N9290

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (COMM) NO. 382 OF 2016

BETWEEN:
SOUTH SEAS TUNA CORPORATION LIMITED
Plaintiff

V

BETTY PALASO as COMMISSIONER GENERAL,
INTERNAL REVENUE COMMISSION
First Defendant

AND:
INTERNAL REVENUE COMMISSION OF PAPUA NEW GUINEA
Second Defendant

Waigani: Anis J
2021: 31st August, 16th November

DECLARATIONS – ss 23 & 19 – Goods & Services Tax Act 2003 – whether type or manner of supply of tuna in the plaintiff’s line of business subject to tax or otherwise – s. 67 assessment - Commissioner General - whether amount chargeable is at the rate of zero percent pursuant to s 23(2)(c) and or s. 19(1)(a) of the Goods and Services Tax Act 2003

PRACTICE AND PROCEDURES – Whether claim abuse of process or breach provisions of the Goods & Services Tax Act 2003 – interests and rights of the plaintiff – underlying purpose of the proceeding – whether there is any utility in the relief sought – s.70 – express boundaries and limitations on challenges and objections under PART XI and PART XI of the Goods & Services Tax Act 2003 discussed

Cases Cited:

South Sea Tuna Corporation Ltd v. Betty Palaso and Or (2017) N7698
South Sea Tuna Corporation Ltd v. Betty Palaso and Or (2019) SC1761
William Powi v. Southern Highlands Provincial Government (2006) SC 844
Eremas Wartoto v. The State (2015) SC1411

Counsel:

I Molloy with counsel assisting A Narokobi, for the Plaintiff
S. Sinen, for the Defendants

DECISION

16th November, 2021

1.	ANIS J:  The plaintiff files this proceeding under its Further Amended Originating Summons of 23 April 2021 (AOS).  The main relief it seeks by way of a declaration, is and I quote:

Pursuant to Order 4, Rule 3, Order 12, Rule 1 of the National Court Rules,  the inherent jurisdiction of the Court, and Constitution s 155(4), a Declaration that the supply by the Plaintiff to FCF Fishery Company Ltd (FCF) of tuna processing services in respect  of tuna owned by FCF and brought to the Plaintiff’s Wewak facility for processing under the control of customs and re-export, is chargeable with Goods and Services Tax at the rate of zero percent on the invoice price of the processing services pursuant to sections 23(2)(c), and/or 23(3)(b)(i) and/or 19(1)(a) of the Goods and Services Tax Act 2003.

2.	The trial was conducted on 31 August 2021.  Both parties tendered affidavit evidence which were marked down as exhibits without the benefit of cross-examination of witnesses.  This was agreed to by the parties.  I heard submissions after that and reserved my ruling to a date to be advised.

3.	This is my ruling.

BACKGROUND

4.	The relevant background facts are not in dispute and are captured in the submissions of the plaintiff.  The plaintiff entered into a project agreement (Project Agreement) with the State and the East Sepik Provincial Government for the establishment of a fish processing facility (Processing Facility) at Wewak for the purpose of processing tuna.  The Agreement was entered on 5 July 2000. 

5.	The Processing Facility was constructed within the Port of Wewak.  FCF Fishery Company (FCF) is the plaintiff’s parent company.  It is based overseas.  The plaintiff is incorporated in Papua New Guinea.  The arrangement at the material time was this.  FCF would buy tuna off fishing vessels at sea, and direct the tuna be delivered to the Processing Facility for processing by the Plaintiff, and then take away the bulk of the processed fish or tuna loins for export sale.  The plaintiff would be paid a processing fee by FCF in accordance with an industry formula for the recovery of fish from the carcasses and the fish meal by-products.  The plaintiff would supply the labour and other minor inputs, plus the energy to operate the Processing Facility.  Goods and Services Tax Act 2003 (GST Act or Act) was charged on the amount of fish product sold locally.  

