, is the applicant merely trying to get into the system, make input claims and get out?

(ii)	The size of the business involved. A small business is likely to be allowed a greater degree of latitude 

12.	Against that backdrop it is hard to ascertain what the custom and practice of the Respondent was. At one hand, the evidence of an employee from the customer service centre was that there was an edict in place to advise customers that there could be a 'backdating' of the benefit of registration, on the other hand, it seemed that the key functional activities of the Respondent maintain that no scope for such an approach was in place. What is clear is that following the identification of the Taxpayer's case, various meetings and internal communications took place, to ensure that the registration day on the Respondent's computer system could only take effect from the date of receipt of the application. 

Reliance and Representation 
13.	The issue relating to reliance of the Taxpayer is an interesting one. The Taxpayer argues that he relied on the information provided to him by the customer service centre to register and to secure a backdated commencement of registration for the taxable activity, to a period coinciding with when the business commenced.  The Taxpayer also made clear, that in the absence of that voluntary registration, there would have been no compulsion upon him to have registered for the taxable activity until such time as the monetary threshold for supply had been met in accordance with Section 22 of the Decree. In any event, the Taxpayer as a consequence of his registration and submission of the backdated returns, received tax surpluses due to the quantum of the input credits he had claimed. It was the submission of the Taxpayer, that his reliance on the income stream arising from that refund of taxes paid, is where the true disadvantage to his business occurred. 

14.	According to the Taxpayer, the change in position saw the Respondent reduce the period of backdating to a 3 month window in which the taxation on the pre-registration expenditure could be offset. The nett result of all of this, was that instead of allowing expenditure of approximately $600,000.00 to be considered within the initial three year 'backdated' window, only an amount of approximately $120,000.00 of costs was allowed. The adjustment saw the Taxpayer having to forego $99,248.98 in input credits associated with this expenditure. 

Closing Submission of the Applicant 
15.	The essential thrust of the Applicant's Closing Submission, is that the change in position by the Respondent, was not arising out of any mistake, but more a reconsideration based on the realisation of the tax revenue lost through allowing such a long period of 'back dating' to take place. That is, when it was discovered the surplus arising out of the 'backdating' was so significant, the Respondent thereafter changed its position and corrected the practice, with the effect of 'clawing back' the refunds paid out over that period. 

16.	The allegation being, though not couched in such exact terms, that the correction was not the mere rectification of a mistake, but a deliberate manoeuvre to ensure that the Taxpayer was denied the ostensible 'benefit' of being able to claim the offsets for the costs of goods and services received prior to being registered. The case of the Applicant is that he has been treated unfairly as a result of the conduct of the Respondent. Put simply, the policy or agreement was either in place or not. If it was, so the argument runs, then the Taxpayer should only have been dealt with under that policy or agreement. On the other hand as Ms Makareta Ledua, the National Manager of Revenue Collections attested, for as long as she could recall, the practice was that input tax could only be claimed from the date of registration onwards. 

Unfair Conduct of the Respondent

17.	In support of this broad proposition of unfairness, the Applicant has relied on the decisions of Satala v Bouwalu and General Machinery Hire Ltd v Chief Executive Officer of Fiji Revenue and Customs Authority to demonstrate the willingness of the courts to judicially review administrative decisions in the case where it has been determined that there is an absence of power, an outcome that is irrational, or where there has been a denial of natural justice. Of course, as mentioned several times during proceedings, the matter before the Tribunal is a review hearing of the merits of the case. The obligation imposed on the Applicant by virtue of Section 21(1)(a) of the Tax Administration Decree 2009, is to prove that the tax assessment is excessive. This is not to say that the Applicant has not been afforded fairness that may in turn give rise to a right to pursue an application for judicial review. But such challenges cannot be entertained within the jurisdiction of the Tax Tribunal, where a protocol for statutory review is in place.  

The Legitimate Expectation of the Taxpayer

18.	As part of his submission, the Applicant submits that he had a legitimate expectation that he could:

Charge and account for Value Added Tax on all taxable supplies made in the conduct of (his) taxable activity from 01-JUL-2011. 

