IN THE VALUE ADDED TAX TRIBUNAL
AT SUVA

(Appeal No 10 of 2007)

In the matter of an appeal to the Value Added Tax Tribunal

BETWEEN:

WAQAVUKA DEVELOPMENT CO. LTD
Appellant

AND:

THE COMMISSIONER OF INLAND REVENUE
Respondent

H. Nagin for the Appellant
Ms S. Takilai for the Respondent

Date of Hearing: 30th September 2008
Date of Judgment: 6th February, 2009

JUDGMENT

This is an appeal against the decision of the Commissioner of Inland Revenue to assess/reassess the Appellant company Value Added Tax on its sales in its Transit Café at the Nadi International Airport.

In its Notice of Appeal, filed on 3rd August 2007, the grounds of Appeal are stated as follows:

1. The Commissioner of Inland Revenue erred in law and in fact in holding that the taxpayer's sales in the Transit Lounge Café at the Nadi International Airport were subject to Value Added Tax.

2. The full grounds are contained in the 8 objections lodged by the taxpayer with the Commissioner of Inland Revenue on 11th July, 2006.

The 8 objections lodged were identical letters dated 11th July, 2006, except for the different taxable periods which are stated in the introductory paragraph to the Notice of Appeal.

The case was first called before the VAT Tribunal on 22nd August 2007. The parties then proceeded to prepare for trial. At the insistence of Appellant counsel, indicative hearing dates for the week 26 – 30th November 2007 were allocated by the Tribunal. On 19/10/07, by consent, hearing dates of 28th and 29th November, 2007 were fixed. On 23/11/07 the parties informed the Tribunal that there would be no dispute on facts, which would be filed by agreement. The hearing dates of 28 and 29th November, 2007 were vacated, pending the filing of a Statement of Agreed Facts. This was tendered in Court on 18 January, 2008. By consent of the parties written submissions were ordered to be filed. The Appellant filed its submissions on time but the Respondent's submissions were delayed. The Tribunal had allocated the 8th of May 2008 as the day for the parties to orally respond to each other's submissions.

However, on 8/5/08 Counsel for the CIR consented to the Appellant's request to file a written reply to the Respondent's submissions, filed on 31st March, 2008. The Tribunal had expressed its concerns regarding the submissions filed, and the voluminous annexures in the Statement of Agreed Facts. It also intimated to the parties that it appeared that they were running parallel arguments without clarifying the critical legal issues. The Tribunal did manage to hear the parties in oral arguments on 30th September 2008. However, it notes with regret that these were not as helpful as expected.

The Tribunal is also not clear on what basis submissions on Omitted Income Penalty and Amended Assessments are being made. These are contained in Sections 12 and 13, respectively, of the submissions filed by Appellant Counsel on 15 February 2008. The submissions appear to be directed at the Commissioner of Inland Revenue and essentially repeat what is contained in the letters to the Commissioner dated 11 July 2006 (Annexures 5 - 11). It is not clear why these are put before the Tribunal. The issue of penalties are not sufficient grounds of appeal. Under the VAT Decree, sections 50 and 51, this Tribunal only has powers to hear and determine appeals against assessments of the Commissioner.

The first paragraph of the letters dated 11 July, 2006 assert, inter alia, that they object to the amended assessment, "On the basis that this is not in accordance with the VAT Decree 1991, related case law and natural justice". The Tribunal recalls that it had requested the parties whether there were any relevant case law to assist in the interpretation of the relevant provisions of the Decree. In particular, the Tribunal questioned the parties as to how transit lounge cafes were treated in Australia and New Zealand as far as their Goods and Services Tax (GST) legislations were concerned. The VAT Decree, like GST, is essentially a consumption tax and follows the same taxation/fiscal policy philosophy. No cases were provided. Some extracts from the Australian and New Zealand GST legislation from the relevant websites were tendered by Respondent counsel. These were of some assistance. The Tribunal is not clear what the accountants mean by the assessments being not in accordance with natural justice, given the correspondence and meetings held between the parties, as disclosed in the annexures. Counsel did not, properly, raise the issue before the Tribunal.

Facts:

A Statement of Agreed Facts was filed by the parties on 18th January 2008. Much of this is not relevant facts as such but contain assertions which impinge on legal issues. For the purpose of its decision the only relevant fact that the Tribunal can extract is that since July 2001 the Appellant has been operating a Café in the Transit Departure lounge for transit passengers at Nadi International Airport (Paragraph 1). It is not clear what is meant by "beyond Immigration and Customs". This is not a "fact" given the submissions of counsel. The letters contained in the Annexures contain each parties assertions or the law.

