The Kuala Lumpur High Court allowed a judicial review application by a taxpayer in a GST dispute. The High Court, by ruling in favour of the taxpayer made clear that the Minister of Finance (MoF) had failed to exercise his discretion under section 62(1) of the Goods and Services Tax Act 2014 (GST Act).
The taxpayer was successfully represented by RDS’s Tax, SST & Customs partner, S Saravana Kumar and associate, Amira Rafie.
Facts
The taxpayer in this case is a subsidiary of a major Japanese MNC and, in accordance with Goods and Services Tax Repeal Act 2018 (GST Repeal Act 2018), had submitted its GST return for the last taxable period.
Following this, customs conducted a GST refund verification and refunded the input tax credit to the taxpayer. However, six months later, customs issued a bill of demand, alleging that the GST return was submitted late and in breach of section 8(1) of the GST Repeal Act 2018. Customs claimed that the return must be filed strictly within 120 days from September 1 2018. Customs came to this decision notwithstanding that the taxpayer had submitted an application for extension of time which customs had never responded to.
The taxpayer had on multiple occasions engaged and written to customs to explain their position but to no avail. Customs merely informed them that the bill of demand was raised because the earlier refund was made erroneously.
The taxpayer was of the view that customs should not be allowed to renege on the earlier refund granted. Dissatisfied with customs, the taxpayer appealed to the MoF by way of a remission application pursuant to section 62(1) of the GST Act, read together with section 4(1) of the GST Repeal Act 2018. Unfortunately, the application for remission was rejected by the MoF and no reason was provided.
Legal arguments
The taxpayer submitted that the MoF had committed an error of law and exceeded its jurisdiction for failing to take into account the relevant facts and legal principles in making its decision to reject the remission application namely that:
Customs had conducted regular audits on the taxpayer but did not find any error or breach of the law;
No issues were ever raised by Customs on any procedural error or substantive error in the GST forms submitted by the taxpayer;
Customs had accepted the GST returns submitted by the taxpayer and accordingly proceeded to process the refund due to the taxpayer;
The sum that was claimed by customs via the bill of demand has been duly paid by the taxpayer to customs as input tax throughout the taxation period; and
MoF should have taken cognisance that customs’ sudden change of mind and arbitrary decision to renege on the refund approval was a violation of the taxpayer’s legitimate expectation.
The taxpayer added that the repeal of the GST Act 2014 should not affect the taxpayer’s vested rights to claim the input tax credit. Prior to the repeal of the Act, taxpayers were able to make a claim for ITC within six years.
In this regard, section 30 of the Interpretation Acts 1948 and 1967 provides that the repeal of a written law shall not affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed law.
The taxpayer took the view that section 8(1) of the GST Repeal Act 2018 does not take away the vested rights of the taxpayers to claim ITC. If this was intended, the legislators would have to expressly provide that that the repeal act takes away the taxpayer’s rights to ITC claim. This view is also in consideration of the object and spirit of the GST Act whereby it is meant to be a consumption-based tax and not meant to be a burden to businesses.
Significance of the decision
This decision reaffirms the settled principle of law that every exercise of statutory power cannot be arbitrary. When an authority is conferred with a discretion under the law to grant remission, such discretion must be exercised upon objective appreciation of the evidence before him.
A decision by the MoF premised on wrong appreciation of facts and the failure to consider relevant facts must stand quashed. At the time of writing, the High Court’s grounds decision for the case has not been made available. In any case, this case marks another major GST win for taxpayers.
S Saravana Kumar
Partner, Rosli Dahlan Saravana Partnership
Amira Rafie
Associate, Rosli Dahlan Saravana Partnership
E: amirarafie@rdslawpartners.com
