Rustam v Commissioner of Inland Revenue [1995] FJHC 64; Haa0027j.94b (30 March 1995)

IN THE HIGH COURT OF FIJI
AT LABASA
APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 27 OF 1994

Between:

MOHAMMED RUSTAM
s/o Ali Jan
Appellant

- and -

THE COMMISSIONER OF INLAND REVENUE
Respondent

Mr. A. Sen for the Appellant
Mr. A. Naco for the Respondent

JUDGMENT

In this case on 17 January 1994 in the Magistrate's Court, Labasa the appellant was charged on five counts of failing to furnish a tax return as required by section 33 of the Value Added Tax Decree 1991 and contrary to section 71(c) of the Value Added Tax Decree 1991 (Decree No. 45 FRG 22.11.91 P.913).

He pleaded not guilty to the charges and after trial he was convicted. On 5 August 1994 the following sentences were imposed upon him:-

COUNT ONE $20.00 per each month i.e. $300.00 i/d 3 months

COUNT TWO $30.00 per each month i.e. $360.00 i/d 9 months

COUNT THREE $40.00 per each month i.e. $360.00 i/d 9 months

COUNT FOUR $40.00 per each month i.e. $240.00 i/d 6 months

COUNT FIVE $50.00 per each month i.e. $150.00 i/d 4 months

Although originally the appellant petitioned against his conviction, he now abandons it and is appealing only against the sentence upon the following grounds:-

"(b) That the Learned Magistrate erred in Law and in fact in assessing each of the sentences imposed and acted upon erroneous principles in assessing the same.

(c) That the sentence of the five counts are unlawful

(d) That the sentences are harsh and unreasonable

(e) That the Appellant intends to add further grounds of Appeal upon receipt of the copy record."

The facts are set out in the learned Magistrate's judgment but briefly for the purpose of this appeal they are as hereunder.

The charges against the appellant relate to his tyre business for the periods specified in the various counts. Despite several reminders to furnish VAT Returns, "default assessments" and "final notice" no response was forthcoming from the appellant until 30 November 1993 when the appellant's tax agents wrote stating that Vat Returns would be lodged immediately. The letter from the accountant came late and a summons was issued.

The learned Magistrate found that the appellant had not furnished the Returns for the period July 1992 to August 1993 in accordance with section 33 of the Decree despite reminders and final notice.

He said that the letter from his accountant to the Department of Inland Revenue was in respect of a termination of his partnership with his brother; and as the tyre business had been registered in his name this has no effect as far as the VAT returns are concerned.

Both counsel made some useful submissions in this appeal against sentence.

Mr. Sen submits that in case of individuals fines should be "softer" as distinguished from companies after referring to a few cases to which I will refer later. He asks the Court to apply the criteria in ORISI CABENATABUA and THE COMMISSIONER OF INLAND REVENUE (Crim. App. 24/94 Labasa High Court). He said that in this case the appellant had ceased a business and was continuously in touch with the VAT office. He said that unfortunately there were two registrations and VAT was being paid on 'one'. Mr. Sen did not elaborate on grounds (b) and (c).

The learned counsel for the Respondent made a very carefully thought out and comprehensive submission on sentence which I substantially uphold.

Under section 33 of the Value Added Tax Decree 1991 the appellant was required to furnish a Tax Return. In this case the Returns were due for the periods as in the various counts being for the period July 1992 to August 1993. The appellant was to furnish them quarterly (section 32 of the said Decree).

Unlike ORISI'S case (supra), the facts were sufficiently outlined in this case supplemented by other evidence including that of the appellant as he defended the action. That enabled the learned Magistrate to have the full facts before him to be able to consider the appropriate level of fine on each of the counts.

As stated by Mr. Naco, by reference to the New Zealand case of INLAND REVENUE DEPARTMENT v COUTTS BROTHERS (1989) 11 NZTC 6134 (which was the criteria referred to in ORISI (supra) the following considerations are relevant in assessing a sentence for offences of this nature:

"(a) The length of the delay.

