Fiji Islands Revenue and Customs Authority v Tropik Wood Industries Ltd [2005] FJHC 259; HBA0008.2005 (2 September 2005)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL APPEAL NO.: HBA0008 OF 2005

BETWEEN:

FIJI ISLANDS REVENUE & CUSTOMS AUTHORITY
APPELLANT

AND:

TROPIK WOOD INDUSTRIES LIMITED
RESPONDENT

Mr. Z. Sahu Khan for the Appellant
Mr. J. Apted for the Respondent

Date of Hearing: 29th August 2005
Date of Judgment: 2nd September 2005

JUDGMENT

This is an appeal against the decision of the Court of Review allowing the appeal of the Respondent thereby permitting the Respondent to rely on representations made by the Fiji Trade and Investment Board (FTIB) in 1987 that the respondent was entitled to certain tax concessions. The result of the decision is that the respondent is entitled to carry forward losses it incurred in previous years until its losses were fully recouped. The respondent, therefore, could set off its losses incurred in previous years against its trading profits.

BACKGROUND:

In March 1987 the Respondent had through its Accountant applied for certain tax concessions. On 17th August 1987 the Accountant was written to by FTIB informing him that the Government had approved an “income tax holiday for five years under the 7th Schedule of the Income Tax Act”. A copy of the letter was sent to the Commissioner of Inland Revenue and to Permanent Secretary of Trade Industry and Tourism. Before the Court of Review were various affidavits. The affidavit of Jesoni Vitusagavulu explained the decision making process on receipt of a tax payer’s application and how a project committee consisting of representatives of various relevant ministries including the Department of Inland Revenue met.

After the grant of the tax holiday, the respondent filed tax returns without any problems until returns for the years 1999 and 2000 were lodged when the Commissioner of Inland Revenue refused the respondent to carry forward losses from previous years. The ground of refusal was that the activity of processing and marketing of sawn timber and woodchips does not qualify for concessions under Section 16(2)(f) of the Income Tax Act and the Seventh Schedule. The Respondent objected to Commissioner’s assessment of tax but the objection was disallowed. On appeal to the Court of Review, the respondent’s appeal was upheld. The Commissioner has appealed to this Court against the decision of the Court of Review.

The grounds of appeal are:

(a) that the Court of Review erred in law and in fact by holding that the process of farming of woodchips fell within the scope of farming activity.

(b) that the Court of Review erred in law and in fact by holding that the Respondent had valid reasons for relying on the advice of the Government of Fiji’s approval conveyed to the Fiji Trade and Investment Board (“FTIB”).

(c) that the Court of Review erred in law and in fact by holding that if there were no taxes payable in accordance with the concessions granted then there should be no penalties.

(d) that the Court of Review erred in fact by awarding to the Respondent the sum of $5000 in costs to the Respondents.

Section 16(2)(f) of the Income Tax Act states as follows :

“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, specify upon such conditions as he thinks fit, any company engaged in any agricultural enterprise designated by him, [or engaged solely in agricultural contracting] as being a company to which the tax concessions contained in the Seventh Schedule shall apply, and such company shall accordingly enjoy such concessions.”

Paragraph 4 of the Seventh Schedule states:

“Notwithstanding the provisions of section 22, if a loss is incurred in any account period by a company in respect of any enterprise for which concessions have been granted under this Schedule, such loss or accumulation of losses, if there be more than 1 accounting period involved, shall, for the purposes of carry forward be available for set off for a period of 10 years commencing from the date as may be appointed by the Minister as the date on which the company is deemed to have commenced commercial production, against :

(i) any profits or gains of the company derived during the tax-free period but not exempted from tax under the concessions provided for by this schedule;

(ii) not relevant

(iii) not relevant

To the extent that losses are not wholly set off under sub-paragraphs (i), (ii) and (iii) above, the balance shall be available for carry forward and may be set off against the profits or gains of the company enjoying relief under this Schedule during the successive years immediately following the end of the relevant accounting period, with no restriction on the number of years for which the losses may be carried forward.”

GROUND 1:

The appellant’s first ground of appeal is that the respondent’s activities of processing timber and wood chips are not an agricultural enterprise and therefore could not enjoy the benefits anticipated by Section 16(2)(f) and the Seventh Schedule. The appellant forcefully submitted that a farming activity or agriculture involves cultivation, severing or gathering of crops, fruit or other produce. Farming and forestry it submits is confined to activity at primary stage of production and not the secondary stage of processing products which has nothing to do with the use of the land. The appellant submits that the Court of Review erred when it ruled that processing of timber and woodchips fell within the category of a farming activity.

Under Section 16(2)(f) it is the Minister who grants concessions not the Commissioner. It is the Minister who has to be satisfied that a company ought to be granted a tax concession. In its first ground of appeal the Commissioner is in effect submitting that the then Minister in 1987 got it all wrong in his interpretation of the law in granting the concession.

Mr. Apted submitted that if the appellant felt aggrieved by the Minister’s decision, he should have pursued his remedy by way of judicial review since this was a matter of public law. I agree with Mr. Apted on the authority of O’Reilly v. Mackman – [1983] UKHL 1; 1983 2 AC 237 which decided that public law issues must be brought by judicial review and not by ordinary actions. O’Reilly was considered by the Court of Appeal in Ram Prasad v. Attorney-General of Fiji – ABU0058 of 1997 which decided that judicial review was the proper procedure in cases where the applicant sought to enforce a public right for the performance or proper performance by the respondent of a public duty.