19.	So much was directly communicated to the Applicant in the Notification of Registration. To this end, the Taxpayer relies on Preston v IRC Council of Civil Union Service Unions v Minister for the Civil Service and R v ICR ex parte MFK Underwriting Agencies Ltd as authorities that a reasonable expectation once created, cannot thereafter give rise to a situation that is blatantly unfair. Citing from the House of Lords Decision in Preston, the Taxpayer referred to the endorsed majority judgment of Lord Templeman, that came to the view in the case of a Taxpayer who had relied on the undertakings of the Revenue that: 

In principle I see no reason why the taxpayer should not be entitled to judicial review of a decision taken by the commissioners if that decision is unfair to the taxpayer because the conduct of the commissioners is equivalent to a breach of contract or representation.

Abuse of Power?

20.	The next argument advanced by the Taxpayer deals with the question of whether or not there has been an abuse of the Respondent's power. In this regard the Applicant referred the Tribunal to the New Zealand High Court decisions of Westpac Banking Corporation v Commissioner of Inland Revenue and Couch v Attorney-General. As is illustrated through the submissions and cases relied upon, Westpac demonstrates the importance of interrogating the exact nature of the representation or contract in place. Whereas Couch, appears to be relied upon as demonstration of the importance of maintaining a consistent approach to the policy considerations that may otherwise affect the exercise of a power or discretion. 

21.	Finally, the Applicant raises an equitable estoppel argument reliant on the American decision in Lambertini v Lambertini. In raising such an argument the Tribunal remains somewhat unclear as to the relevance of such a case in circumstances where the Taxpayer nonetheless recognised the fact that the Respondent cannot be estopped from performing its statutory obligations.  

22.	All of these submissions that deal with whether or not there is a right of judicial review, deal with matters that fall well outside of the powers of this Tribunal. The Tribunal can only deal with whether or not the amended assessments were excessive having regard to the relevant provisions of the Decree. 

Submissions of the Respondent 

23.	The Respondent acknowledges that Section 22 (5)(a) of the Value Added Tax Decree 2009 provides the Chief Executive Officer a discretion when determining the effective date of registration in accordance with Section 22(3) and (4) of the Decree. The Outline of Submission further states: 

… that a registered person can only claim input credits from the date of registration in accordance with section 39 of the VAT decree. 

24.	Presumably here, the Respondent is specifically referring to the work that Section 39 (2) of the Decree provides, where it states:

Subject to this Section, in calculating the amount of tax payable in respect of each taxable period, there shall be deducted from the amount of output tax of a registered person attributable to the taxable period 

(a)	where all the supplies made or to be made by the registered person are or will be taxable supplies, the total amount of the input tax

25.	The Respondent in effect argues that it makes no sense that the Applicant seeks to claim input credits at a point in time when he is not registered as a person conducting a taxable activity. Presumably, though there is no evidence before the Tribunal, there was no taxable supply coinciding with these earlier periods the subject of dispute. Further and by reference to the Court of Appeal decision in Punjas Limited v Commissioner of Inland Revenue,  the Respondent submits that in any event, it remains entitled to make an amendment of assessment consistent with the time requirements imposed at Section 48 of the Decree, in such case where it believed that it had not properly discharged its statutory obligation. In this regard, the Respondent further relied on two earlier decisions of the New Zealand Court of Appeal in the cases of King v Bennetts and LR McLean and Co Ltd & Ors v Commissioner of Inland Revenue to support the proposition that the Revenue is entitled to change and modify its policy position in order to properly discharge its statutory function. 

General Conclusions of the Tribunal
26.	The role of the Tax Tribunal when dealing with applications for review, is set out within the relevant provisions of the Tax Administration Decree 2009. The scope of that review power is contained within Part III of the Decree. If there is a right to have a taxation decision judicially reviewed, that application would need to be made to a court of jurisdiction. 

27.	Having regard to the submissions of the parties, it is nonetheless clear that the Respondent had issued a Notification of Registration to the Taxpayer that specifically indicated that he could charge and account for value added tax on all taxable supplies made in the conduct of his taxable activity from 01-JUL-2011.  This according to Mr Shah was consistent with the advice being provided to taxpayers at the Customer Service Centre. It seems clear that it was also an approach not inconsistent with the VAT Training Manual prepared by the Respondent that was in use in its offices to assist with the introduction of the Decree in 1992. Despite this notification, an audit undertaken by the Respondent clearly identified the tax surplus gained by the Taxpayer through the benefit of the 'backdating', was an anomaly warranting further investigation. The conclusion reached by the Respondent, was that the Taxpayer should not have been able to claim the input credits for a taxable activity, where no registration was in place at the time. 

