In re Application by Evercrisp Snack Products (South Seas) Ltd [1995] FJHC 174; Hbj0002d.1993s (15 December 1995)

IN THE HIGH COURT OF FIJI
(AT SUVA)
JUDICIAL REVIEW

ACTION NO. 2 OF 1993

IN THE MATTER of an Application
by EVERCRISP SNACK PRODUCTS (SOUTH SEAS) LIMITED
for Leave to Apply for Judicial Review

AND

IN THE MATTER of a decision by the Minister for Finance

F.G. Keil for the Applicant
I.W. Blakeley for the Respondent

Date of Hearing: 26th September, 4th December 1995
Date of Interlocutory
Judgment: 15th December 1995

INTERLOCUTORY JUDGMENT

This application for leave to commence proceedings for Judicial Review appears to raise for the first time for decision by a court in Fiji the question of when the time for claiming export incentives provided for by Section 16(2)(d) under the former 1978 Income Tax Act Cap. 201 begins.

The Applicant is a wholly owned subsidiary of Tucker Fiji Limited and was at least in 1976 part of an Australian Company then and now known as AMATIL an acronym standing for Allied Manufacturing And Trading Industries Limited which proposed to set up a factory on a joint venture in Fiji to manufacture snack foods such as "cheese twisties" and "chicken twisties".

As at the 1st of June 1976 AMATIL had been exporting snack foods to Fiji for a number of years and considered that the total Pacific Market had by then reached such a size as to warrant consideration of establishing a plant in this area to service the total Pacific Market.

At the time the Company also operated joint ventures in Papua New Guinea, Indonesia and Malaysia. The Company appears to have first written to the then Minister of Commerce, Industry and Co-operatives on the 5th of May 1976 when it proposed to begin manufacturing the above foods in Fiji.

In the document entitled "Project Appraisal Information" which it sent with its letter the Applicant gave various information about its proposed venture including an estimate of the value of the likely production in its first year and then when at full capacity.

In the section of the document dealing with profitability the Applicant stated that it would be seeking assistance from the Government of a type and level comparable with assistance granted to AMATIL in joint venture projects in Papua New Guinea, Malaysia and Indonesia. This would probably take the form of duty exemptions for capital equipment and raw materials, tax holiday, construction finance should it build rather than lease a factory, export incentives, dividend tax exemption and import duties on fully manufactured products.

By letter dated 28th June 1976 the Permanent Secretary for Commerce, Industry and Co-operatives wrote to Mr. J.T. Cameron a Director of AMATIL stating that the Government had studied the Company's proposal to set up a joint Company in Fiji and had granted the Company various assistance and concessions relating to Free Fiscal and Customs Duty, Income Tax Concessions for three years effective from the date of commercial production and Export Incentive Relief. As to this latter the Permanent Secretary wrote:

"(c) income tax concessions for three years effective from the date of commercial production."

The Applicant began commercial production on 25th October 1976 and applied for and was granted income tax concessions in accordance with Section 16(2) and the Third Schedule of the Income Tax Act.

Section 16(2)(b) and (d) of the Income Tax Act reads so far as relevant thus:

"(2) The Minister may, either by order, or by written direction to the Commissioner, where he is satisfied that it is expedient for the economic development of Fiji -

(a)........

Companies engaged in approved enterprises

(b) specify any company engaged in an approved enterprise as being one to which the tax concessions contained in the Third Schedule shall apply and such company shall accordingly enjoy such concession;

(c).........

(d) specify any trade and any product to be an approved trade and an approved product qualifying for an export incentive under the provisions of the Fifth Schedule and any such sum referred to in that Schedule shall be exempt from tax or chargeable at such reduced rate as may be specified."

By paragraph 1 of the Third Schedule any company which has been specified in accordance with the provisions of paragraph (b) of sub-section 2 of section 16 shall be exempt from the payment of tax to the extent indicated in paragraph 4 of the schedule on the profits derived from an approved enterprise for such period not exceeding five years as may be appointed by the Minister. However paragraph 1 also permits the Minister to extend that period by not more than three years if he considers it desirable.