The Submissions:

The crux of the Appellant's submission is contained in the conclusion (Section 14) of its submissions filed on 15/02/08. It is stated in the following terms in para 14.01:

"In conclusion, the Appellant contends that the sales by its Departure Café located in the air side of the Nadi International Airport is properly accounted for as zero-rated under the VAT Decree 1991 and the auditors' findings as per their amended assessments are not in accordance with the provisions of the VAT Decree 1991".

This is repeated in its submissions in reply filed on 2nd June 2008 (para 4.01). In oral argument, learned counsel for the appellant re-stated his position, in the following terms: "The sales are in the customs controlled/designated area. Everyone in this area should be treated the same. All the sales should be zero-rated'". The Respondent's basic contention is that the sales of the appellant's food and beverages at its café located in the transit lounge does not qualify as zero-rated, and is, therefore, vatable.

In the Tribunal's view this remains the essential question: "Are the sales at the appellant's Café at the Transit Departure Lounge zero-rate supply". Further, this case is essentially about statutory interpretation. The basic rule of interpretation is well known to the parties. It is the literal approach, preferring the plain and ordinary meaning of words.

The Scheme of the Vat Decree

It is, therefore, appropriate to begin with the scheme or framework of the VAT Decree 1991. There is no dispute that the appellant is a registered person. Part IV of the Decree titled "Imposition of Tax on Supply" contains the provision that imposes the tax. Section 15 titled "Imposition of Tax on Supply" states:

(1) Subject to the provisions of this Decree, the tax shall be charged in accordance with the provisions of this decree at the rate of ten percent on the supply (but not including an exempt supply) in Fiji of goods and services ………., by a registered person in the course or furtherance of a taxable activity carried on by that person, by reference to the value of that supply.

(2) Where, but for this subsection, a supply of goods and services would be charged with tax under subsection (1) or this Section, any such supply shall be charged at the rate of zero percent where that supply is a zero-rated supply.

The expressions "Fiji" "supply" "goods" "exempt supply" "zero rated supply" are all defined by the Decree, some quite comprehensively. Exempt supply are described in the First Schedule but is not relevant for our purposes. The critical section for our purposes is the Second Schedule which defines zero-rated supplies. It is pertinent to quote this, as far as is relevant.

Second Schedule – Zero-rated supplies (Section 2)

1. The supply of goods where the supplier has entered the goods for export, pursuant to the Customs Act 1986, and those goods have been exported by the supplier.

2. The supply of goods where the goods have been deemed to be entered for export pursuant to the Customs Act 1986, and those goods have been exported by the supplier.

3. The supply of goods where the supplier has satisfied the Commissioner that the goods have been exported by the supplier to a place outside Fiji,

4. The supply of goods where the supplier will enter the goods for export pursuant to the Customs Act 1986, in the course of, or as a condition of, making that supply;

It is clear that the appellant would not be liable for VAT if it was making zero-rate supplies. Further, if its sales at the Transit Café were export sales, which were zero-rated, it would not be liable for VAT.

We now turn to the question whether the appellant's sales from its transit café are export sales. The term 'export' is defined in the Customs Act. It means "to take or cause to be taken out of Fiji". "Fiji" is defined in Section 2 of the VAT Decree and "includes the air space, the internal waters, the archipelagic waters and the territorial seas of Fiji, defined in the Marine Spaces Act Cap 158A". One does not need to look into the Marine Spaces Act to conclude that the goods bought and consumed at the Transit Café are not exported, nor deemed to be exported, whatever gloss one puts to the second schedule definition of the term.

The Tribunal cannot understand the submissions by learned Appellant Counsel at Section 6 of his original submissions titled Value Added Tax Decree 1991. At para 6.06 he concludes: "However, as stated earlier, the definition of "export" contained in Section 2 of the Customs Act 1986, when read in conjunction with Section 66(1)(a) and subsidiary notices issued by the Comptroller of Customs and Excise can only practically result to one conclusion - any goods supplied to an outbound passenger by any concessionaire in the Transit Area is exported".

