Export Freight Services v Chief Executive Officer, Fiji Revenue & Customs Service [2019] FJCA 34; ABU077.2017 (8 March 2019)

	Home \| Databases \| WorldLII \| Search \| Feedback Court of Appeal of Fiji

Civil Appeal No. ABU 0077 of 2017
(High Court Civil Action No. HBT 05 of 2014)

[2] I agree with the reasons, conclusion and the proposed orders contained in the judgment of Jameel, JA.

[3] This is an appeal from the Judgment of the Tax Court of Fiji at Suva, dated 1 June 2017 dismissing the Appellant’s (“the Appellant”) appeal, from the decision of the Tax Tribunal dated 6 January 2015, upholding the Amended Assessments issued by the Respondent, (“the Revenue”).

[4] The appeal relates to the interpretation and applicability of paragraph 10 of the Second Schedule of the Value Added Tax Act 2009.

[5] The Appellant is a freight forwarder engaged in the international transportation of goods. It transports the goods of its customers to Fiji from outside Fiji(imports), as well as goods from Fiji, to a place outside Fiji (exports). It provides a total transport service, that is, a door-to door service. In order to carry out is service, and since it does not own ships, it buys space (freight) on ships. It invoices its customers for the sale of such space, as well as the additional services that it supplies, which are part of the total door-to door transportation service it provides. It is the value of these added services, that is the heart of the dispute in this appeal. The Appellant claims that the services it supplies are covered by paragraph 10 of the Second Schedule of the Value Added Tax Decree (“the VAT Decree”), and are thus entitled to be zero-rated (or taxed at the rate of zero %). The Revenue denies this and contends that paragraph 10 of the Second Schedule applies only to what it calls the international component of the transportation, and since the Appellant does not own ships, it cannot be regarded as being engaged in the international transportation of goods.

[6] To appreciate the dispute and the matters for determination by this court in this appeal, it will be necessary to begin by first laying down the relevant statutory framework. I will preface this by saying at the outset that the essential characteristic of VAT is the value addition that a supplier adds to the goods or services he supplies, which requires him in turn, to charge and collect from the final consumer, the tax on behalf of the Revenue, based on the value of what he supplies, not the cost of what he supplies. This is why it is what he ‘adds’ by way of ‘value’, which then becomes the basis of the tax.

3. (1) For the purposes of this Decree, the term “supply” includes all forms of supply and without limiting the generality of the term has the same meaning as in section 2 of the Sale of Goods Act, Cap. 230.

(2) Where goods and services acquired or produced by a registered person in the course or furtherance of making taxable supplies by that person are appropriated to use other than for the purposes of making those taxable supplies, the appropriation of those goods and services shall be deemed to be a supply made in the course or furtherance of that person’s taxable activity.

[8] Section 2 (the Interpretation section), defines “Place of supply” as follows:

(1) For the purposes of Section 15 of this Decree, the following provisions of this Section shall apply for determining, for the purposes of the charge of tax, whether goods and services are supplied in Fiji.

(2) In relation to a supply of goods which does not involve their removal from or to Fiji, those goods shall be deemed to be supplied in Fiji if those goods are in Fiji, and otherwise shall be deemed to be supplied outside Fiji.

(3) In relation to a supply of goods which involves their removal (a) fromFiji, those goods shall be deemed to be supplied in Fiji:

(b) to Fiji, those goods shall be deemed to be supplied outside Fiji. (4) Subject to this Section, a supply of services shall be deemed to be - (a) in Fiji if the supplier belongs in Fiji; or

(1) Subject to this Decree, a supply of goods and services shall be deemed to take place at the time - (a) a tax invoice is issued by the supplier or the recipient; or

[10] Section 19 defines the “value of supply of goods and services” as follows:

(1) For the purposes of this Decree the following provisions of this Section shall apply for determining the value of supply of goods and services.

(2) Subject to this Section and Section 20 of this Decree, thevalue of a supply of goods and services shall be such amount as, with the addition of the tax charged, is equal to the aggregate of, - (a) to the extent that the consideration for the supply is consideration in money, the amount of the money:

(b) to the extent that the consideration for the supply is not consideration in money, the open market value of that consideration. (3) Subject to subsections (4) and (6) of this Section where - (a) a supply is made by a person for no consideration or for a consideration in money that is less than the open market value of that supply; and

The consideration in money for the supply shall be deemed to be the open market value of that supply.

[11] Zero-rated supplies are specified in the Second Schedule to the Act. The matter for determination in this appeal is the provisions of paragraph 10 of the Second Schedule. It states as follows:

10. The supply of transport services relating to the international carriage of passengers and goods –

(d) from a place in Fiji to another place in Fiji to the extent that the transport is by aircraft and constitutes “international carriage” for the purposes of the Civil Aviation Act.