The Fifth Schedule deals with export incentives and in my judgment the following paragraphs are relevant to the present application; 2, which states that the provisions of the schedule shall apply to any fiscal year ending after the 1st of January 1974; 3, which refers to applications for approval; 5, which sets out the method of relief and 6, which refers to time limits.

Paragraph 3(a) reads:

"Every company resident in Fiji for the fiscal year of any year of assessment which desires to avail itself of the deduction under this Schedule shall apply to the Minister for approval to be treated as a company eligible for a deduction or rebate for that year."

Under sub-paragraph (b) the Minister may require a company which applies for approval to furnish him with certain particulars not relevant here.

Paragraph 5(i)(a) and (b) read as follows:

"(a) A rebate of one-half of the tax chargeable on the company in respect of the export profits relating to the manufacture or processing of such approved product for the fiscal year in which approval is first given and the two subsequent fiscal years.

(b) For the subsequent five fiscal years a deduction from such profits of the difference between the profits attributable to export of the approved product for the fiscal year and the mean profits attributable to export of the approved products for the three immediately preceding fiscal years."

Paragraph 6 is as follows:

"(i) Except in respect of an application made during the year 1974 in respect of a fiscal year ending in that year, an application for an export incentive deduction shall be submitted to the Minister not later than three months after the commencement of the fiscal year the profits of which are to be the subject of an application.

(ii) Provided that satisfactory records are maintained a taxpayer may continue to claim relief for the year of claim and the seven subsequent fiscal years."

On the 1st of June 1983 the firm of Coopers & Lybrand, Chartered Accountants of Suva acting for the Applicant wrote to the then Minister of Finance regarding Export Incentive Relief. Only two paragraphs of this four-page letter are relevant to the present matter. They read thus:

"Since commencement of commercial production in 1976 the company only became profitable in 1980 and was able to avail itself of the tax concessions granted under the provisions of the Third Schedule to the Income Tax Act. The company has continued with profits during 1981 and 1982.

On behalf of the company we are now applying for your approval that in accordance with Section 16(2) of the Income Tax Act, the company's trade and products be specified as being expedient for the economic development of Fiji and qualify for export incentives under the provisions of the Fifth Schedule to the Act in respect of the income year commencing 1st November 1981."

This letter drew a reply from the Permanent Secretary of Finance on the 26th of September 1983. The Permanent Secretary clearly treated the letter from Coopers & Lybrand as a request for deferral of Export Incentive Relief from 1977 to 1981 and rejected the request giving two main reasons:

(1) that the Income Tax Act did not allow Fifth Schedule concessions to be deferred thereby extending the period of its overall concessions; and

(2) that as concessions were designed to assist a new company in the initial stages of its operation, once it was established and was profitable the need for concession diminished.

Following the Permanent Secretary's letter, nearly three years later on 25th August 1986 Coopers & Lybrand again wrote to the Permanent Secretary stating that there appears to be some confusion (although they did not say what) as to the commencement date of the concession. They said however that in the letter from the Permanent Secretary of Commerce, Industry and Co-operatives of the 28th of June 1976 the Permanent Secretary had stated that Export Incentive Relief would be provided to the company so long as it complied with the Fifth Schedule of the Income Tax Act. They then quoted paragraph 3 of the schedule and asked the Permanent Secretary to re-consider his decision.

Following this letter, and as is deposed in an affidavit by Michael Joseph Yen, Deputy Commissioner of Inland Revenue sworn on 17th October 1995 and filed in these proceedings the Minister sought advice from the Commissioner which is contained in a memorandum of the 6th of July 1987. This is in most respects similar to an earlier memorandum also exhibited in Mr. Yen's affidavit from the Commissioner to the Permanent Secretary for Finance dated 20th June 1983. From these memoranda it is clear that the reason why the Commissioner declined to extend the period for Export Incentive Relief was that if investors were allowed the flexibility to defer concessions at will, then concessions would be used to maximise tax savings and this would not be in accord with the reason for granting concessions.