Here the appellant is attempting to attack a Minister’s decision made under a statute. The Minister acts under the statutory powers so this is squarely a public law matter. The Minister whose decision the appellant seeks to impugn is not even before the court. If I may add the time to impugn the decision is well and truly past. Hence I conclude that the appeal process is not the proper process by which the Minister’s decision can be impugned.

Further, there are the provisions of Clause 10 of the Seventh Schedule which has an effect on the meaning of agricultural enterprise in Section 16(2)(f). It provides:

“any company engaged in any of the farming activities in sub paragraphs (i) and (ii) of paragraph (c) of Section 16(1), or in processing agricultural produce, or in exporting agricultural produce, or engaged solely in agricultural contracting may qualify for the concessions continued in this Schedule.”

Forestry is one of the farming activities specified in Section 16(1)(c)(ii). Under Clause 10 of Schedule 7 farming activity is not confined to cultivating, severing or gathering of agricultural produce but also extends to processing and exporting of agricultural produce. Timber and wood chips are the result of certain processing work done on logs and therefore the Minister may well have considered that such activity was covered by the language of Schedule 7.

Section 16(2)(f) and Schedule 7 must be looked together and I am provisionally of the view that the language used is wide enough to cover production of timber and woodchips. I do not have to express a conclusive opinion on this aspect as it is strictly not the ambit of this appeal nor was the matter fully argued. In any event, the decision was that of the Minister and that decision can only be impugned by judicial review and not this proceeding.

GROUND 2:

The second ground of appeal is that the Court of Review erred in holding that the Respondent had valid reasons for relying on the advice of approval of concession relayed to it by FTIB. According to the appellant the approval could only be relayed by the Minister or by delegation and there was no evidence of this delegation.

The burden of showing that the primary court was in error in its findings of fact lies on the appellant. Unless the appellant can show that the primary court made incorrect findings of fact or drew inferences which were improper, the appeal will fail – Colonial Securities Company v. Massey – [1895] UKLawRpKQB 192; 1896 1 QB 38 at 39.

There were a number of affidavits before the Court of Review. In the affidavit sworn on 4th July 2003 (document 6) Jesoni Vitusagavulu explains the decision making process in 1987 which was followed after an application for tax concession was made. He stated that a project paper is put before the Project Committee which consisted of Permanent Secretary for Trade and Commerce, a representative from Ministry of Finance, a representative from the Inland Revenue Department, a representative from Customs Department, a representative from the Reserve Bank, a representative from the Ministry of Tourism. The FTIB acted as Secretary. At the meeting, the project paper which was prepared by the FTIB was discussed and recommendations made. The minutes of the meeting prepared by the FTIB were forwarded to all the members of the Committee for signing and approval or non-approval. It was only after such circulation that the papers were sent back to FTIB to relay the decision to the applicant. He stated that the project paper recommended an Income Tax Holiday for five years. The decision was relayed to the Respondent. He stated that the decision to grant a tax holiday was made by the Minister of Trade and Commerce and the Minister of Finance. If it was not so, the FTIB would not have issued notice of approval to the Respondent through its accountant. There was further evidence before the Court that a copy of letter of approval was sent to the appellant. There is no evidence to deny receipt of the letter by the appellant. There was also the fact that the parties had over the years acted in a way which was in harmony with the contents of that approval. There is acceptance in the affidavit of Paras Ram (document 7) sworn on 21st July 2000 accepting the general practice in 1987 as stated in Jesoni Vitusagavulu’s affidavit. Paras Ram swore the affidavit on behalf of the appellant. He does not deny that the Minister had granted approval but only speculates that the general practice may not have been followed or that the representative of Inland Revenue was not present at the project committee meeting.

Additionally, there were respondent’s tax returns for the years 1987 to 1990 inclusive - annexed to the affidavit of Daniel Mani sworn on 14th November 2003 and which state that Income Tax Holiday for five years was granted under the Seventh Schedule. The appellant had these records of returns and never said “no you do not enjoy tax holiday”. In the face of such clear cut assertions, one would have expected the Commissioner to deny such assertions if he had not given directions for tax holiday rather than to sit silently.

Faced with such evidence of correspondence and conduct the Court of Review was entitled to draw the conclusions she did. The appellant’s case both at the Court of Review and before this court was mainly conducted not on the basis that the Commissioner had never given the directions for tax holiday but rather that he had given the direction wrongly.

The appellant also submitted that the appellant is bound by statute to carry out his statutory duties in assessing tax payable and the doctrine of estoppel has no application in such cases. However, the respondent is not relying on estoppel at all. All the respondent is saying is that the directions given by the Minister remain in force until necessary proper form of proceedings are taken to set the order aside and the reason for invalidity established in such proceedings.

Accordingly the appellant has not succeeded in grounds 1 and 2 of his appeal. Counsel for the appellant had conceded that late lodgment penalty (ground 3) would only apply if appellant succeeded either on ground 1 or 2 and the respondent was liable to pay tax. He stated if no tax is payable, then late lodgment penalty as a policy is not charged. In light of my conclusions on grounds 1 and 2, ground 3 is not a live ground of appeal.

As far as ground relating to costs is concerned, costs normally follow the event. Those costs have been summarily fixed. I do not consider it prudent of me to set aside those costs.

The appeal is dismissed. I also award costs on appeal which I summarily fix in the sum of $1,500.00.

[ Jiten Singh ]
JUDGE

At Suva
2nd September 2005