(b) Whether the accused had been let down by professional advisors such as accountants.

(c) The accused's ability to pay.

(d) Exceptional circumstances such as illness which might call for a merciful approach.

(e) The considerable flow on effect across the business community of failure to furnish GST (VAT) returns. It is viewed more seriously than failure to provide general income tax returns.

(f) Whether the breaches arose through ignorance or mistake.

(g) The clear responsibility of all traders to report on GST/VAT is dependant upon transactional recording and reporting.

(h) There is a distinction between individuals and commercial organisations.

(i) Whether reminder letters had been sent."

In ORISI (supra) the facts were so scanty that TUIVAGA C.J. remarked:

"The Value Added Tax Decree 1991 is a new concept in taxation law in this country. For that reason all those concerned in prosecuting offenders under the Decree should exercise utmost care to bring forth to the trial Court all necessary facts so that a clear and helpful picture about the case can be formed".

His Lordship the Chief Justice set aside the conviction and sentence and ordered that the case be remitted to the Court below for a new trial.

The relevant sections of the decree material to this appeal are as follows:

Section 33 of the Decree reads -

"Section 33

(1) Every registered person shall, on or before the last day of the month following the last day of every taxable period, without notice or demand furnish to the Commissioner a tax return, in such prescribed form as may be approved by the Commissioner.

(2) ................................."

Section 71(c) of the Decree reads -

"Section 71

Every person commits an offence against this Decree who:-

(a).........................

(b).........................

(c) refuses or fails to furnish any return or information or additional information as and when required or fails to comply with any demands made under this Decree, or any regulations made under this Decree; or

(d) to (q) ...................."

Section 72(2)(a) of the Decree reads -

"Section 72

(1).........................

(2) Every person who commits an offence against paragraph (a) or paragraph (c) or paragraph (m) of Section 71 of this Decree shall:

(a) on the first occasion on which the person is convicted of any such offence or more than one such offence, be liable, in respect of that offence or, as the case may be, each of those offences, to a fine not exceeding five hundred dollars, or to imprisonment for three months, or to both such fine and imprisonment, for each month of default.

(b).........................

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

The said Section 71(c) creates the offence of failing to furnish a Return as and when required. The penalty is prescribed by section 72(2)(a). I agree with Mr. Naco's interpretation of the term "each month of default" when he submitted that "...the words "for each month of default" mean for each month by which the return is late i.e. the greater the delay the greater the fine, offences under Section 71(c) being offences that continue from month to month until compliance is met with". He further said that "the wording of the penalty provision in New Zealand is identical; refer Section 62(3) Goods and Services Tax Act 1986. In Inland Revenue Department v Coutts Brothers at page 6, 135 the effect of Section 62(3) [our Section 72(2)] is described as follows:

"Thus the penalty provisions in relation to a charge of failing to furnish the required returns demands that the Court shall have regard to the period of time during which there has been a failure to furnish the return in question."

No doubt the offence is a continuing offence and this should be borne in mind in calculating the period of default or the length of delay:

"If a person is say 12 months late in complying will face a more severe penalty than someone who is just a month late". (SADAL J in COMMISSIONER OF INLAND REVENUE AND AUTOMART LIMITED (Crim. App. No. 4/94L).

In this case the appellant was registered under the Decree for his tyre business. He was therefore required to furnish returns for that business. In his case he was required to submit returns quarterly which he failed to do. The Returns were required for the following periods: July/August 1992, September to November 1992, December 1992 to February 1993, March to May 1993 and June to August 1993.

The first Return was due on 30 September 1992. First reminder letter was sent on 2 November 1992 followed by one on 21 January 1993; then on 1 May 1993 and 19 August 1993 default assessments sent; then on 9 September 1992 a final notice followed by default assessment on 16 November 1993; charges were laid on 26 November 1993 and on 30 November 1993 a letter was received from the appellant.