[12] In 2013, the Revenue audited the Appellant for compliance with VAT. This resulted in the Revenue issuing to the Appellant ‘schedule of discrepancies” in which it identified and described as ‘Commission” (“mark- up”) zero-rated tax shortfall’ and ‘fringe benefits adjustment’.

[13] The Appellant responded to this by saying that it, like all other freight-forwarders, had zero-rated its local customers on the mark -up (basically, its profit), on freight earned from local customers, and submitted copies of its invoices. The Revenue responded that what it termed the ‘mark-up’ will be deemed to be a taxable supply of services, meaning that:

[14] On 23 August 2013 the Revenue issued Notice of Assessments for the periods ending

December 2010, December 2011 and December 2012, reflecting its decision on the Appellant’s Objections.

	2010	2011	2012	Total
Commission zero rated	208, 186.49	467, 716.00467 467,716.00	516, 657.85	1,192, 560.34
VAT Fringe Befit Adjustment	2, 708.50	3, 250.20	3, 250.20	9, 208.90
VAT at 12.5% and 15%	25, 840.07	64, 256.71	70, 649.36	160, 737.40
20 % S 46 Penalty	5, 168.07	12, 851.34	14, 128.07	32, 147.48

[15] By its Objections dated 27 September 2013, the Appellant objected to the imposition of VAT on the commission, and the imposition of penalties, on the following basis: (a) that the Revenue had erred in imposing 15 % VAT on what it had termed the Appellant’s “mark-up” on the freight, no VAT was payable in the first place, or alternatively; (b) even if VAT was payable, the Appellant had made no ‘false and misleading statements under section 46 of Tax Administration Act, and it had disclosed fully, the basis on which it had charged VAT, and therefore was not liable to penalties.

[16] The Revenue sought clarification from the Appellant and some correspondence passed between the parties. Eventually, by letter dated 17 April 2014, the Revenue rejected the objections of the Appellant on the following basis:

“The letter of objection articulates that Export Freight Service’s (sic) zero-rate it (sic) income for the Fiji based customers on the basis of paragraph 10 of the Second Schedule of the VAT Decree 1991. It is further stated that zero-rating by the company is determined by the nature of services supplied, and not by the identity or residence of the recipient of the services. The services which are zero-rated are those which relates (sic) to international carriageof goods.

The Authority’s stance is that the company does not qualify for zero-rating under Paragraph 10 of the Second Schedule of the VAT Decree 1991 as this paragraph zero rates income for actual service providers i.e. Service providers of the (sic) international carriage and not to the facilitators of this service”.

[17] The Appellant then preferred an application for Review of the Revenue’s decision on zero-rating and the imposition of penalties, which had resulted in the issuing of the Amended Assessments. The essence of the matter for determination before the Tribunal was whether the supplies of the services of the Appellant were entitled to be treated under paragraph 10 of the Second Schedule to the VAT Act as zero-rated supplies, and whether the penalties imposed by the Revenue were applicable.

[18] The Tribunal having heard the witnesses on behalf of the parties, accepted the Revenue’s argument that the Appellant was only a “facilitator”, and that the key determinant in concluding that the Appellant is only a ‘facilitator ‘was the fees that were charged over and above the cost of what it described as ‘the direct transport costs. The Tribunal considered the provisions of section 19 of the Act which provides the definition of ‘value of supply’.

[19] The Tribunal failed to appreciate the distinction between zero-rated supplies and exempted supplies when, in paragraph 12 of its Decision it equated zero-rated supplies with exempted supplies. Before the Tribunal, the Appellant referred to section 2 of the Sale of Goods Act (Cap 230) which provides a non-exhaustive definition of supply. The Respondent did not offer a definition of supply, but relied on the judgments in Auckland Regional Authority v Commissioner of Inland Revenue (1994)16 NZTC 11, 080; in which reference was made to the Privy Council decision in Databank Systems Ltd. v Commissioner of Inland Revenue [1990] 3 NZLR385, which in my view did not assist the Revenue’s case.

[20] The argument of the Revenue was that the Appellant was only a ‘facilitator’ of transportation services relating to the international carriage of goods, and was not directly engaged in supplying transport services relating to international carriage of goods. This it did, by ‘splitting’ the process of transport into two. That portion of the journey on the seas, during which the goods were transported in a vessel belonging to a person other than the Appellant, and which therefore required the Appellant to pay for the space it bought from the carrier, the Revenue accepted as falling within the provisions of paragraph 10 of the Second Schedule. However, it refused to accept that the portion of the journey from the port of Suva to a place inside Fiji, was captured under the provisions of paragraph 10 of the Second Schedule. The Revenue’s argument was taken further by then contending that the provisions of paragraph 15 of the Second Schedule actually warranted the interpretation it gave to paragraph 10 of the Second Schedule. The Tribunal accepted this, and in arriving at its decision, the Tribunal compared the provisions of paragraphs 10 and 15 of the Second Schedule, and used the words in paragraph 15 to assist it to interpret the meaning to be given to the words in paragraph 10. Paragraph 15 of the Second Schedule provides as follows:

15(1) The supply to a person in that persons’ taxable activity capacity (and not in that person’s private capacity) who in that capacity belongs in a country other than Fiji of services comprising of -

(a) the handling or storage of goods at or their transportation to or from a place at which they are to be exported or have been imported or the handling or storage of such goods in connection with such transport; or

(b) ancillary transport activities in relation to any ship or aircraft in a port or airport; or

(c) the making of the arrangements for the supply of any of the services referred to in this paragraph and paragraph 7 of this Schedule.