28.	It is commonly accepted that following this intervention by the Audit Team, that a process of review was undertaken by the Respondent. As a result of that review, the Taxpayer was provided a 3 month window for backdating the taxable activity, in order to allow some claiming of input credits, coinciding with the start-up costs associated with his business venture. The Taxpayer has explained the prejudice that arose as a result of the disallowance of the input credits. An analysis of the shifting position of the Respondent as identified in the communications within Exhibit A3, demonstrates the unclear approach that was initially adopted by the Authority. The Taxpayer's own business operations and cash flow projections were impacted upon by the change in position. Nevertheless as the law has been applied, the Respondent has done no more than made a determination under the Decree. Whether there has been a breach of contract, a breach of representation or an abuse of power, is not a matter that falls within the jurisdiction of this Tribunal to determine. 

29.	It is recognised that the Taxpayer acted in good faith. He provided evidence of his expenditure and claimed for the input credits, associated with the development of his motel complex accordingly. Had the Taxpayer obtained registration prior to the commencement of any building works, a different set of considerations may have resulted. Though it is noted that the Taxpayer has not provided any evidence of his taxable supplies in the disputed period. It is perhaps worth noting that the combined effect of Sections 15(1) and 39 (1) is to calculate the tax payable by a registered person in furtherance of its taxable activity. When the legislation was first introduced in 1991, the former Section 39(2)(c), did provide some possible opportunity for claiming input credits during periods where there was no taxable supply, where it enabled a calculation to be based on 

such proportion, if any, of the input tax for that taxable period as the Commissioner considers to be fair and reasonable

30.	Yet the opportunity for doing this was removed with the deletion of that provision in 1992. The statutory consideration was not that dissimilar to that set out within the now redundant VAT Technical Manual, that required the Respondent to ask the question when assessing the possibility of 'backdating': 

does any likely claim on inputs correspond to the making of taxable supplies?

31.	The Taxpayer has not been able to refer to anywhere within the Decree that retains these concepts. The most likely inference that can be drawn from the language of the legislation, is that it is to act prospectively and that registration is the first step in establishing one's bona fides for participation in the scheme. Keep in mind that the notification of registration advises of three primary obligations:-

Charge and account for Value Added Tax on all taxable supplies made in the conduct of the taxable activity; 

Furnish VAT returns and pay Value Added Tax to the Commissioner Inland Revenue Service by the due date; and 

Comply with all other requirements of the VAT Decree

32.	The inference for giving the Decree a prospective effect in such cases, is able to be found within Section 22 (4). Under this provision, there is an expectation that a person is engaging in taxable supply, so as to justify the voluntary registration. So much is made clear, when Section 22 (4) allows applications for registration to be received where:-

(a)	that person is carrying on a taxable activity that involves the making of other than exempt supplies; or 

(b) that person intends to carry on any taxable activity, which will involve the making of other than exempt supplies, from a specific date 

33.	The purpose of registration is to allow the Taxpayer the right to charge and account for Value Added Tax on all taxable supplies from a specific date. That is, the person is either presently making supplies or will be from a specific date. To backdate the commencement of registration to a date where there was no taxable supply, for example, would not appear to be within the contemplation of the law and the obligations that it imposes upon the registrants. In light of the above, based on the evidence before the Tribunal, the Amended Assessments issued on 15 September 2014, for the relevant periods, do not appear to be excessive. 

34.	Finally and for the sake of completeness, one issue that was not ventilated by the parties in their submissions, related to the issue of the imposition of a Section 46 penalty, based on the returns made by the Taxpayer during the 2013 period. As the Application for Review only concerns itself with the period between July 2011 and February 2013, it is taken that this question of the fairness or excess of penalty, falls outside of the scope of this review application. It may nonetheless be prudent for the Respondent to ensure that any such penalty is consistent with the Tax Court decision in An Investments Limited Company v Fiji Revenue and Customs Authority.

35.	For the above reasons and having regard to the powers of this Tribunal, the application for review is dismissed. 

Decision 

The Tribunal orders that:-

(i)	The Application of the Taxpayer is dismissed. 

Mr Andrew J See
Resident Magistrate