6.	The plaintiff provided the processing services and invoiced FCF as zero rated for GST.  Each year from 2004, the plaintiff’s premises were audited by Customs and/or the IRC.  That situation ran from 2004 until 2015.  The plaintiff regarded itself compliant with the GST Act.  Similarly, the auditors treated its supply of services as zero rated.  All of that, the plaintiff claims, was consistent, but not dependent on, the terms of the Project Agreement.  

7.	The material terms of the Project Agreement for this purpose include clauses 7.6, Schedule1, paragraph (c), clause 7.4, clause 7.12, and the relevant provisions under the GST Act and the Customs Act 1951 Chapter No. 101 (Customs Act).  

CONTENTIONS

8.	The plaintiff’s main argument is this.  It says it is bringing the action not to challenge the defendants’ assessments of its GST tax liability for the period 2004 to 2015.  It says there is a process for that under the GST Act and it is now the subject of a judicial review proceeding.  The plaintiff says the outcome of the judicial review proceeding would be limited to decision making process of the defendants, but it would not resolve the possible underlying issue which it is seeking before this Court.  The underlying issue is what is being sought as its main relief, that is, whether the supply by the Plaintiff to FCF Fishery Company Ltd (FCF) of tuna processing services in respect of tuna owned by FCF and brought to the Plaintiff’s Wewak facility for processing under the control of customs and re-export, is chargeable with Goods and Services Tax at the rate of zero percent on the invoice price of the processing services pursuant to sections 23(2)(c), and/or 23(3)(b)(i) and/or 19(1)(a) of the Goods and Services Tax Act 2003.

9.	The defendants oppose these contentions.  They begin by raising a preliminary issue.  They say the provisions of the GST Act provide an administrative process for dealing with objections to assessments, and they say the process has to be exhausted before an objection or dispute could escalate to a court for determination.  They raise their arguments which may be summarized as follows:

-	the plaintiff is precluded from raising any arguments about not being given a fair opportunity to have its grievances properly dealt with;
-	the plaintiff’s action in filing this proceeding and now having it brought to trial, is a calculated move to defeat the administrative procedure under the GST Act before the dispute may be brought before the National Court;
-	the plaintiff, by this proceeding is attempting to rehash factual matters which is an attempt to challenge the validity of the amended assessment of June 2016.

10.	The parties are at common ground on the following facts.  In September of 2015, the defendants sent a letter to the plaintiff called a Position Paper.  The defendants claimed in the letter that the plaintiff had GST liability.  The plaintiff provided a response to the Position Paper.  The plaintiff’s Managing Director Michael McCulley [Exhibit P1] later learnt in early 2016 that the defendants had posted GST ledger entries into the plaintiff’s GST account.  The entries showed the plaintiff to owe the defendants GST liability in excess of K15 million as at 1 January 2015.  The plaintiff filed its objection to that under the GST Act on 24 March 2016.  The defendants amended its ledger several times after that (claiming GST for the period 2004 to 2015) and after each amendment, the plaintiff lodged its objections.  On 15 June 2016, the plaintiff’s financial controller Renemill Timario [Exhibit P1] observed the defendants’ second and other revised ledger increases that had been made to the plaintiff’s tax account that increased its tax liability to K22,959,934.84 and then to K33 million.  On 24 June 2016, the plaintiff filed this proceeding.  Shortly after and on 27 June 2016, the defendants served the plaintiff with another assessment on the plaintiff’s tax liability in a sun of K64,543,072.47 (the assessment of 27 June 2016).  In an interlocutor hearing herein, clarity was sought, amongst others, in regard to the various purported assessments that had been made by the defendants on the plaintiff’s tax liability.  The decision is reported as South Seas Tuna Corporation Ltd v. Betty Palaso and Or (2017) N7698.  The matter reached the Supreme Court after that in South Seas Tuna Corporation Ltd v. Betty Palaso and Or (2019) SC1761.  On 14 February 2019, the Supreme Court dismissed the interlocutory appeal.  On point and at [116], Justice Collier, whose decision constituted the decision of the Court, stated:

116	In my view, the journal entries were steps preliminary to the making of an assessment by the Commissioner, which occurred on 27 June 2016.  They did not constitute “an assessment” within the meaning of the GST Act.