[21] An examination of paragraph 15 reveals that the activities of the Appellant do not fall within it. The words “to or from a place at which they are to be exported or have been imported in paragraph 15 (a) envisaged the port because the port is the point of export. The words “the handling of storage of such goods in connection with such transport”, in sub paragraph (a) of paragraph 15, do not cover the services supplied by the Appellant. The words in paragraph 15 (b) ancillary transport activities in relation to any ship or aircraft in a port or airport;” also do not cover the services supplied by the Appellant. Paragraph 15 is therefore irrelevant.

[22] The tribunal also accepted the argument of the Revenue that from ‘a policy perspective’ the ‘mark-up’ on the cost of supplying transport services cannot be captured under the provisions of section 19, which defines ‘consideration’. The Tribunal then proceeded to hold that the ‘a limitation needs to be imposed around the actual cost of supply’. Despite acknowledging that the Appellant provides a ‘total service’, the Tribunal asked itself the wrong question, and consequently arrived at the wrong answer. It went like this:

“‘which parts of the activity should gain the benefit of the zero-rating for the purposes of the Second Schedule. ‘The actual cost of that supply from that carrier is the only conclusion that can be drawn”.

[23] Whilst acknowledging that the Appellant provided a total service, in the Tribunal’s’ view, the issue that needed determination was:

“which parts of the activity should gain the benefit of the zero-rating of the Second Schedule. The actual cost of that supply from the carrier is the only conclusion that can be drawn”

[24] Having heard the testimony of the witnesses and the documents produced before it, the Tribunal made order dated 6 January 2015 remitting the Amended Assessments dated 23 August 2013 to the Revenue for review, having regard to the interpretation given by the Tribunal to paragraphs 10 and 15 of the Second Schedule. The drawing of comparisons and then using paragraph 15 to interpret paragraph 10, and then drawing conclusions which were not justified because the legislature itself had separated the provisions of paragraph 15 from paragraph 10. There need not have been a separation of activities into paragraphs 10 and 15, had the Legislature intended the provisions to be treated similarly.

[25] In regard to the penalties appealed against, the Appellant relied on the case of Company P v Fiji Revenue and Customs Authority [2013] FJTT 17, to support its claim for interest on the penalties it had paid. It relied on section 67(3) of the Act for the purposes of determining the interest on the return of the sum paid as penalties. However, the Tribunal was unwilling to make an order on that matter despite there being no clear evidence of the withdrawal before it.

[26] The Appellant preferred an appeal against the decision of the Tribunal. It urged six grounds of appeal in the High Court. The essence of the grounds can be summarized as follows: relying on the provisions of paragraph 15 to interpret the provisions of paragraph 10 of the Second Schedule, failure to appreciate the meaning of “value”as provided for in section 15 of the Act, and relying instead on actual costs incurred by the Appellant, arriving at a decision contrary to the evidence before it, misapplication of the principles enunciated by the court in the Databank Case (ibid), failure to consider the arguments put forward by the Appellant citing the treatment accorded by tax authorities in Singapore and Australia, and failing to appreciate the basic principle of VAT, which is that the profit margin of the supplier is irrelevant because the basis of VAT is the value of the supply between the supplier and the consumer, and not what it cost the supplier to supply the service.

[27] The crux of the appeal before the Tax Court, as it was before the Tribunal, was the ‘characterization ‘issue. That is, the need to identify and characterize the nature of the services supplied by the Appellant, and whether it was a single supply or not, despite it having several different components before the service was eventually supplied by the Appellant to its customers.

[28] The learned Judge first looked to the Statement of Agreed Facts; the Appellant is a freight forwarder, and is not the owner of the vessel but purchased space on the ship. In paragraph 8 of the judgment the learned Judge said:

“The Agreed issues are whether the charges to its customers for international carriage of goods provided by it should be zero-rated because, as contended by the Revenue, the Appellant is not an actual provider of international goods”. (Emphasis added).

[29] However, unfortunately, this does not accurately reflect the Agreed Statement of Facts, and may have led to the basis that the learned Judge eventually adopted, to reach the finding that is now challenged.

