Special Court for hearing Income Tax and VAT Appeals A ...



4171950-685800ALL PARTIES CONSENTED, IN WRITING, TO THE PUBLICATION OF THIS JUDGMENT00ALL PARTIES CONSENTED, IN WRITING, TO THE PUBLICATION OF THIS JUDGMENT4552950-5715000REPUBLIC OF NAMIBIAHIGH COURT OF NAMIBIA MAIN DIVISION, WINDHOEKJUDGMENTCase no: TA1/2019IN THE SPECIAL COURT FOR HEARING INCOME TAX AND VAT APPEALSIn the Appeal by:A NAMIBIAN MOTOR VEHICLE ENTERPRISE APPELLANTandTHE RECEIVER OF REVENUE RESPONDENTNeutral citation:A Namibian Motor Vehicle Enterprise v The Receiver of Revenue (TA1/2019) [2020] NAHCMD 208 (7 February 2020)Coram:OOSTHUIZEN, J, MS A BEUKES, MR I SCHNEIDERHeard:28 August 2019Delivered:7 February 2020___________________________________________________________________ORDER___________________________________________________________________In the premises the following orders are made:[1]Appellant's appeal is allowed.[2]Respondent's objection decision that appellant supplied services to the manufacturer with reference to section 3(1)(b) of the VAT ACT is wrong and it is varied to the extent that the rebates were a price reduction on goods supplied under section 3(1)(a)(i) of the VAT ACT.[3]Consequently the respondent's assessment of appellant's VAT liability in respect of appellant's returns for the periods of 01/2014,05/2014 and 01/2015 resulting in an increased VAT liability for appellant in the amount of N$974 760 is set aside.[4]No order of costs is issued.___________________________________________________________________JUDGMENT___________________________________________________________________INTRODUCTION:[1]Appellant is a Namibian registered company trading in Namibia as a motor vehicle dealership supplying motor vehicles to the Namibian consumer market for appellant's own profit.[2]Appellant bought and imported vehicles from a South African producer and manufacturer (hereinafter only referred to as “the manufacturer”).[3]Upon importation the appellant paid 15% import tax to the respondent on the vehicles which is exported from South Africa as zero rated.[4]Respondent is tasked with the levying of tax on imported vehicles from abroad and broadly speaking with the execution of its statutory obligations in terms of the Value-Added Tax Act, No 10 of 2000 (?the VAT ACT”)[5]The Special Court for hearing value-added tax appeals is mandated by section 28 of the VAT ACT.[6]Appellant has appealed the ?objection decision” of the Commissioner made under section 27(5) of the VAT ACT by disallowing the objection of the appellant.[7]The appeal against the ?objection decision” shall be limited to the grounds set out in the objection. Vide sections 27(3) and 28(4) of the VAT ACT.[8]The parties have agreed on a Stated Case and submitted it through the Registrar on 7 August 2019. The Stated Case is produced in paragraph [13] with its unaltered footnotes, for the sake of completeness and proper record.[9]It is clear that appellant objected on 27 January 2017 against the treatment by respondent of rebates which appellant received, as taxable at the standard rate for VAT. The objection was directed at the additional value added tax of N$974 760 in the assessments of the VAT returns for the periods 2014/01, 2014/05 and 2015/01. Appellant conveyed to respondent that it regarded the rebates as refunds on overpayments it made and processed it with an exempt VAT code and erroneously declared it as exempt revenue on its VAT returns. Appellant further explained that the rebates it received from the South African supplier is actually an adjustment to the original purchase prices (cost) of the imported vehicles and should have been reflected as such.[10]Appellant (in its objection) further explained why the rebates (it received from the South African supplier) are considered (by it) as a reduction in the cost price of the imported vehicles. Appellant explained that it is a downward price adjustment as opposed to a service rendered (as believed by respondent). Appellant explained that the underlying rebates are received in respect of imported goods on which it already paid import VAT on the original selling price and that there is no output VAT implications for it upon receipt of the rebates. It contended that no further adjustment to previously declared (and paid) import VAT is needed. Appellant refers to sections 20 and 22 of the VAT ACT for guidance as to how adjustments to the original selling price for Namibian based transactions should be accounted for by a registered person. Appellant contended that the foreign rebates can be received by it as either a credit with its South African suppliers or as a cash refund. Vide appellant's letter of objection pages 143,145, and 146 of the Record.