Malaysian High Court quashes bills of demand in a GST appeal
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Malaysian High Court quashes bills of demand in a GST appeal

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S Saravana Kumar and Amira Rafie of Rosli Dahlan Saravana Partnership discuss the decision in a recent case involving the retrospective effects of a GST regulation.

The Shah Alam High Court in Malaysia has allowed a judicial review application by a taxpayer in a goods and services tax (GST) dispute.

The High Court, by ruling in favour of the taxpayer on February 16 2023, made it clear that the tax authorities ought not to be allowed to arbitrarily renege on an approval granted to the taxpayer which allows them to benefit from a tax incentive or exemption following a change to the law. The taxpayer was successfully represented by Rosli Dahlan Saravana Partnership’s Tax, SST & Customs partner, S Saravana Kumar, and associate, Amira Rafie.


The taxpayer in this case, PNMSB, is a subsidiary of a major publicly listed company, PNH, with a principal activity of providing management services to PNH and other subsidiaries of PNH. In December 2015, PNH submitted an application to register several of its entities, including the taxpayer, as a goods and services tax group (a GST Group) pursuant to Section 27 of the Goods and Services Tax Act.

Section 27 of the Goods and Services Tax Act provides that any taxable supply of services made by a member of a GST Group to another member of the group shall be disregarded and need not be subject to GST. One of the conditions for the registration of a GST Group is that “each company is registered under the Act and makes wholly taxable supplies” (Regulation 19 of the Goods and Services Tax Regulations).

At the time the application was submitted by PNH, all criteria for registration were duly satisfied. However, on January 1 2016, Regulation 41 of the Goods and Services Tax Regulations was amended to include “investment holding companies”. This amendment had the effect of excluding any investment holding company from being considered as an incidental exempt supply under Regulation 40 of the GST Regulation. Notwithstanding this, the Royal Malaysian Customs Department (Customs) approved the registration of the GST Group on February 10 2016.

In 2019, however, Customs reneged on the approval and took the view that PNH is not eligible to be considered as a member of the GST Group due to the amendment to the law. Customs subsequently issued two bills of demand (BOD) to the taxpayer for alleged underpaid GST totalling MYR 5.2 million (approximately $1.2 million). The taxpayer filed a judicial review application to challenge the decision.

Legal arguments

The taxpayer submitted that Customs had committed an error of law and exceeded its jurisdiction for failing to take into account the relevant facts and legal principles in raising the BOD, namely that:

  • The registration of a GST group is not an automatic process. Upon consideration of the taxpayer’s application for the GST Group, Customs duly granted approval. At all times, the taxpayer had made full and frank disclosure of its business activities. In fact, Customs had conducted regular audits on the taxpayer but did not find any error or breach of the law.

  • The approval of the GST Group’s registration by Customs was clear, unambiguous and devoid of any qualification.

  • In relying on the approval, the taxpayer proceeded to manage its affairs and business structure accordingly as a GST Group. Had Customs rejected the GST Group registration at the outset, the taxpayer and the members of the GST Group would have managed their affairs and business structure differently.

  • Customs had conducted various GST audit verification activities after the registration of the GST Group. At all material times, Customs had never raised any issue with regard to the validity of the GST Group.

The taxpayer added that retrospective application of Regulation 41(j) of the GST Regulation by Customs is a clear infringement of, and represents non-compliance with, various provisions of the Interpretation Acts 1948 and 1967, namely Section 20 read together with Section 43.

The taxpayer takes the view that the approval was rightfully made based on the taxpayer’s application, which was made before the coming into effect of Regulation 41(j) of the Goods and Services Tax Regulation. Furthermore, the fact that the approval was granted was evidence that Customs took the same view during the relevant approval period.

Significance of the decision

This decision affirms the principle that any exercise of power by a public authority in ignorance of the decisions of Malaysia’s courts and the relevant statutory provisions stands to be quashed. It is incumbent upon the court to protect the interest of individuals whose expectations have been created through the conduct of these bodies or authorities by the granting of approvals and/or exemptions.

Taxpayers must be allowed to enjoy an exemption if all the relevant requirements have been satisfied. A public authority is not allowed to disregard such exemptions arbitrarily and make sudden reversals of decisions and changes to policy without regard to the legitimate expectations of the taxpayers. The decision by Customs to raise the BOD was therefore quashed.

At the time of writing, the tax authority had filed a further appeal against the High Court’s decision for the Court of Appeal’s determination. In any case, this case marks another major GST win for taxpayers.

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