[30] The learned Judge considered the provisions of section 2 of the Act, (the interpretation section), and the meaning of ‘supply’ in the Sale of Goods Act. Having considered the meaning of ‘services’ in the Sale of Goods Act (Cap 230), the learned Judge turned to the definition of ‘service ‘in the Oxford Advanced Learners Dictionary of Current English. He then said that for the purposes of this case, “service” means ‘providing a service to carry goods from one place to another’, transport means “providing a service to carry goods from one place to another”, and freight forwarder means, a company that receives and ships goods on behalf of other companies.”. The learned Judge however, in paragraph 15 of the judgement stated that there was no need to resort to section 15 of the Act. It is not clear why the learned Judge made this reference because section 15 is the charging provision.

“To my mind the lawmaker’s intention behind para 10 of the Schedule. With regard to the instant case appears to be, if a supplier is responsible for the international carriage of goods from a place outside Fiji to its customers’ address in Fiji. It is merely a freight forwarder, or in its own words, below, a broker”.

[32] In arriving at his decision, the learned Judge considered the contents of an Invoice issued by the Appellant which showed the names of the consignor, consignee, the vessel number, port of origin, container number. In this, the Appellant had been described as a broker, and the destination was Suva, Fiji. On this basis alone the learned Judge determined that the Appellant is only providing the service of transporting the goods from a port of Fiji to its customer’s address in Fiji, and was merely a freight forwarder, or a broker. The learned Judge concluded that “the Appellant was not a shipper/transporter of the goods but only purchasing space in a ship, on its customers’ behalf for the carriage, of its customer’s goods.”, and therefore the Appellant is not entitled to zero-rating.

“All the above, makes it crystal clear that the Appellant is not the shipper/ transporter of the goods but only purchasing space in a ship on its customers’ behalf for the carriage, of its customers’ goods from Ningbo in China to Suva in Fiji.

[34] Finally, the learned Judge affirmed the Amended Assessments, and declined the relief for interest, but awarded no costs.

[35] In this Court, the Appellant has formulated six grounds of appeal. The sixth ground is in effect an alternate ground. The Appellant contends that since the learned Judge had held that paragraph 10 of the Second Schedule does not apply to the Appellant, then it is entitled to zero-rating under paragraph 11 of the Second Schedule. It is the position of the Appellant that ground six is a sequel to the judgment of the Court, and that it is a matter of interpretation only, not warranting the consideration of facts. This will be considered below.

[36] The Appellants have urged six grounds of appeal which are reproduced below:

4. The learned Judge erred in law and in fact in concluding at paragraph 20 of the Judgment, that the Appellant’s taxable activity cannot come within the ambit of para 10 of the Second Schedule when:

(a) there was evidence before the Court that the Appellant’s activity met the requirements of paragraph 10 of the Second Schedule of the VAT Decree; and

(b) The appellant gave examples of tax authorities in our jurisdictions (with legislation similar to Fiji) holding that “freight forwarders” is engaged in providing services of international transportation.

5. The learned Judge erred in law in failing to consider relevant authorities submitted by the Appellant from other jurisdictions (and holding, at paragraph 21 of the Judgment, that it was “inexpedient” to do so).

If required, the Appellant SEEKS LEAVE to add Ground 6 of this Appeal as a new ground.

[37] In view of the fact that the basis of all the grounds urged in appeal is the determination of the nature of VAT, it is necessary to first examine this before dealing directly with the grounds of appeal. It will be in this background that the determination of this appeal must proceed.

[38] VAT is a tax that is charged on the supply of goods and services. It is charged and collected by the supplier of goods and services that are liable to the tax. Halsbury’s, Volume 49(1) Fourth ed, at p.4 describes it as follows:

“It is a tax on the final consumer of goods and services, in as much as the final consumer is unable to recover or claim creditor the VAT included in the cost of supplies made to him”.

[39] VAT is chargeable on the supply of goods or services only where the supply is a taxable supply, and the goods and services are supplied by a taxable person in the course of a taxable activity carried on by such person. The basic principle of VAT is that it is intended to tax only the final consumer. The incidence of the tax falls on the final consumer. Similarly, an exemption from tax or a zero-rating of tax, enures to the benefit of the final consumer. Accordingly, in determining whether the services supplied by the Appellant are entitled to zero-rating must be considered in the light of the benefit which is intended for the final consumer.

[40] Thus, to interpret the provisions in a manner so as to deprive the final consumer of the benefit of zero-rating merely because the supplier also makes a profit in the process of supplying that service to the final consumer, is contrary to the rules of interpretation and is unwarranted in law. Merely because the duty of charging, collecting and accounting for the tax to the Revenue, is cast on the supplier of the goods and services, this does not warrant an interpretation which prevents the tax payer from reaping the benefit of zero-rating, and also making the zero-rated activity unattractive to the supplier of the service. The duty to charge the correct amount is on the supplier, and the failure to do so will result in liability of the supplier. Accordingly, the final consumer will be concerned only with the price he has to pay for the supply received. Lord Millet in Commissioner of Excise & Customs v Redrow Group [1999] UKHL 4, [1999] 2 All ER13, [1999] 1 WLR described it as follows:

“... VAT is a tax on added value. The basic principle of the tax is that it is intended to be a tax on consumption and borne by the final consumer. But it is not chargeable only when a supply is made to a final consumer. It is chargeable on the value added by every prior transaction in the chain of transactions, which leads to him. Each of the parties to such transaction collects and accounts to the authorities for the output tax in respect of supplies made by him, and deducts the input tax in respect of the goods and services supplied to him. The difference between the cost and supplies in respect of which input tax is credited and the price of the services on which output tax is charged reflects the value added by the taxpayer. The final consumer makes no supplies himself. (Emphasis added).

