CASE TITLE: KANDELITE ENGINEERING CO. LTD. v. FIRS
(2023) LPELR-60682(CA)
JUDGMENT DATE: July 17, 2023
JUSTICES : OBANDE FESTUS OGBUINYA, JCA
FREDERICK AZIAKPONO OHO, JCA
MUHAMMAD IBRAHIM SIRAJO, JC
DIVISION: LAGOS
PRACTICE AREA: TAXATION
FACTS:
The Respondent held the Appellant liable for its failure to file tax returns for some of the years listed.
This was refuted by the Appellant, consequent to which the Respondent filed a tax appeal at the Lagos Division of the Tax Appeal Tribunal.
The Tax Appeal Tribunal ordered the Appellant to pay to the Respondent a withholding Tax of N3,641,462.00, with the outstanding VAT of N4,327,012.00 for 2004, penalties for late filing of CIT and EDT returns of N1,175,000.00, and the VAT and Penalties for late returns, totaling N21,105,875.31. The Appellant was aggrieved by the decision of the Tribunal and appealed to the Lagos Division of the Federal High Court.
The Court dismissed the appeal for lack of merit. The Appellant, still aggrieved with the decision of the Court, further appealed to the Court of Appeal
ISSUES:
The appeal was determined on the following issues:
1. Whether the learned trial Judge was right in affirming the decision of the Tax Appeal Tribunal, which held the Appellant liable for the non-payment of Value Added Tax by customers of the Appellant, in the face of overwhelming evidence that invoices were issued but the customers wilfully refused to pay the VAT despite being informed that same was issued for payment for and on behalf of the Respondent
2. Whether the learned trial Judge was right in affirming the decision of the Tax Appeal Tribunal, which held the Appellant liable for the non-payment and transmission of VAT by customers of the Appellant by placing reliance on the Best of Judgment (BOJ) assessment.”
COUNSEL SUBMISSIONS:
The Learned senior counsel for the Appellant argued that the Federal High Court’s affirmation of the Tax Appeal Tribunal’s decision was incorrect. He asserted that the Appellant, by issuing invoices on behalf of the Respondent, should have been exempt from liability due to the ostensible agency relationship. He contended that the Federal High Court misunderstood the VAT payment procedure.
The senior counsel relied on Sections 2 and 46 of the Value Added Tax Act, 2004, to argue that the Federal High Court made a mistake by holding the Appellant accountable for uncollected Value Added Tax from clients who refused to pay. He further explained that the law distinguishes two distinct steps in VAT payment: the calculation of VAT with invoice issuance and the subsequent collection, deduction, and remittance. He asserted that it’s impractical to proceed to the second step if the first one fails.
The senior counsel emphasized that what the Respondent referred to as ‘VAT not collected’ was, in reality, VAT that could have been collected but was demanded through the issuance of invoices. He argued that the Appellant fulfilled its contractual obligation to pay VAT on behalf of the Respondent when third parties paid for the services, even if they refused to pay the invoiced VAT.
Additionally, he contended that the Appellant, acting as the agent of the Respondent, should not
be held accountable for the actions or inactions of third parties who defaulted. He cited relevant
sections of the VAT Act and legal precedents to support this stance. In response, the learned counsel for the Respondent stated that the Appellant, as a taxable entity, had the responsibility to collect and remit value-added tax. The counsel argued that the Appellant failed to remit the VAT it had collected between 2005 and 2009. He referred to specific sections of the VAT Act and argued that ‘collection’ referred to the VAT collected by the Appellant, not the total transaction amount.
The Respondent’s counsel asserted that the Appellant had a legal duty, not a contractual one, and that the Respondent had repeatedly demanded payment from the Appellant as required by law. The counsel argued that the Appellant intentionally separated VAT payments from its customers’ payments to avoid financial stress while benefiting financially. The Respondent contended that the Appellant should be liable for the prescribed penalty for failing to collect VAT from its clients.