11.	So, with that clarity, what then was apparent was this.  The plaintiff had by then or on 29 June 2016 provided its objection to the defendants’ assessment of 27 June 2016 [Exhibit P2].  The facts following that show that the parties, by their actions, decided to continue with the internal assessment process under the GST Act, that is, in spite of the present proceeding.  On 18 April 2019, soon after the Supreme Court’s decision of 14 February 2019, the defendants sent their response by letter to the plaintiff’s objection of 29 June 2016 [Exhibit D1].  They notified the plaintiff that its objection failed to meet the criteria for objections as required under the GST Act and was invalid.  The plaintiff responded to the defendants’ rejection to its objection, by letters dated 24 June 2019 and 1 July 2019 [Exhibit D1].  The plaintiff sought extension of time from the defendants to lodge another objection.  On 2 July 2019, the defendants responded ‘granting an extension of time’ to the plaintiff to lodge its objection.  On 5 August 2019, the defendants ‘revoked’ their decision to grant extension of time to the plaintiff to lodge another objection.  On 19 August 2019, the plaintiff through its lawyers furnished its ‘Objection’ to the defendants.  The plaintiff informed the defendants that it had already accepted the grant of extension of time to lodge an objection and rejected the defendants’ claim that they had ‘revoked’ the grant of extension to time in their letter of 5 August 2019.  Further attempts by the plaintiff on the issue were rejected.  The plaintiff has now filed a judicial review proceeding to challenge the actions or inactions of the defendants from these recent events or the purported rejection of extension of time by the defendants to the plaintiff to file an objection.  Parties submit that a stay order is in place with the judicial review proceeding pending the outcome this matter.

12.	I note that the plaintiff’s letters in Exhibit D1 were marked “without prejudice”.  No objection was taken for their admission.  I therefore note these evidence and consider at the outset that the parties had, by their conducts, continued to subject themselves to the internal assessment or objection process under the GST Act, that is, after the Supreme Court had validated the defendants’ assessment of 27 June 2016.  As for the plaintiff, counsel submits that the internal process is also pursued but is separate to the present proceeding.

PRELIMINARY ISSUE – CONSIDERATION/FINDING

13.	So, I ask myself these.  Is the present proceeding an abuse of process, or is it properly before the Court for determination?  If this Court is to proceed to hear the substantive issue, will that interfere with the defendants’ statutory right on assessment including their assessment of the plaintiff’s GST liability dated 27 June 2016?  Is there a real connection between the relief that is sought herein to or with the assessment of 27 June 2016?

14.	I observe that the pending judicial review proceeding may seek to review the decision of the defendants to grant or revoke the plaintiff’s request for extension of time to file its objection to the assessment of 27 June 2016.  I observe that the relief sought in the judicial review matter may be separate and distinct to the relief that is sought herein, that is, if I am minded to proceed to deal with the substantive matter after this.  I, however, have doubts that the issues or the underlying purpose of the present proceeding may be regarded or treated as separate to the dispute that surrounds the assessment of 27 June 2016 and the internal process that are provided for under PART XI of the GST Act.

15.	This brings me to my next observation.  The plaintiff is seeking a declaratory relief to protect its right or interest, from what it claims, was an inaccurate assessment by the defendants over its tax liability.  In so doing, it has raised legal issues herein for this Court to determine which essentially may decide or resolve whether it owes any substantial tax liability to the defendants.  The interest which it seeks to protect is not speculative but is real, that is, its tax liability and its right to pay the correct assessed tax under the provisions of the GST Act.  However, the defendants maintain that there is a process for that which is expressly provided for under statute, that is under s. 74, 75 and 77(2) & (3) of the GST Act.  These provisions read:

74.  Objections to assessments.

(1)  Subject to Subsection (2), a person who has been assessed for tax payable may object to that assessment by delivering or posting to the Commissioner a written notice of objection stating shortly the grounds of that person's objection, within such time as may be specified in that behalf in the notice of assessment, not being less than two months after the date on which that notice of assessment is given, or within such extended time as the Commissioner may allow on the application of the person made before the expiry of—
(a)	the time for objection specified in the notice of assessment; or
(b)	any extended time for objection previously allowed by the Commissioner in respect of the assessment.
(2)  Where an assessment is an amended assessment, the person so assessed shall have no further right of objection than that person would have had if the amendment had not been made, except to the extent to which by reason of the amendment a fresh liability in respect of any particular is imposed on that person or an existing liability in respect of any particular is increased.
(3)	  No notice of objection given after the time specified in the notice of assessment, or after such extended time as the Commissioner may allow under Subsection (1), shall be of any force or effect unless the Commissioner, in the Commissioner's discretion, accepts the same and gives notice to the objector accordingly.

75.  Commissioner may amend assessment, or objections may be submitted to Review Tribunal.

(1)	  The Commissioner shall consider all objections under Section 74, and may alter the assessment pursuant thereto.
(2)	  Where an objection is not wholly allowed by the Commissioner, the objector may, within two months after the date on which notice of the disallowance is given to the objector by or on behalf of the Commissioner, by notice in writing to the Commissioner require that the objection be heard and determined by the Review Tribunal, and in that event the objection shall be heard and determined by the Tribunal, and the provisions of the Income Tax Act shall apply in respect of the institution, hearing, and determination of the proceedings on the objection.
(3)	  Where the Commissioner, after considering the objection, has allowed the objection in part and has reduced the assessment, the reduced assessment shall be the assessment to be dealt with by the Tribunal.
……

77.When objection may be referred in first instance to National Court.

(1)	  Notwithstanding anything in this Part, where—
(a)	an objection to an assessment is made in accordance with Section 74(1) or accepted by the Commissioner under Section 74(2); and
(b)	the objection is not wholly allowed by the Commissioner; and
(c)	the objection is one to which Subsection (2) or (3) applies,
the objection may be referred directly to the National Court by way of case stated in accordance with this section.
(2)	  Where an objection relates to a question of law only—
(a)	the objector may, within two months after the date on which notice of the disallowance is given to the objector by or on behalf of the Commissioner, by notice in writing to the Commissioner, require the Commissioner to state a case for the opinion of the National Court, and shall specify in the notice the registry of that Court in which the objector requires the case to be filed; and
(b)	the Commissioner, in any case if under Section 75 the objector has required the objection to be heard and determined by a Review Tribunal, may, in the Commissioner's discretion, instead of referring the objection to a Review Tribunal, state a case for the opinion of the National Court, and shall notify the objector accordingly.
(3)	  Where an objection relates to a question of fact (whether or not it also relates to a question of law)—
(a)	the objector may, within two months after the date on which notice of the disallowance is given to the objector by or on behalf of the Commissioner, give notice in writing to the Commissioner that the objector desires the Commissioner to state a case for the opinion of the National Court, specifying in the notice the registry of that Court in which the objector desires the case to be filed; and
(b)	the Commissioner may, in any case if the objector has under Section 75 required the objection to be heard and determined by a Review Tribunal, notify the objector that the Commissioner desires the objection to be referred directly to the National Court.

16.	I note the submissions on point by the parties.  Let me begin by making this observation that is not correct for the defendants to say that the plaintiff has not invoked the process under the GST Act.  The plaintiff, in my view, had exhausted its objection options under the Act, and the matter is now before the judicial review Court.  Not much was revealed to this Court by the parties regarding the judicial review challenge, that is, the actual decision that is being reviewed and the type of relief being sought.  But it appears that the outcome of the judicial review proceeding, if successful, will or may reinstate the plaintiff’s objection to the assessment of 27 June 2016.  On the other hand, if it is not successful, the plaintiff may lose its right to challenge the assessment of 27 June 2016, and in so doing, may be liable to pay the full assessed sum, that is, subject of course to its right of appeal therein.

17.	As it is, and in my view, the status quo of the internal assessment process is this.  The defendants have rejected the plaintiff’s objection of 29 June 2016.  Whether the defendants’ decision is correct, proper, or wrong, is now the subject to the judicial review proceeding.  Determination by the judicial review Court may restore the plaintiff’s objection or otherwise.  If the objection is restored, the parties will obviously be required to complete the process under PART XI of the GST Act amongst others.