No subsidiary notices were tendered before the Tribunal nor is it made clear what "any concessionaire" in the transit area means. It is quite clear to the Tribunal that the Appellant's Transit Café is not a concessionaire under Code 213 of the Customs Tariff Act. The Tribunal does not need to repeat the very succinct analysis of how the Customs Act, in particular Code 213, operates at the transit departure and arrival lounge as contained in the submission in reply (paras 8-19) of learned respondent Counsel's submissions. It has been admitted in the Agreed Statement of Facts (see Clause 12) that the Café operates on the basis of a "Catering Concession Agreement" between Airports Fiji Ltd and Waqavuka Development Co Ltd. Whatever this Agreement states about Value Added Tax in Clause 12 is irrelevant to the imposition of value added tax under the Decree. Both parties acknowledge that the CIR cannot be encumbered by any agreements made between third parties, nor by any representation made by any representative of the CIR (See Punjas Ltd -v- Commissioner of Inland Revenue [2006] FJCA 66).

The Tribunal found much of the learned Appellant Counsel's treatment of the relevant provisions of the Customs Act and the VAT Decree confusing. At para 11.05 of his original submissions, for example, he states: "There is no reference to concession Code 213 anywhere in the VAT Decree. However, Concession Code 213 does exist as part of Schedule 2 of the Customs Tariff Act 1986, as amended from time to time". Much of the discussions that follow are misconceived, especially in trying to link the transit café's treatment to "duty free shops" or "outbound" passengers. It is not clear on what basis learned appellant Counsel concludes at para 11.13 of his submissions: "Accordingly, the respondent's attempt to use Code 213, as being applicable is null and void under Section 89 of the VAT Decree". How Section 89 of the VAT Decree, dealing with Amendments and Repeals, makes the application of Code 213 null and void is difficult to understand. Code 213 comes into operation under the Customs Act 1986 in relation to the Second Schedule's zero-rated supplies. It does not contravene any provisions of the VAT Decree.

The Tribunal did not find the Report of the Value Added Tax Advisory Panel, attached to Appellant's original submissions, of any assistance (see also Section 5 of Submissions). The Advisory Panel, in fact, does not assist the Appellant's case. The Panel's discussions on sales by "duty free shops" noted that sales of goods at duty free concessions in the international departure lounges are zero-rated. How this relates to the issue of "deemed to have entered for export" under the Second Schedule of the VAT Decree is difficult to understand (see para 5.01 of Submissions). The simple fact is that the sales of goods by "duty free" shops are free from VAT because they are entered for export or deemed to be entered for export, and are, therefore, zero-rated.

There is much confusing submissions on the Customs Act 1986 in Section 7 of Appellant submissions. One is not clear what is the purpose of these, except to establish what is the "air side" for Nadi Airport. According to the Appellant this "covers all the areas past the Immigration check-in entrance for departing passengers. Once a passenger is past this point, they are treated as "Departed" (para 7.06). It is the confusion arising from the Appellant's understanding of what is meant by "departed" that the whole logic of its submissions on the VAT Decree fails. In discussing the issue of Time of Supply (Section 8), for example, it is stated at para 8.10:

"As the various provisions, referred to earlier, of the Customs Act treats passengers who have passed the Immigration checkpoint as having "departed" for all intents and purposes, any resultant supply of goods in the Transit Area is not considered by Customs as being subject to its jurisdiction ……"

In its response to the Respondent's submissions more startling assertions are made. At para. 2.06 it is stated: "The embarking passengers have deemed to have left Fiji upon going past Immigration into the Customs Controlled Area." (emphasis added) Then at para 2.11 (wrongly numbered as 2.04) it is stated: "Isn't the Transit Lounge "outside the Fiji boundaries" already as far as immigration law is concerned. On this basis, "goods therein must be considered to have been exported". At para 3.02 it is further stated: "In any event using the plain meaning method of interpretation also clearly establishes that once an embarking passenger goes through Immigration he has left Fiji".

Learned Counsel for the Appellant made no submissions on the Immigration Act to indicate how he came to the conclusions recording the meaning of "departed". A cursory look at the Immigration Act suggests no definition of the term "departed." Whatever gloss learned Counsel for the Appellant puts to the term "departed" goods and services don't depart. They are either "imported", "exported", "sold/supplied", "carried on board" or so on. As far as the VAT Decree is concerned, for the purposes of zero-rating, they have to be "exported" under the Customs Act. As learned Appellant Counsel acknowledges to "export" means to take or cause to be taken out of Fiji. "Fiji", as defined in the VAT Decree, "includes the air space, the internal waters, the Archipelagic water; and the territorial seas of Fiji ...." Under no stretch of the imagination can the goods supplied to transit passengers at the Transit Café be classified as "exported" out of Fiji.