In response to these arguments, the Appellant maintained that it had fulfilled its duty by issuing invoices within the statutory limit. The counsel cited legal precedents and statutory provisions to argue that the VAT Act did not impose an absolute obligation of collection on the Appellant and that the Appellant’s role had its limitations. The Appellant argued that it was the responsibility of the Respondent to ensure compliance in the event of default, not the Appellant’s.
DECISION/HELD:
In the final analysis, the appeal was dismissed and the decision of the trial Court was affirmed.
RATIO:
TAXATION – VALUE ADDED TAX: Position of the law on liability of a company or tax payer who is liable to collect VAT and remit same to the Federal Government where it merely issued invoice to its customers but failed to ensure payment of same
“It is apparent from the record that the Appellant, under this issue, seems to be contesting primarily the imposition by the Tax Tribunal of the VAT and penalties for late returns thereon. It was strongly contended that liability for the VAT in issue, having been demanded by the Appellant’s invoice issued to its clients to that effect, would not lie with the appellant but rather with the Respondent’s duty as the statutory body to enforce compliance. After a careful reading of the parties’ submission on this issue, I am unable to agree with the line of argument maintained by the Appellant herein. It is trite that the issue of tax is mainly and only of statutory coloration and nothing more; neither the actual and/or manner of payment of tax nor the eligibility of the payers or would-be payers as receivers is permitted to be subject to the willy-nilly of the players or stakeholders; it is, by compulsion, statutory.
Though it has been held that, where the tax authority exercises its discretion under the law, for instance, to grant a taxpayer a concession to pay less than the maximum rate, the same shall not amount to a compromise under the enabling law. See Shell Petroleum International Mattsegappij B.V. vs. Federal Board of Inland Revenue (supra). In light of this, the argument of the appellant in this regard must, in essence, be gauged by the statutory provisions guiding this head of tax. By virtue of Section 8 of the Value Added Tax Act, 2004, the Appellant, upon its registration under the Act, becomes a “taxable person”, for the purposes of collection from third parties or customers and remittance of the Value Added Tax so collected to the Respondent-Tax Board for the Federal Government of Nigeria. Thus, the Appellant’s role under the law was well stated in Section 14 of the VAT Act, thus:
(1) A taxable person shall, on supplying taxable goods or services to his accredited distributor, agent, client, or customer, as the case may be, collect the tax on those goods or services at the rate specified in Section 2 of this Act.
(2) The tax collected by a taxable person under subsection (1) of this section shall be known as output tax.
It is provided earlier for a company like the Appellant, in Section 8 of the VAT Act, to register for the purposes of collection and remittance of the value-added tax, thereby making the company a taxable person to collect and remit the tax so collected to the Respondent Board. A combined construction of the foregoing statutory provisions belies the position of the Appellant, which is that mere issuance of invoices to its clients, and not more, satisfies the statutory duty of “collection and remittance” of VAT on behalf of the Federal Government of Nigeria. I am in alignment with the lower Court, which, in its review of the judgment delivered by the Tax Tribunal, held thus:
This Court agrees with the TAT when it states clearly at P. 43, last paragraph.
The question is whether, by simply sending invoices without more, in the circumstances set out above, the collection duties of the Respondent can be said to have been discharged. The Invoiced third parties are the parties liable to pay the consumption tax, and the Respondent is merely the agent of the Appellant for collection purposes. The Value Added Tax Act amount should be part of the vendor’s bill. The Respondent should subsume this amount in its composite bill so that payment of the bill by the third-party customer should not be severable from the perspective of the customer. According to the authors of “Revenue Law: Principles and Practice,” 26th Edition, edited by Notalie Lee, At P. 975. “In general, the Value Added Tax Act is charged on the basis of invoices issued to customers, irrespective of whether payment has been received”. In the UK, there is the concept of Value Added Tax Act relief for bad debts subject to certain set criteria, such as that “The result of a successful claim will be either a reduction in output Value Added Tax Act payable in the relevant quarter or, in appropriate circumstances, a refund of Value Added Tax Act”. This is a post-Value Added Tax Act payment scenario. In a proper case, whether the tax collector can be absolved of responsibility by showing its proper discharge of that function does not arise in this appeal, as we are of the firm view that the cavalier sending off of invoices without more does not satisfy the test of a reasonable agent or collector in all the circumstances of this case. Section 30 of the Value Added Tax Act, Laws of the Federation of Nigeria 2004, renders the Respondent liable to pay N21,105,875.31 (inclusive of penalties).”