18.	The relief sought by the plaintiff in the AOS requests this Court to make a determination or finding on the legal issue of whether the supply by the Plaintiff to FCF Fishery Company Ltd (FCF) of tuna processing services in respect  of tuna owned by FCF and brought to the Plaintiff’s Wewak facility for processing under the control of customs and re-export, is chargeable with Goods and Services Tax at the rate of zero percent on the invoice price of the processing services pursuant to sections 23(2)(c), and/or 23(3)(b)(i) and/or 19(1)(a) of the Goods and Services Tax Act 2003.

19.	In my view, this legal question may be sought or relevantly raised by the plaintiff or an objector internally before the Commissioner General, the tribunal or by internal referral (i.e., by the Commissioner General or the plaintiff with leave of Court) to the National Court, only where there is in existence a valid objection that is filed under the terms and conditions of the GST Act.  In other words, an objection to an assessment (made under s. 67) that is filed in compliance with the GST Act shall set the foundation for challenges to or in relation to the said assessment.  It also creates or establishes the rights of an objector.  The internal process for objections under PART XI of the GST is also comprehensive and mandatory.  Mandatory provisions include assessments that are made by the Commissioner General.  In that regard, s. 70 states: 

70.  Assessments deemed correct except in proceedings on objection.

Except in proceedings on objection to an assessment under Section 74, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings (including proceedings before a Review Tribunal) either on the ground that the person so assessed is not a registered person or on any other grounds, and, except as aforesaid, every such assessment and all the particulars thereof is conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly.

20.	The section is written in strong mandatory terms.  It appears to set clear jurisdictional boundaries on matters that are assessed by the Commissioner General under PART X or s. 67 and objections that are filed under PART XI.  One way of interpreting the s. 70 is this:  Only by invoking or registering an objection by an objector can the objector’s tax assessment be reviewed including referral to the National Court under PART XI of the Act.  It could also be interpreted to mean that it is only through the creation and existence of the internal process for review after an objection is filed or lodged can there be any challenge whether it be filed internally or externally before the National Court for determination.  In the present case for example, the original originating summons was filed when the plaintiff’s objection or objections were pending determination by the defendants under PART XI.

21.	However, that position has since changed with the present matter.  The plaintiff’s objection has since been rejected or ruled as invalid by the defendants.  These were conveyed by the defendants to the plaintiff in their letters of 18 April 2019 and 5 August 2019 [Exhibit D1].  In my view, that then concludes the assessment process by virtue of s. 70 amongst others, and the plaintiff is obligated under the GST Act to settle its tax liability as per the assessment of 27 June 2016.  The plaintiff, in this case, has filed a judicial review.  In my view, that should be where the proceedings should be at.  The defendants’ decisions to reject the plaintiff’s objections on 18 April 2019 and 5 August 2019, mean that there is no objection on foot now where the plaintiff could stand on or refer to, within the requirement of s. 70, and raise matters it would otherwise have been entitled to raise had its Objection of 29 June 2016 been valid or was still pending.

22.	The relief the plaintiff is seeking obviously directly addresses legal issues that would have otherwise been raised in its Objection of 29 June 2016.  This assessment has ceased to exist.  Let me also explain it in this way.  If I were to grant the declaration that the plaintiff seeks, it would be granted in vacuum or void.  The plaintiff cannot link that to the internal assessment process because the said process has concluded on or about 5 August 2019.  It is also expressly prohibited by s. 70.  The plaintiff herein no longer possesses or bears the description objector within the requirement or meaning of the GST Act because its Objection of 29 June 2016 has been rejected.  There is also no pending assessment which has not been concluded in this matter under the provisions of the GST Act.  The assessment of 27 June 2016 has been determined and as such, s. 70 of the GST Act shall apply.  