[11]Respondent's ?objection decision” of 9 March 2017 is contained on page 152 of the Record. It is summarised as follows:[11.1]Appellant did not justify the VAT exempt treatment of the rebates with reference to specific VAT provisions and as such the rebate income will be treated as 15% vatable.[11.2]With reference to section 3(1)(b) of the VAT ACT respondent ruled that section 3 is wide and states that anything done which is not a supply of goods shall be a supply of services. Appellant's contention that the rebates are not services rendered to the manufacturer (the supplier in South Africa) but a price reduction on goods sold, was rejected (not accepted).[11.3]Rebates relate to vehicles sold by appellant in Namibia and therefore directly in connection with movable property situated in Namibia and therefore cannot be zero rated.[12]I pause to observe that - [12.1]It seems that respondent labours under the impression that appellant had the duty to justify the VAT exempt treatment of the rebates to specific provisions of the VAT ACT (and because it did not the rebate income was treated as 15% vatable).[12.2]Respondent determined that appellant rendered services to the manufacturer to obtain the rebates.[12.3]Respondent apparently ignored applicants' explanation that it erroneously declared the rebates as exempt revenue on their VAT returns instead of an adjustment to the cost of the purchased vehicles.STATED CASE[13]?A. ISSUE FOR DETERMINATION1.This matter concerns an appeal lodged on behalf of the appellant delivered on 27 March 2017 (Record 169) against the disallowance of the appellant's objections to assessed VAT returns of appellant. The relevant objection dated 27 January 2017 (incorporated in the appeal) appears at Record 143 to 148. The respondent's decision disallowing same appears at Record 150 to 152.2.The essence of the issue for determination can be summarised as follows:2.1There is a difference of N$974 760.02 between the assessment by the respondent and the VAT returns as submitted by the appellant for tax periods 01/2014, 05/2014 and 01/2015.2.2The above difference relates to payments received by appellant and depicted as discounts or rebates in respect of motor vehicles imported by the appellant from the manufacturer, which is based in South Africa and which were deemed taxable at the standard rate for VAT purposes by the respondent.2.3The respondent determined that those payments constitute a taxable supply in terms of section 6(1)(a) of the VAT Act of 2000 (?the Act”) in that it constitutes a supply of services as contemplated by section 3(1) of the Act (read with the applicable definitions contained in the Act).2.4The respondent further held that it is a supply of services which is not a zero rated supply as contemplated by section 9(1) of the Act read with schedule IIII, thereto, paragraph 2(o). In the aforesaid regard the respondent held that it relates directly to vehicles sold by appellant in Namibia and thus directly in connection with movable property situated in Namibia and therefore falls within the ambit of paragraph (iii) of the said paragraph 2(o), which disqualifies it from a zero rating.2.5The appellant disagrees with the above decision of the respondent and - 2.5.1Principally contends that: 2.5.1.1The said payments are discounts or rebates and are not related to a service rendered to the manufacturer but a price reduction on the cost price of vehicles purchased by appellant, the latter being the price at which the manufacturer sold vehicles to appellant and at which appellant imported same into Namibia, which were imports of goods on which appellant paid 15% import VAT in terms of section 6(1)(b) read with 12(2) of the Act.2.5.1.2The said payments are therefore discounts or rebates and a price adjustment as opposed to a service rendered.2.5.2Contends, strictly as an alternative - and only insofar as it may be held that the aforegoing does indeed relate to a service rendered (which is principally disputed) - that, in any event, it would then be a service of a zero rated supply as contemplated by section 9(1) of the Act read with schedule III, paragraph 2(o).B.STATEMENT OF AGREED FACTS3.That the amount of N$974 760.02 relates to a difference between the appellant's returns and the respondent's assessments for the tax periods 2014/01, 2014/05 and 2015/01.4.That the above VAT returns of the appellant appear at Record 1, 2, 25 to 26 and 49 to 50 and the revision thereof by the respondent appear at Record 129 to 140.5.That the above difference is made up and calculated as per the schedule appearing at Record 149.C.CONTENTIONS BY APPELLANT6.That the aforesaid difference relates to discounts or rebates receive by appellant form the manufacturer in respect of motor vehicles that were imported into Namibia.7.That the discounts or rebates in question (in respect of the aforesaid tax