Malaysia’s bill of demand for sales tax quashed
DP Naban, S Saravana Kumar and Ng Kar Ngai of Rosli Dahlan Saravana Partnership discuss a case decided by Malaysia’s High Court where the taxpayer successfully has the bill of demand for sales tax quashed.
The High Court allowed a judicial review application to quash a bill of demand for sales tax issued by the Director General of Customs (DGC) in the WMSB case. In essence, the DGC had arbitrarily disallowed WMSB’s application for sales tax exemption under item 57, Schedule A of the Sales Tax (Persons Exempted From Payment of Tax) Order 2018 (Exemption Order).
WMSB is a company principally engaged in trading of edible oil products. WMSB’s products are sold to the overseas market. The commercial arrangements in WMSB’s trading activity are consistent whereby WMSB sources for edible palm oil and packaging materials from Malaysian manufacturers. The packaging materials are delivered to the appointed packer of WMSB, who fill the edible oil into the packaging materials. The appointed packer is also a Malaysian business entity. Given the nature and volume of the edible oil, the edible oil cannot be sold to the overseas market without being packed into the packaging materials.
Upon completion, the goods are exported to WMSB’s customers. The export declaration forms are lodged in the name of WMSB as the exporter. In 2018, WMSB obtained a verbal confirmation from customs that WMSB is eligible for the exemption on the purchase of the packaging materials under the Exemption Order. WMSB was also granted 17 certificates of exemption by the DGC through customs.
However, the DGC disallowed WMSB’s claim for exemption stating that:
WMSB’s description of goods and tariff codes declared in Form K2 do not match with the packaging materials purchased; and
The exemption is not intended for value added or processing activity.
The High Court allowed WMSB’s application for judicial review, where WMSB submitted that:
The Exemption Order is effectively a subsidiary legislation made under the Sales Tax Act 2018 (STA) and, as such, would be equally applicable as the STA. The DGC must therefore give effect to the Order where relevant and applicable, as the DGC would with any provisions of the STA;
The Exemption Order would be relevant and applicable if the conditions for such exemption are satisfied. The DGC must then give effect to the exemption and there is no discretion as to whether such exemption will be granted regardless of any factors. This principle was applied in the Syarikat Pendidikan Staffield case;
The necessary conditions for the exemption under Item 57, Schedule A of the Exemption Order have been satisfied as
WMSB had obtained the certificates of exemption issued by the DGC;
WMSB had purchased the packaging materials from registered manufacturers; and
The goods were exported within six months from the date of purchase.
WMSB’s business operations must be seen in totality and not in isolation. As held in the Servier Malaysia case, it would be necessary for income tax purposes, to look at a business as a whole set of operations directed towards producing income. Without the packaging materials, WMSB will not be able to export and sell the edible oil;
Further, pursuant to the decision in the Latex Manufacturing case, where there was no cancellation of a tax exemption granted, WMSB ought to be able to enjoy the tax exemption granted to it and the DGC is not allowed to disregard such tax exemption;
Relying on the Indian precedents on the enforcement of policies, i.e. exemptions, incentives and/or concessions implemented by the authorities, it is clear that the executive is bound by the policy decisions implemented by the legislature and the executive is prevented from imposing taxes against such policy decisions;
The executive is prevented from ‘blowing hot and cold’ in the event a representation for tax incentive was made and the taxpayer has relied on such representation;
It is erroneous of the DGC to impose his own conditions on WMSB when such conditions are not stipulated in the Exemption Order. In the National Land Finance case, the Supreme Court held that there is no room for any intendment in interpreting a taxing statute;
By usurping the role of the Parliament and inserting their own requirements into the Exemption Order, the DGC had exceeded his powers and the decision was, therefore, unlawful as being an unreasonable exercise of power such that it becomes the duty of the court to intervene; and
Additionally, WMSB had a legitimate expectation that it would be entitled to enjoy the tax exemption for the entire term granted to it. The principle of legitimate expectation is equally applicable in tax cases, as demonstrated in the Paramount Malaysia case.
This decision affirms the principle that any exercise of power by a public authority is subject to legal limits and any act done in ignorance of the decisions of the courts and the relevant statutory provisions stand to be quashed.
Senior partner, Rosli Dahlan Saravana Partnership
S Saravana Kumar
Partner, Rosli Dahlan Saravana Partnership
Head of tax, SST and customs practice
Ng Kar Ngai
Associate, Rosli Dahlan Saravana Partnership