[41] For the purposes of VAT, “supply” includes all forms of supply, and has the same meaning as in section 2 of the Sale of Goods Act. If a person uses the goods or services which he acquires or produces for the purpose of making onward supplies, such use by him is deemed to be a supply made in the course of a taxable activity. A taxable activity is defined to cover any activity which is carried oncontinuously or regularly by any person, whether or not for pecuniary profit, and involves the supply of goods and services to another person for a consideration. Consideration in relation to VAT is defined to include any payment made or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of any goods and services, whether by that person or by any other person; but does not include any payment made by any person as an unconditional gift to any non-profit body. “Consideration in money” includes consideration expressed as an amount of money. Goods and services exempted from VAT are described in First Schedule, and those that are zero-rated are described in the Second Schedule. Exempt supply” means a supply described in the First Schedule. Such goods and services do not attract VAT at all. A zero-rated supply” means a supply described in the Second Schedule. Such goods and services are not exempted from VAT, but the rate of tax applicable is zero. A zero-rated supply is in reality a supply whose rate of tax is zero%.

[42] VAT is imposed by reference to the value of such supply. Therefore, the cost of supply is irrelevant. Value is defined in section 19, and is the amount of money in consideration for the supply. However, if the consideration for the supply is not consideration in money, then it will be taken to be the open market value of that consideration. “Open market value” is defined to mean the consideration in money that would be expected to be payable for that supply, being a supply at that date in Fiji, between a supplier and a recipient independent of each other. In other words, it excludes related – party transactions.

(d) The supply of transport services relating to the international carriage of passengers and goods: Single supply or multiple supplies?

[43] Since the VAT base is the value of the supply, it will be necessary to determine the nature of the transaction that resulted in the supply of the service. Due to the unique nature of the base of VAT, contractual documents may not always be the guide in determining who the supplier is. Where the facts involved only to parties, there will be no difficulty in determining who supplies what and to whom. It is different when more than two parties with multiple obligations are involved in supplying different services, which then results in the last supplier supplying the service finally to the consumer. Therefore, the contractual documents between one of the multiple parties and the final supplier of the service, will not necessarily determine the nature of the supply of the final supplier. This is because supply as defined in the VAT Act is not necessarily conterminous or reflective of contractual rights and duties as recognized in the law relating to contracts.

[44] The nature of supply for the purposes of VAT was described by Laws J in Customs and Excise Commissioners v Reed, [1995] BVC 222, (1995) STC 588 as follows:

“First, as I have already said, the concept of ‘supply’ for the purposes of VAT is not identical with that of contractual obligation. Secondly, in consequence, it is perfectly possible that although the parties in any given situation may conclude their contractual arrangements in writing so as to define all their mutual rights and obligations arising in private law, their agreement may nevertheless leave open the question, what is the nature of the supplies made by A to B for the purposes of A’s assessment of VAT. In many situations of course, the contract will on the facts conclude any VAT issue, as there may be a simple agreement for the supply of goods or services with no third parties. In cases of that kind there is no space between the issue of supply for VAT purposes and the nature of the private law contractual obligation. But that is a circumstance, not a rule. There may be cases, generally (perhaps always) where three or more parties are concerned, in which the contract’s definition (however exhaustive) of the parties’ private law obligations nevertheless neither caters for nor concludes the statutory question, what supplies are made by whom. Nor should this be a matter for surprise: in principle the incidence of VAT is obviously not by definition regulated by private agreement. Whether and to what extent the tax falls to be exacted depends, as with every tax, on application of the taxing statute to the particular facts. Within those facts, the terms of contract entered into by the tax payer may or may not determine the tax result. They do not necessarily do so. They will not do so where the contract, though it tells all the parties everything that they must or must not do, does not categorize any individual party’s obligations in a way which inevitably leads to the conclusion that he makes certain defined supplies to another. In principle, the nature of a VAT supplies to be ascertained form the whole facts of the case. It may be a consequence, but it is not a function of contracts entered into by the relevant parties.”

“The contracts to which I have been referred conclude the parties private law obligations but do not determine the nature of the supplies made by Reed, and I reject Mr Lasok’s submission to the contrary. They did not need to do so; precisely because (as I have explained) the concept pf VAT supply is not co-terminous with the content of contractual duty, which fully distribute the latter may be silent about the former.