periods) arose from one or more of all of the following (and as, in summary, described in respondent's ruling on the appellant's objection):7.1Special DiscountBefore appellant tenders for local supply of vehicles, a request is posed to the manufacturer for a special discount. Vehicles are then imported at a higher original selling price from the manufacturer and subsequent to the delivery under the tender the Special discount is submitted to the manufacturer to which the appellant is refunded.7.2Price ProtectionAppellant can usually claim price protection when the manufacturer cannot supply ordered vehicles on time before a price increase comes into effect. Appellant can then claim the price protection after vehicles have been supplied to the appellant's customer.7.3Target AchievementToyota franchised dealerships are given annual and monthly sales targets 6 months in advance. Certain pay-outs are then made to appellant for reaching the target. (own redaction)7.4Retail IncentivesIn order to assist dealers to sell the old run out models, the manufacturer would issue a bulletin with the promise of reduced cost price on the run out models. Appellant will then receive a certain amount on the sale of the run out models.and as further explained and amplified in appellant's objection.8.That the invoices issued by the manufacturer to appellant for vehicles purchased and imported and to which the 4 rebate schemes described may have found application:8.1excluded the aforesaid discount or rebates;8.2represented the value of the import as contemplated by section 6(1) of the Act read with other applicable provisions of the Act and for the purpose of the determination of the value of the import as contemplated by section 12(2)(b) of the Act;8.3represented the value at which the vehicles in question (i.e relevant to the three assessment referred to above) were indeed imported into Namibia and on which the appellant paid the 15% import VAT;8.4set out the amount for which the appellant was liable to the manufacturer before and until the said rebate or discount was granted by the manufacturer;8.5were zero rated for VAT purposes under the South African VAT Act 89 of 1991 (as same related to exports from South Africa to Namibia).9.That examples of the aforesaid discount or rebate incentive schemes are made up of the documents issued by the manufacturer as per Record 217 to 269.10.That the said rebates or discounts were accounted for in subsequent invoices (i.e. invoices issued subsequent to the abovementioned original invoice) of which examples appear at Record 3 to 103.11.That the invoices set out at Record 3 to 103 above were - as indicated thereon - issued by the manufacturer on the basis of self-invoicing on behalf of appellant and as contemplated by section 20(2) of the South African VAT Act 89 of 1991.12.That no service level agreement exists between the appellant and the manufacturer.13.That the appellant is the owner of the stock (i.e. vehicles) that qualify for the above incentive scheme and does not sell such stock on behalf of the manufacturer.14.That the relationship between appellant and the manufacturer is governed by the terms and conditions of the Toyota Dealer Agreement appearing at Record 190 to 216. (own redaction)15.That there is no enforceable obligation on appellant to partake in the aforesaid incentive schemes or perform specific prescribed marketing activities under such incentive schemes.16.In terms of the said incentive schemes the aforesaid rebates or discounts can be received either as a credit on appellant's account with the manufacturer or as a cash refund, but in practice - and due to the timing of the refund same, at all relevant times, resulted in refunds of money previously overpaid, because at the time when the rebates or discounts fell due the original invoices of the manufacturer had already been paid by appellant.17.That the manufacturer addressed the email to appellant as set out at Record 158, which reflects the view of the manufacturer on the issue in question.18.That the manufacturer issued tax credit notes in the form and manner intimated in the letter of Ernst & Young to the respondent dated 15 November 2017, which appears at Record 167 to 168 and to which letter a copy of such credit note was attached but omitted from the record and again is attached hereto as ?A”.19.That insofar as the aforesaid discount or rebate can be regarded as a supply of services for the purposes of the Act (which is principally disputed) it would concern a service:19.1.1supplied by appellant who is a registered person for the purposes of the Act;19.1.2supplied to a non-resident person outside Namibia at the time the services is supplied;19.1.3which does not add value to any vehicle owned by the appellant.20.That the relevant objection