The respondent has covered the field in this appeal. This Court has no reason to disturb the findings and conclusions of the TAT. Indeed, Mr. Uzurike, Learned counsel, made the point when it was submitted that:
“The Appellant did not dispute the amount of VAT served on them on the ground that it was an excess payment but on the grounds that it was not collected. However, the transaction that gave rise to the Value Added Tax Act was actually carried out by them, but they ignored, refused, and neglected to collect the Value Added Tax Act that rightfully belongs to the Federal Government of Nigeria.
The Law of taxation requires strict interpretation in order to conform with its provisions. This position was made clear in MAATSCHAPPIJ B. V. FEDERAL BOARD OF INLAND REVENUE (2011), 4 TLRN PAGE 97,
The wordings in Section 55 (1) (c) of the CIT Act and the CAP Laws of the Federation of Nigeria are clear and must be strictly adhered to. He cited M.F. A. Limited v. Martchem India LTD (2000) 8 NWLR (PT 669) 459 at 473, where the Court of Appeal, per Salami, JCA, succinctly stated the law as follows:
“Where the words of a statute are clear, the Court should refrain from reading into it extraneous
matter.” See the case of ANKAR & ORS LOKOJA & ORS (2001) 4 NWLR (PT 702) 178 at 194.” As the Appellant wont to say, that it was frustrated from collecting the VAT by the refusal of its client to pay the VAT through the company, I am not convinced a hoot by the argument that same ought not be imputed to the Appellant as a failure or interpreted as docility or relapse into passivity as held by the Tribunal and upheld by the lower Court, I am sufficiently persuaded, by the Respondent’s argument while relying on the provision of Section 15 (1) of the VAT Act, to the effect that the timeframe stipulated by the law within which to render returns, which would have included the report of defaulting customers to the Respondent, would have facilitated a timeous intervention of enforcing the position of the law upon the Appellant’s clients within a reasonable time. It is on record that the Appellant, as noted, only issued invoices to its clients and factually went to sleep, despite the fact that the clients were in continuous default of the law.
This, in my opinion, is a dereliction of duty imposed on the Appellant as a taxable person.
The VAT Act, in Section 15 (1), provides thus:
“A taxable person SHALL render to the Board, on or before the 21st day of the month following that in which the purchase or supply was made, a return of all taxable goods and services purchased or supplied by him during the preceding month in such manner as the board may, from time to time, determine.” In view of the foregoing, I am also of the opinion that the enforcement by the Respondent, while the defaulters were still in existence and accessible, would have been more attainable than the situation wherein the Appellant prevaricate for over 5 years and only when the Respondent initiated the appeal before the Tax Appeal Tribunal in 2011 were they able to belatedly file their returns in 2012. The expression employed in the statute is direct and pointed enough to hold that the Appellant indeed failed to collect the VAT accrued from its clientele.
The provision of Section 34 of the VAT Act is on hand in this respect; it provides thus: “a taxable person who fails to collect tax under this Act is liable to pay a penalty of 150% of the amount not collected, plus 5% interest above the Central Bank of Nigeria rediscount rate.”
The above is applicable in the instant case on appeal. It is not in doubt that both the offense and penalty thereto are clearly spelled out in the statute. Once the Appellant is adjudged to have failed in its duty under the statute, the liability to pay the stipulated penalty crystallizes in the circumstances. It is my respectful opinion that the duties of the Appellant under the law herein are not to be taken in isolation of each other; they have to be construed in conjunction and as being composite. If, as a taxable person, the Appellant is obligated to collect VAT, which it insisted it satisfied by the issuance of the invoices, the other leg of the duty, to wit: to file a return of all taxable goods and services on or before the 21st day of the next month to the sales or services rendered, ought not be abdicated. The Appellant defaulted on this duty and is liable for the penalty stipulated thereto. I so find.” Per SIRAJO, J.C.A.