In the three affidavits which have been filed in support of and in opposition to the application for leave herein, that of Mr. Yen to which I have just referred and that of Malcolm Harrison the General Manager of Tucker Fiji Limited and that of Franz Georg Keil the solicitor for the Applicant sworn on 22nd September 1995, the various relevant correspondence and other documents are exhibited and I shall not refer to them in any detail except when mentioning the helpful written submissions I have received from the parties' solicitors.

The current decision of the Minister of which Judicial Review is sought is contained in the letter dated 26th June 1992 from the Ministry of Finance & Economic Planning to the Applicant's solicitors in response to their letter of 28th August 1990 refusing the request previously made by Coopers & Lybrand that the Applicant be granted Export Incentive Relief for the years, 1985, 1986 and 1987 in the amounts of $112,889.00, $131,916.00 and $122,688.00 respectively. In his previous letter of 6th December 1990 the Minister for Finance advised that he could not accede to the Applicant's request on the ground that there is no statutory authority to enable the Minister to extend the time once the eight-year period had expired.

By Notice of Motion dated 9th February 1993 the Applicant now seeks leave to judicially review that decision.

The relief sought by the Applicant is:

(a) an order of certiorari to remove the Minister's decision of 26th June 1992;

(b) an order of Mandamus directed to the Minister for Finance requiring him to direct the Commissioner of Inland Revenue that the Applicant is entitled to Export Incentive Relief for the years claimed; and

(c) alternatively damages and interest to the amount that the Applicant has been assessed for tax on export income for those years.

The grounds on which the Applicant seeks relief are:

(a) that the Minister was wrong in law in holding that the periods for relief under the Third and Fifth Schedules of the Income Tax Act were the same periods and were in effect running concurrently;

(b) that the relief available under the Fifth Schedule was separate and independent from that allowed by the Third Schedule;

(c) that he was in error holding that the Applicant was seeking an extension of time for claiming Export Incentive Relief contrary to the periods prescribed by the Fifth Schedule.

It is agreed by the parties that the question the Court must decide is at what time the eight-year period referred to in the Fifth Schedule begins. The Applicant contends that this was for the income year commencing 1st November 1981 the date which Coopers & Lybrand requested in their letter to the Minister of Finance on 1st of June 1983.

On the other hand the Respondent contends that the correct date is 28th June 1976 when the Permanent Secretary for Commerce, Industry and Co-operatives wrote to AMATIL stating that its proposal to set up a joint venture had been approved. Having considered the submissions of the parties I am satisfied that this latter is correct. That however leaves the question should the eight years run from 28th June 1976 or from 1st November 1981?

The Respondent submits that the Applicant's claim that the date should be 30th November 1981 is contradicted by the Applicant's own evidence. He quotes two letters from Coopers & Lybrand dated 15th September 1982 and 7th December 1990 which they wrote to the Economic Planning Board of Fiji and the Permanent Secretary for Finance respectively. In their letter of 15th September 1982 they said in part "the concession granted to the company in 1976 will expire by 1984". In their letter of 7th December 1990 to the Permanent Secretary for Finance they said in part "the company had through our letters of 06 July, 1982 and 01 June 1983 applied to the Minister for a deferral of the commencement of the 8 year concession period from 1977 to 1982".

It is also submitted that the Applicant's own actions lead inevitably to the conclusion that approval was first given in 1976 and the period expired in 1984. It is pointed out that in particular in the first year in which it earned sufficient profits to take advantage of the Export Incentive Relief 1980-81, the company claimed the rebate in its tax return. This appears to be confirmed by exhibit "D" and "E" in the affidavit of Michael Joseph Yen. This was before its request in 1982 for approval in respect of the 1981-82 year. The Respondent argues that this refutes the Applicant's claim made in paragraph 5 of his Statement that the first application for approval was made in respect of the 1981-82 year.