[46] Accordingly, the court was in error when it relied on the contents of the invoices issued by the Appellant to its customers, to determine, for the purposes of VAT, the nature of the services supplied by the Appellant. In my view, the “break down” of the different components of the supply, must be used to conclude that the Appellant was indeed supplying a value-added service, and not be used to deprive the final consumer of the service supplied by the Appellant, which is what has happened in this case. In the course of the Hearing before this court, learned Counsel referred the court to the Invoices issued by the Appellant to its customers. One such example is found in 232RHC. An examination of the invoice reveals the following components: Import Duty, Import Excise Duty, Import VAT, Customs Lodgement Fees, Delivery Order Fee, Destination Wharfage Charge, Bio – Security Fee, Destination Port Charges, Administration Fee Destination, International Freight, Forklift, Attendance Fees, Customs Entry Fee, Agency Fees Destination Guarantee Inspection, Delivery cartage from King’s Wharf to Samabula. Since the VAT base is the value of the supply, it will be necessary to determine the nature of the transaction that resulted in the supply of the service.

[47] As a freight-forwarder, what the Appellant does is to deliver a door to door service (an admitted fact) from a place outside Fiji to a place in Fiji, to use the words in paragraph 10 of the Second Schedule. The provisions of paragraph 10 of the Second Schedule place beyond any doubt that the activity that is subsumed in this definition includes the entire journey that the goods make- it literally is from the door (for example, as is the case in the Invoice 0052740 RHC 232), of a factory in China (or any other place, which comes within the words “a place outside Fiji”), to the door of the factory premises of the local consumer, “a place in Fiji”. The evidence established that the Appellant had been engaged in supplying services which facilitated and related to providing transportation facilities relating to the international carriage of goods.

[48] The different components of the invoice reveal the different aspects of the clearance of an import. The delivery charges for cartage from King’s Wharf to Samabula is an important aspect of the value - added service supplied by the Appellant to its customers. If the contention of the Revenue is to be accepted, then it would mean that the final consumer who is willing to pay the Appellant for the value -added service (namely the transport of the goods from the exporter’s (described as the “consignor”) premises in China to the importer’s premises in Samabula), will be required to pay VAT on all of these services supplied by the Appellant, despite such service being zero-rated. This is not what the words in paragraph 10 of the Second Schedule mean. Therefore, the interpretation given by the High Court is an error of law.

[49] One clear example of the single supply rule is found in the judgement of Donaldson MR in British Airways Plc v Customs & Excise Commissioners (1999) STC 643, in which the question for the court was whether the price of tickets for domestic flights within the United Kingdom included the provision of in-flight catering, and whether the catering component was a separate supply or whether it was included and was thus part of a composite supply of transport, which included provisions for refreshments. In that case, on domestic flights British Airways provided in-flight catering at no extra cost. The policy of providing refreshments was adopted to be able to compete with other airlines, and to meet the expectations of passengers. The Customs and Excise successfully contended before the VAT Tribunal that the refreshments supplied without extra charge were “ goods supplied in the course of catering and so subject to tax at the standard rate” and were not part of the “ transport of passengers and goods in any ship or aircraft designed or adapted to carry not less than 12 passengers” and so zero-rated in accordance with Schedule 5 Group 10, item 4 of the VAT Act. The Tribunal held that the refreshments were a separate supply of catering on the basis that catering was not a necessary adjunct to the supply of transport. The Crown’s appeal was dismissed by both the High Court and the Court of Appeal. In holding that the question whether, in substance and reality, the in-flight catering was an integral part of the supply of transport was a question of law depending on the legal effect of the relevant transaction in relation to the words of the statute, the court relied on the dicta of Lord Denning MR and Browne LJ in British Railways Board v Customs & Excise Commissioners (1997) 1 BVC at pp 118 121. The Court turned to the issue of whether this was in law one supply of air transport or two supplies, one of air transport and the other of in-flight catering. The Court held that it was a single supply.

[50] The relevant question then in deciding whether a transaction which comprises several elements is to be regarded as a single supply or as distinct supplies which must thus be assessed separately. Regard must be had to all the circumstances in which the transaction takes place, and the description of the service finally supplied by the supplier to the final consumer, and the legal effect of each of these transactions.

(f) Transportation Services Relating to the International Carriage of Goods

[51] In this appeal before the court, the nature of the service supplied by the Appellant to its customers is what could be described as a “full package”. The evidence revealed that the services supplied by the Appellant obviated the need for the customer to himself complete the customs declaration, arrange transport from the port of Suva to his warehouse or house as the case may be, and do all other things necessary to transport goods from a place outside Fiji to a place in Fiji. The reason that the break-down of the different costs associated with the transport of the goods is reflected in the invoice is, among other reasons, for the benefit of the importer. This does not make the transaction between the Appellant and its customer one of multiple supplies; there is no privity of contract between the Appellant’s customers and the carrier, and its customers have no knowledge of and indeed, no control over the carrier chosen by the Appellant. Both the Tribunal and the court misunderstood the intention of the legislature, and have drawn their attention only to the words “international carriage”. In all the circumstances, this was a single supply which came unequivocally within the provisions of paragraph 10 of the Second Schedule. This is because the supply of transport services relating to the international carriage of goods, are the operative words. This position is clear when one considers the entirety of paragraph 10 of the Second Schedule. The words used are:

“the supply of transport services relating to the international carriage of passengers and goods;

(d) from a place in Fiji to another place in Fiji to the extent that the transport is by aircraft and constitutes “international carriage” for the purposes of the Civil Aviation Act.