It is regrettable that Appellant Counsel did not provide a considered response to the comprehensive submissions by learned Counsel for the Respondent. Learned Counsel presented a succinct analysis of the Customs Act 1986 and its relationship to the VAT Decree, and especially the second schedule which deals with exported goods. The Tribunal does not see it necessary to repeat the analysis, especially in relation to Code 213: the requirements of Ministerial approval; how goods are to be exported; accounted for from export warehouses or apron warehouse; and what release from customs control means. The comprehensive submission on Code 213 is dismissed in the following terms (at para 2.02 of Appellant's response):

"In paragraph 12 of their submissions, they refer to Code 213. Under this Code, it appears that no one can operate in the Customs area unless the Minister so approves. By extension, all concessionaires within this Customs controlled area must be so approved otherwise to allow someone to operate within this controlled area would compromise the integrity of Customs in the carrying out of its duties".

The reference to Section 5(1) of the Customs Act is hard to fathom in relation to Code 213. The logic of what is meant at para 2.04 of the Response also remains unclear.

It is quite clear that the Accountants, in their letter of 11 July, 2006, refused to see the obvious. In the letter of 11 July, 2006 it is disclosed that the Appellant taxpayer is a member of the Motibhai Group of Companies (p19). The Motibhai Group is a well established and recognized business entity in Fiji. It runs a "duty free shop" as is commonly known, at both the arrival and departure lounges at Nadi Airport. These shops can only operate as "duty free shops" by virtue of Code 213. It must be quite clear to the Appellant taxpayer that its Transit Café is not a Code 213 concessionaire, whatever other "concessionaire" it considers itself to be. The Café operates by virtue of an agreement with Airports Fiji Ltd. It is not a "duty free shop" proper. Its sales/supply are not covered by the second schedule since the goods are not "exported" but consumed within Fijian territory. They are, therefore, not zero-rated and are vatable.

Concluding remarks

In its Grounds of Appeal (Ground 2) the Appellant had stated that "the full grounds are contained in the 8 objections lodged by the Taxpayer with the Commissioner of Inland Revenue on 11th July, 2006". The Tribunal has referred to this letter in the course of its judgment. This letter is not, strictly speaking, what one would expect in the "Grounds of Appeal" in a "Notice of Appeal". It is a cumbersome letter, full of assertions purportedly on the law and some "facts". More factual matters could have been disclosed in the "Statement of Agreed Facts". The Annexures suggest that much transpired between the parties prior to the filing of this appeal on 3rd August, 2007.

It is, therefore, a matter of regret that at page 3 of the letter the following statement is made:

"It is the taxpayer's contention that the series of schedules given to the taxpayer and the reasons contained in its letter of 2 June, 2006 is an illogical, incorrect and highly selective application of the Vat Decree 2001 (sic), not supported by a thorough understanding of the overall nature and structure of the scheme for Vat and its associated framework, and even incorrectly attempts to assume that the application of the Vat Decree is the same as the accounting principles upon which the financial statements are prepared".

The letter of 2nd June, 2006 from the CIR (referred above), in brief, alluded to the critical issues considered in this appeal. I refer, in particular, to its references to: the second schedule - zero rated supplies; the definition of "export"; and that the transit café/restaurant not being qualified as a Code 213 concessionaire under the Customs Act. It is clear that the allegations made against officials of the Commissioner of Inland Revenue were not in consonance with the facts.

It is quite evident from the "submissions" contained in the letter that the contentions and assertions made were misdirected. The letter itself is full of "illogical, incorrect and highly selective" assertions on the VAT Decree. What is disappointing is that learned Appellant Counsel adopted much of the illogical and selective assertions of the Accountants as the basis of legal submissions. In doing so he failed to adhere to the basic rule of interpretation referred to earlier. In the Tribunal's view the VAT issue at hand could have been resolved expeditiously and amicably if a common sensical approach had been adopted from the beginning.

Orders

The appeal is dismissed. Each party is to bear its own costs.

Jayant Prakash
Value Added Tax Tribunal

6 February 2009