It is therefore submitted by the Respondent that if leave is granted the Applicant would have no chance of success on the substantive motion.

In response to these submissions the Applicant relies on the wording of the Fifth Schedule compared with that of the Third Schedule. It is pointed out whereas the Third Schedule makes provisions for an appointed date and commencement of the period for relief, the Fifth Schedule in contrast does not stipulate a commencement date provision. It does however provide for applications for approval for the relief in paragraph 3 of the Schedule in that "every company resident in Fiji for the fiscal year of any year of assessment which desires to avail itself of the deduction under this Schedule shall apply to the Minister for approval to be treated as a company eligible for a deduction or rebate for that year".

Also by paragraph 6(i) of the schedule an application for export incentive deduction shall be submitted to the Minister not later than three months after the commencement of the fiscal year the profits of which are to be the subject of an application.

By paragraph 6(ii), provided that satisfactory records are maintained a taxpayer may continue to claim relief for the year of claim and the seven subsequent fiscal years.

In paragraph 5(a) of the schedule a rebate of one-half of the tax chargeable on the company in respect of the export profits relating to the manufacture or processing of such approved product for the fiscal year in which approval is first given and the two subsequent fiscal years is allowed.

These references, inter alia it is submitted, support the contention on behalf of the Applicant that it is the year in which the company makes its first application for relief under that schedule which is the commencement date for the period for which relief is granted under the Fifth Schedule.

In my opinion the Applicant's construction of the Fifth Schedule is to be preferred to that of the Respondent. It is a well settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties; the subject is not to be taxed unless the language of the statute clearly imposes the obligation - Russell v. Scott (1948) AC 422 at p.433 per Lord Simonds and language must not be strained in order to tax a transaction which, had the legislature thought of it, would have been covered by appropriate words - IRC v. Wolfson [1949] UKHL TC_31_141; (1949) 1 ALL E.R. 865, again per Lord Simonds.

In Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 K.B. 64 at 71 Rowlatt J. who was regarded as having an outstanding knowledge of income tax law said:

"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

This was approved by Viscount Simon L.C. in Canadian Eagle Oil Co. Ltd v. R. (1946) AC 119.

Applying these citations to the instant case in my judgment it is at least very arguable that the construction of the Fifth Schedule submitted by the Applicant is both logical and preferable to that contended for by the Respondent.

There may be good reason for the interpretation given to the Fifth Schedule to date by the Commissioner of Inland Revenue but if that interpretation cannot be supported by the proper construction of that schedule, which in my present view it appears not to be, then I can see good reason for the Applicant being given leave to apply for Judicial Review.

In my judgment the Applicant has made out an arguable case for being given leave and in my view it matters not whether as submitted by the Respondent the Applicant's Accountants stated that the concession granted to the Company in 1976 expired in 1984.

If as it seems to me that view cannot be supported by the construction of the Fifth Schedule, in other words that the Fifth Schedule appears to allow the Applicant to claim the concession from the year in which it first made its application, then as a matter of law the Applicant is entitled to the relief which it seeks.

I am supported in this present view by the fact that in its first application in 1976 the Applicant did not claim any concession under the Fifth Schedule for any particular year. The Respondent having approved the application for a joint venture, simply granted the relief commencing in the following year.

For these reasons I am of the opinion that the Applicant should be granted leave to judicially review the decision of the Minister in issue here and I so order.

JOHN E. BYRNE
J U D G E

Cases referred to in judgment:

Canadian Eagle Oil Co. Ltd. v. R. (1946) AC 119.
Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 K.B. 64 at 71.
IRC v. Wolfson [1949] UKHL TC_31_141; (1949) 1 ALL E.R. 865.
Russell v. Scott (1948) AC 422 at 433.

No cases were cited in argument.

HBJ0002D.93S