[52] Firstly, it is the supply of services related to the international carriage of goods and not the international carriage of goods itself that is the subject of the provision. What is intended to be zero-rated are all of those services that are related to the transport of the goods from a place in Fiji to a place outside of Fiji, and vice versa. In this journey, there is obviously, a component that is international, which is beyond the territorial jurisdiction of Fiji. However, that is not the heart or pivot of the provision. The heart of the provision is the facilitation of the transport of the goods from a place outside Fiji to a place in Fiji. The international part of the journey will be covered under the words “international carriage” contained in paragraph 10 of the Second Schedule. That is not the only component of the services that is envisaged for zero-rating. If it were the intention of the legislature to accord zero tax treatment only to the international component of the journey, then it could have used the words “from a port outside Fiji to a port in Fiji”, instead of “ a place outside Fiji to a place in Fiji”. In my view, the use of the words, “(c) from a place outside Fiji to a place in Fiji”, place beyond any doubt that the services supplied by the Appellant fall within the ambit of the provisions of paragraph 10, saw that the entirety of the services it supplies is zero-rated. Thus, in the process of transport relating to the international carriage of goods, the services supplied by the Appellant cannot be “split up” as the Revenue has done in this case. In my view, since the operative part of paragraph 10 are the words “transport services relating to”, it is this very component that is to be zero-rated.

[53] Accordingly, the conclusion of the Court that the Appellant is not a transporter of the goods is based on not appreciating the fact that it was not necessary for the Appellant to own the vessel and engage in the entire journey across the seas, for its services to be eligible for zero-rating. What the legislature intended was to cover transport services relating to the international carriage of goods, as well as the international component. Therefore, the finding that the Appellant’s supplies are not covered under the provisions of paragraph 10 of the Second Schedule is without legal basis.

[54] At this juncture if I may with respect, borrow the words of Lord Parker in British Airways v Customs & Excise Commissioners (ibid) who said:

“First, if the commissioners are right, the results are in my view so bizarre that they cannot be regarded as within the range of any reasonably possible parliamentary intent.”

[55] I think that description would apply with equal force to this appeal, if I were to accept the arguments of the Respondents.

[56] In my view grounds one, two, three and four concern the nature of the services supplied by the Appellant; whether it is a single supply or not, and whether despite it not being the owner of the vessel that transported the goods in international waters, it could yet be regarded as providing transportation services relating to the international carriage of goods. Accordingly, these grounds will be answered compositely.

[57] It is undisputed that the Appellant buys space on vessels, and sells this space to its customers. The evidence reveals that the value it adds to this is the additional services it provides to its customers; completion of customs procedures, and the transport of the cleared goods to the customer’s required destination in Suva, or in any other part of the world, for which it may then engage its own agents, or if large enough would have its own branch at the destination. This is how the business of freight-forwarding is conducted all over the world. Since it is the transport services related to the international carriage of goods that is zero-rated, it matters not, that the Appellant does not pay VAT on the space it buys from the carrier. The whole service consists of collecting goods from the customer’s place in Fiji, or delivering them to the customer’s place in Fiji, involves different activities, collection, packing, consolidating, container packing and transportation to the wharf or port.

[58] The Appellant drew the attention of this court to the decision of the Australian Tax Authority (“ATO) in ATO ID 2002/521 (RHC 278), which has been withdrawn due to an amendment to section 38-355 of the A New Tax System (Goods and Services Tax) Act 1999, which despite its withdrawal from the database of the ATO remains relevant to supplies made prior to 1 July 2010. The provision for consideration was the international transportation of goods, in terms of which the supply of international transport of goods was free of Good and Services Tax. That decision has been considered, but in view of the finding that that the operative part of paragraph 10 of the Second Schedule is “transport services relating to” the international carriage of goods, it is not necessary to rely on that decision, though it is acknowledged that it offers guidance in view of the identical nature of the services supplied by the Appellant.