It is abundantly clear from the above chronology of events that the appellant had turned deaf ears to the reminders and notices.

People like the appellant should pay heed to the objectives behind VAT legislation and why the penalty imposed is so high. In this regard I refer to the following passage from COUTTS (supra).

"It can be commented at this stage that the Act is designed to require that the returns expected of persons who must make them shall be made on time because the returns must be cross-checked and referenced against the returns filed by other taxpayers. The failure to file returns can mean that people entitled to a refund of GST tax can be delayed in obtaining such refunds with the consequent possible financial hardship to those persons. In addition, it is plain that there is an obligation cast upon the taxpayer to promptly file the returns in question so that the Department and the Government know precisely where they stand in relation to this particular type of tax."

The learned Magistrate has taken into account all the factors that need to be taken into consideration (as outlined supra from COUTTS) before imposing the fines. The fines imposed should bear a reasonable proportionality to the fine prescribed by Court after taking into account the relevant factors referred to above.

The appellant is a businessman with a tyre business; he has been collecting VAT from his customers but not accounting for it to the State. Finally the Returns were lodged one day before the date of hearing.

In regard to fines the following passage in relation to gravity of offence from the judgment of HAMMETT CJ in ATTORNEY-GENERAL v HARI CHAND (14 FLR 245 at 246) is apt:

"The maximum fine prescribed by the legislature for this offence is 20 a day for each day during which default continues which for a 53 day default amounts to more than 1000. This is a clear indication of the gravity with which the offence is regarded by the legislature affecting, as it does, the uniform collection of one of the government's main sources of revenue, namely income tax. A wide discretion is left to the court in imposing the penalty for such offences. In the exercise of its discretion the court must of course have due regard to the means of the offender but the penalty imposed must also have some reasonable bearing on the gravity of the offence."(underlining mine for emphasis)

Also JESURATNAM J said in COMMISSIONER OF INLAND REVENUE and MALCOLM STUART MACASKILL (Crim. App. No. 74/91):

"The fine imposed should act as a deterrent to taxpayers who adopt an indifferent and unco-operative attitude towards the legitimate calls made by the Commissioner of Inland Revenue. Tax collection will be greatly hampered if taxpayers disregard their civic responsibilities."

As calculated by Mr. Naco, in this case the learned Magistrate has on Count 1 fined $20 which is 4% of the theoretical maximum and the period of default is over one year; on Count 2 $30 fine is 6% of the maximum on, Counts 3 and 4 a fine of 7% of the maximum and on 5th Count it is 10% of the maximum.

The fines I find are not "harsh and unreasonable". However, I cannot understand why the fines are inconsistent in that fines imposed on Counts two to five are more than in Count one although the period of delay in furnishing the return was shorter than in Count one.

The Respondent acknowledged that there is an apparent inconsistency and stated that "the learned Magistrate seems to have considered the 2nd and subsequent counts as more serious than the first which it is submitted he was entitled to do". I cannot understand this reasoning. The fine should be more in Count one than in the subsequent counts because the period of delay is longer.

In the circumstances I readjust the fine by setting aside the fines on each of the five counts and substitute them with the following fines:

Count Default period Fine per month Amount

$ $

1 15 months 35.00 525.00

2 12 months 35.00 420.00

3 9 months 30.00 270.00

4 6 months 25.00 150.00

5 3 months 20.00 60.00

_________

$1425.00

_________

In default of payment of the respective fines on Counts 1 to 4 the sentence of imprisonment is 6 months on each Count and on Count 5 it is 3 months.

The appellant is therefore ordered to pay a total fine of $1425.00.

For the above reasons I find there is no merit in the appeal against sentence and it is therefore dismissed with the sentences varied as stated above.

D. Pathik
Judge

At Labasa
30 March 1995

HAA0027J.94B