lodged by the appellant appears at Record 143 to 149 and was augmented by an opinion appearing at Record 153 to 157 and that the appellant or respondent is entitled to rely on any contention set out in that objection and opinion, which is not specifically referred to in the statement of facts.21.That the ruling made by respondent on the said objection appears at Record 150 to 152 and that the appellant or respondent is entitled to rely on any contention set out in that ruling which is not specifically referred to in this statement of facts.22.The appellant was previously known as Ritters (Pty) Ltd trading as Indongo Toyota but has undergone a name change and is presently known as Indongo Auto (Pty) Ltd but is still trading (as before) under the name Indongo Toyota. At all times it had the registered tax number of 0026242-01-5. (own redaction)D.CONTENTIONS BY RESPONDENT23.Respondent maintains that due to the nature of the relationship between appellant and the manufacturer and the way the payments depicted as discounts or rebates were characterized on behalf appellant, set up, implemented and paid they constitute payments received for services rendered and are subject to VAT at the standard rate of 15%.E.CONCLUSION24.The parties agree that the content of the documents forming part of the record in this appeal speak for themselves and can be tendered in evidence without further proof. The same applies to foreign legislation and any ruling, directive or guide by a foreign taxation authority based on such legislation.25.The parties agree that this stated case serves as a guideline for this appeal and they reserve the right to elaborate on the contentions set out herein in the heads of argument to be filed and prove additional facts if need be.’DISCUSSION, EVIDENCE AND APPLICABLE LAW[14]Public authority (such as respondent) possesses only the power it is lawfully authorised to exercise. Respondent therefore is only entitled to levy VAT if it is able to point to a statutory provision authorising it to impose same.[15]If the respondent cannot bring the recovery or levying of tax within the letter of the law, the appellant is free, i.e the VAT cannot be levied or recovered.[16]In 1949 the South African Appellate Division pronounced that ?There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing to be implied. One can only look fairly at the language used.”[17]In cases of uncertainty or ambiguity in taxation legislation, the Special Income Tax Court should apply a contra fiscum interpretation. An interpretation which favour the tax payer and is against the taxation authority should be followed in cases of ambiguity or uncertainty.[18]Appellant called one witness, its dealer principal. The witness testified about the incentive schemes of the manufacturer, how it works, why the appellant make use thereof, how it is regarded by the manufacturer and by appellant, where it is to be found in the Record etc. He testified basically to give content and validation to the Contentions by Appellant as in Part C of the STATED CASE hereinbefore under paragraph [13]. His evidence shall therefor not be repeated, save to say it was satisfactory and on the probabilities true.[19]Respondent called no witnesses. It relies on section 29 of the VAT ACT which place the burden of proof that an assessment is excessive or that the decision of the Commissioner is wrong, on the appellant.[20]As pointed out in paragraph [11] above the Commissioner decided that the rebates will be treated as rebate income which is vatable in that section 3(1)(b) of the VAT ACT apply and therefor anything which is not a supply of goods shall be a supply of services. The Commissioner rejected appellant's contention that the rebates are a price reduction on goods sold by the manufacturer to appellant and in effect held that the rebates were remuneration for services rendered to the manufacturer by appellant.[21]It is not in dispute anymore (if it ever seriously was) that the manufacturer granted the rebates to appellant subsequent to the export of the vehicles to Namibia and the import thereof by appellant upon payment of import VAT on the original generally applicable selling prices to all motor dealerships. The rebates when applied had the effect, subsequently, of reducing the prices on which import VAT were paid.[22]Appellant's contention in effect is that the decision of the Commissioner subjected the rebates to additional VAT on that portion of the collective reduced purchase price.