[59] I also note that the Respondent had, before the Tribunal relied on the judgement of Auckland Regional Authority v Commissioner of Inland Revenue (1994) 16 NZTC, in which reference was made to the Privy Council decision in Databank Systems v Commissioner of Inland Revenue [1990] UKPC 37; [1990] 3 NZLR 385. In the Auckland case (supra), the court drew a distinction between transport activities and ancillary transport activities. The Tribunal then relied on that to ask itself the question; what are the transport services supplied by the supplier? (the Appellant).The gravamen of the Respondent’s argument is this: the Appellant does not own the ship, it hires space on the ship, it charges from its customers, a price in addition to the price it pays the carrier (the ship owner, or the charterer, as the case may be), and in paragraphs 10 and 11 of its written submissions dated 14 October 2014 tendered to the Tribunal, states that” the actual cost of freight to Export Freight Services from the non-resident person is charged at a Zero- rate pursuant to paragraph 15 of the Second Schedule of the VAT Decree”, and that the “mark-up on the freight( freight revenue charges to the client, less freight costs charged by the non-resident supplier) which is subject to VAT under section 15 of the VAT Decree”. In addition, the Respondent says that the Appellant arranges for the supply of international freight forwarding services, the supply of such services falls under paragraph 15 of the Second Schedule of the VAT Decree 1991. The Respondent contends that the profit earned by the Appellant must be subject to the standard rate of 15 % VAT. I have considered this argument, but am constrained to say that it totally ignores the fact that the significant and operative part of paragraph 10 of the Second Schedule is the transportation services relating to the international carriage of goods, and more importantly, it does violence to a basic principle of VAT which is that it is the value of the services supplied by the supplier to the final consumer, and not the original cost to the supplier, which is the tax base of VAT. This argument is therefore rejected.

[60] It is now necessary to consider the provisions of Section 15 which provides that tax shall be charged by reference to the value of that supply. Value is in turn defined in section 19. Section 19 provides that if the consideration for the supply is in money, then “value” for tax purposes is equal to the aggregate of the amount of money. What the Respondent seeks to do is to ignore the mandatory statutory provisions which have laid down the tax base, and instead seeks to artificially split-up one composite supply into separate supplies and accord the benefit of zero-rating only to the international component of the journey. As I see it, the words use in the provision do not permit this interpretation, nor in such an interpretation permissible in the interpretation of a fiscal statute, particular with reference to a provision which grants a benefit to the tax payer.

[61] During the course of the hearing, learned Counsel for the Respondent contended that in paragraph 10 the words “passengers and goods” must be read conjunctively. This had not been taken up previously”, and appeared to take the learned Counsel for the Appellant by surprise. However, to put this matter at rest, it is appropriate to look at the case of R v Newbould [1962] 2 Q.B. 102, in which the expression “local and public authorities” in section 4(2) of the Prevention of Corruption Act 1916 was held by Winn J. not to “mean authorities which are both local and public... [but] authorities which are both local or public”. In this appeal too, the words “and” in paragraph 10 of the Second Schedule must be read as “or”. The argument of the revenue in this regard is therefore rejected.

[62] In view of the matters already discussed above, taken in conjunction with the agreed facts and evidence that was admitted before the Tribunal, this court is of the view that the court erred in holding that that the services provided by the Appellant did not come within provisions of paragraph 10 of the Second Schedule. Accordingly, for the reasons already set out above, grounds one to four of the appeal are allowed.

[63] The complaint is that the learned Judge failed to consider relevant authorities from other jurisdictions, which were submitted by the Appellant. In my view this does not amount to an error of law. Authorities from other jurisdictions are only of persuasive value, and it is predominantly, a matter of personal preference and choice whether a Judge wishes to be guided by such authorities. In any event, since this point was argued economically, it is in order for this court to deal with it equally economically. In any event, it is inappropriate to fault a Judge for declining to consider authorities from other jurisdictions, even if it is on a similar matter, in the circumstances urged in this appeal. This ground of appeal is without basis and is therefore dismissed.

[64] This ground of appeal has been formulated ambiguously. What it appears to suggest is this: if the Appellant’s supplies are not covered under paragraph 10 of the Second Schedule, then paragraph 11 of the Second Schedule should apply to the Appellant. In view of the fact that I have already held that the supplies of the Appellant come within paragraph 10 of the Second Schedule are thus eligible to be zero-rated, it is unnecessary to answer this ground. This ground is therefore dismissed, with no impact on the final decision to be rendered in this appeal.

[65] The interpretation sought to be given by the Revenue is based on a misunderstanding of the fundamental nature of VAT, as well as the nature of the business of freight-forwarding, and a misinterpretation of the provisions of paragraph 10 of the Second Schedule. The splitting up of services is unwarranted in this case, and can in any event be done only on a case -by-case basis, after considering the dominant component of the supply.

[66] An exempting or non-taxing provision in a fiscal statute must not be construed in a manner that deprives the tax payer of the benefit that the legislature intended to provide. An interpretation of a clear provision whose literal the literal meaning of which results in a benefit to the taxpayer cannot be sought to be modified by a reference to supposed policy behind the provision or a presumed intention of the legislature, when the words of the statute are clear.

Court of Appeal of Fiji

Export Freight Services v Chief Executive Officer, Fiji Revenue & Customs Service [2019] FJCA 34; ABU077.2017 (8 March 2019)