23.	In my view, the only way forward would be for the plaintiff to firstly re-instate its Objection of 29 June 2016.  That would then enable the assessment of 27 June 2016 to be recalled and be further dealt with.  That process, I note, is presently pending before another Court that is, the judicial review Court.  That proceeding, in my view, should be allowed to continue.  Having reached this conclusion, to continue further herein would be, in my view, an abuse of power and process of the Court.  It would also be in breach of the mandatory provisions set out under PART XI of the GST Act particularly s. 70.  Also, if I am minded to proceed and then grant the relief that is sought herein, it will be granted on a dead issue.  The plaintiff’s interest or standing to question or seek clarity in regard to its tax liability on the tax assessment of 27 June 2016 no longer exist as explained above.  The other point to make is this.  There is no real utility in seeking the relief herein as pleaded in the AOS.  The events that had unfolded from 14 February 2019 (i.e., after the Supreme Court’s ruling on 14 February 2019) to the time of refusal to extend the time for objection on 5 August 2019 have defeated the underlying purpose of the proceeding.  But I must also say this.  Had the plaintiff’s objection of 29 June 2016 been valid or not revoked, this Court could have been in a position to proceeded to determine the merits of the matter.  This however is not the case.  

24.	The plaintiff files this proceeding not under the GST Act but under various provisions of the National Court Rules as well as pursuant to the inherent power of the National Court under s. 155(4) of the Constitution.  Counsel covered these in his submissions at the hearing.  There was no opposition in that regard by the defendants.  Whilst the mode, processes and powers invoked herein are separate or distinct from those provided under the GST Act, I note that this Court must not lose focus on the underlying reason or purpose for a party that files such proceeding especially when dealing with issues that may directly or indirectly relate to objections to tax assessments made by the Commissioner General under s. 67 of the GST Act.  In the present case, the plaintiff is commencing this separate mode of proceeding and is seeking the Court’s inherent jurisdiction, to try to achieve, in my view, its same intention or outcome, that is, challenging or seeking answers to legal issues that have originally arisen from the assessment of 27 June 2016.  That assessment has concluded so any legal findings that may be made by this Court, if the Court is minded to grant them, will serve no purpose.  I will go a step further and conclude with the finding that this Court’s inherent jurisdiction cannot be invoked without observance of other existing laws or statutes.  See cases: William Powi v. Southern Highlands Provincial Government (2006) SC 844 and Eremas Wartoto v. The State (2015) SC1411.  And with that, I give particular consideration or make references to s. 70 and the related provisions under PART XI of the GST Act. 

25.	I will therefore uphold the preliminary submission of the defendants.  This proceeding will be dismissed.

REMARK

26.	As I have not dealt with the substantive matter and given the present status of the dispute, I note it is likely the substantive issue may re-surface later for determination with other issues that the plaintiff may have depending on the outcome of the judicial review proceeding.  With that, I would conclude by saying that given the long history and commercial nature of the matter, and consequences that the parties had endured, to name a few, this is perhaps a matter where common sense or approach should perhaps come into play and perhaps the parties should use their best endeavors to settle or reach an amicable solution.  The Court, in my view, should not at all be restricted only towards determining final outcomes of disputes, but rather, should also encourage parties in a dispute to try to reach an amicable solution where possible.  In my view, this case may be regarded as one of those cases or instances.  I end by pointing to s. 83 which gives the Commissioner General a vast discretionary power under PART XI which states:

83.  Determination of objection not to affect other assessments.

The determination of an objection under this Part shall relate solely to the assessment or decision (as defined in Section 73(1)) objected to, and shall not affect the right of the Commissioner to make any other assessment or such decision in respect of the objector, or to amend the assessment or such decision objected to in any manner rendered necessary by that other assessment or such decision.

COST

27.	An award of cost is discretionary.  I will order cost to follow the event on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT

28.	I make the following orders:

1.	The proceeding is dismissed in its entirety.

2.	The plaintiff shall pay the defendants’ costs of the proceeding on a party/party basis to be taxed if not agreed.

3.	Time for entry of these orders is abridged to the date and time for settlement by the Registrar which shall take place forthwith.

The Court orders accordingly
________________________________________________________________
O’Briens Lawyers	Lawyers for the Plaintiff
IRC In-house Lawyers:	Lawyers for the Defendants