[23]The arrangements on record between appellant and the manufacturer do not constitute service agreements. Appellant is not obliged to do anything in order to obtain the rebates from the manufacturer. The manufacturer is not obliged to remunerate to appellant on account of a service to the manufacturer. The incentives are there for the taking and fulfilment by appellant if it voluntarily elects to do so. To do so is sound business practice from appellant's side. A service agreement normally obliges one of the parties thereto to do (or supply) something for remuneration. Clause 6 of the dealer agreement between the manufacturer and appellant deals with a discount as a reduction of price.[24]Section 3 (a) and (b) of the VAT ACT distinguishes between a supply of goods and a supply of services. Section 3 (a)(i)-(iii) describe a supply of goods and provide therefore that any sale of goods is a supply of goods. Section 3(b) provide therefor that anything which is not a supply of goods or money, shall be a supply of services. See together with paragraph [26].[25]Appellant's main argument is that the sale of the vehicles (being a supply of goods) against a fixed (predetermined) price which it paid to the manufacturer and import VAT it already paid thereon to respondent, cannot become a supply of services attracting additional VAT in respect of the subsequent portion of rebates/reduction of price previously paid and taxed. Support herefor is to be found in case authority. In Commissioner, SA Revenue Service v Cape Consumers (Pty) Ltd it was held that an agreement to pay a discount (or a reduced purchase price based on a discount) is not a service.[26]Absent from the Commissioner's decision (in the context of this case) having the effect that appellant supplied services to the manufacturer to qualify for and receive the rebate income (applying section 3 (b) of the VAT ACT), is the consideration that ?a supply of services incidental to a supply of goods shall form part of the supply of goods.” Also absent from the decision is the consideration that ?a supply…… of services incidental to an import of goods shall form part of the import of goods.”The reduction of the purchase price in the present instance therefor remains part of the original supply of goods.[27]Sections 20 to 22 of the VAT ACT governs the position where the supplier/seller of goods and the purchaser thereof are both in Namibia and a discount or rebate is granted subsequent to the initial purchase and sale transaction. In short, and pertinent to what is before this Court to decide, it conveys that if a previously agreed consideration for a supply is altered, upwards or downwards, tax debit or tax credit notes shall be issued. It is relevant because it shows that a discount is treated as a reduction in the original purchase price when both parties fall under the (Namibian) VAT ACT. The notion of how a rebate or a discount is treated as a reduction in an original purchase price between Namibian entities under the VAT ACT has comparable value to the present inquiry. There is nothing directing that it should be treated differently.FINDINGS[28]Respondent's decision that the discounts or rebates were in consideration for services rendered by appellant to the manufacturer, is not borne out by the facts or the applicable law.[29]The Court therefor concludes that the discounts or rebates in the instant case are a price reduction of the original paid and taxed purchase price for the supply of the goods in question and that VAT cannot be levied again on the amount of such price reduction under the guise of it being a supply of services.[30]In view of the above findings it is superfluous to deliberate and decide on the remaining ?objection decision” save to find that the remainder was irrelevant.[31]In circumstances where the appellant admitted that it erroneously declared the rebates initially on its VAT returns as exempt revenue, it cannot be said that the respondent's claim was unreasonable. The successful ground of appeal of appellant is not frivolous. No cost order shall be made. Vide section 73(17) of the Income Tax Act, Act 24 of 1981.[32]In the premises the following orders are made:[32.1]Appellant's appeal is allowed.[32.2]Respondent's objection decision that appellant supplied services to the manufacturer with reference to section 3(1)(b) of the VAT ACT is wrong and it is varied to the extent that the rebates were a price reduction on goods supplied under section 3(1)(a)(i) of the VAT ACT.[32.3]Consequently the respondent's assessment of appellant's VAT liability in respect of appellant's returns for the periods of 01/2014,05/2014 and 01/2015 resulting in an increased VAT liability for appellant in the amount of N$974 760 is set aside.[32.4]No order of costs is issued.____________________GH. OosthuizenHigh Court Judge President of the Special Court for Hearing Income Tax and VAT AppealsAPPEARANCESAPPELLANT:Mr T?temeyer, SCInstructed by HD Bossau & CoRESPONDENT:Mr ColemanInstructed by Government Attorney ................
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