Bauhuis Coating International Ltd v the Board of Inland Revenue

• Jurisdiction: Trinidad & Tobago
• Court: Court of Appeal (Trinidad and Tobago)
• Judge: Mohammed J.A.,Narine J.A.
• Judgment Date: 12 March 2014
• Neutral Citation: TT 2014 CA 10
• Docket Number: Civil Appeal No. 187 of 2011
• Date: 12 March 2014

Court of Appeal

Mendona J.A.; Narine J.A.; Mohammed J.A.

Civil Appeal No. 187 of 2011

Bauhuis Coating International Limited

and

the Board of Inland Revenue

Appearances:

Mr. G. Pantin instructed by Ms. A. Peters for the appellant.

Ms. L. Lucky-Samaroo and Mr. D. Ali instructed by Ms. L. Singh-Dan for the respondent.

Revenue law - Value Added Tax — Value Added Tax Act, Chap 75:06 — Whether commercial supplies fall within the ambit of Item 12, Schedule 2 of the Value Added Tax Act and thus not subject to value added tax — Determination as to what was a recipient under the Value Added Tax — Tax avoidance — Tax liability — Whether the Ramsay principles as enunciated in W.T Ramsay Limited v. IRC [1982] AC 300 and McNiven (H.M Inspector of Taxes) v. Westmoreland Investments Limited 3 I.T.L.R. 342 were satisfied where the Board disregarded contractual arrangements between the parties — Counterparty — Whether the recipient was within Trinidad and Tobago at the time when the services were supplied where the subsidiary was resident in Trinidad and Tobago and the subsidiary was separate and distinct from the primary company which had brought the products — Appeal allowed — Sections 14, 16, 17, 36 and 37 of the Value Added Tax Act.

MENDONA, J.A.: [1] I have read the judgment of Mohammed, J.A. and I also agree that this appeal should be allowed and with the order he proposes to make. I however wish to add a few words of my own.

2 This appeal is by way of the case stated from the Tax Appeal Board (the Board). The issue in this appeal is whether commercial supplies made by the appellant fall within Item 12 of Schedule 2 of the Value Added Tax Act, Chap. 75:06 (the VAT Act). Item 12 of Schedule 2 is as follows:

• “12. Any services which are supplied for a consideration that is payable in a currency other than that of Trinidad and Tobago, to a recipient who is not within Trinidad and Tobago at the time when the services are performed.”

A supply of services falling within Item 12 is zero rated and is therefore not chargeable to value added tax.

3 The issue arose in this way. The appellant is a company duly incorporated under the laws of this jurisdiction. It was at all material times engaged principally in the business of providing pipe coating services. It is a wholly owned subsidiary of Bauhuis Coating Limited (BCL) a foreign company registered in Cyprus. The commercial supplies concerned pipe coating services supplied under a contract between the appellant and BCL. The appellant regarded those supplies as zero- rated under Item 12 because they were supplied for a consideration that was payable in United States dollars to its parent company who was not within Trinidad and Tobago at the time of the supply.

4 The Board of Inland Revenue (the respondent) did not agree with that position. It assessed the appellant in respect of the supplies of value added tax at 15% and varied the appellant's liability to value added tax. The respondent considered an objection to its assessment by the appellant but affirmed the assessment. On appeal to the Board, the Board also affirmed the assessment. The appellant now appeals to this Court.

5 Before the Board the parties filed and relied on a statement of agreed facts. The statement is as follows:

• 1. The appellant is a company duly registered under the laws of the Republic of Trinidad and Tobago and whose registered address is c/o PricewaterhouseCoopers 11-13 Victoria Avenue, Port of Spain. The appellant was with effect from August 17, 2000 registered pursuant to the provisions of section 20 of the VAT Act, as number 118195. The tax periods under appeal are 200106, 200108, 200110 and 200112.

• 2. At all material times the appellant provided pipe coating services under subcontract to a non-resident company, BCL, registered in Cyprus. The appellant performed all activity under the contract in Trinidad and Tobago. All the supplies made by the appellant were commercial supplies.

• 3. BCL was not registered in Trinidad and Tobago, was not resident in Trinidad and Tobago and had no branch here. The invoices were issued to BCL payable in United States dollars.

• 4. The appellant duly filed its value added tax returns for the tax periods and by inadvertence reported no commercial supplies for the tax period 200106. It reported no output value added tax. It reported its input value added tax as follows:

  Period 200106 - $1,168,886.62

  Period 200108 - $1,107,282.46

  Period 200110 - $1,791,292.64

  Period 200112 - $96,280.03

  The appellant regarded all its commercial supplies as zero rated under Item 12 of Schedule 2 of the VAT Act. The appellant, therefore, charged no output tax on its supplies. It offset the above sums against the output tax of nil and claimed value added tax refundable in each period to the full extent of the input tax.

• 5. During an audit of the value added tax returns the respondent discovered that British Gas Trinidad and Tobago Limited had contracted with Allseas Marine Contractors S.A. Switzerland (Allseas) for the procurement and installation of certain pipelines in Trinidad and Tobago. Allseas had contracted with BCL to provide coating services on the pipelines.

• 6. The respondent was of the view that the commercial supplies were subject to tax at the rate of 15%. As a result the respondent adjusted the appellant's value added tax liabilities for the periods 200106 to 200112.

• 7. By letter dated July 15, 2002 with accompanying statement and explanations of adjustments the appellant was informed of its revised value added tax liability as follows:

  Period 200106 - $385,872.33

  Period 200108 - $5,858.11 (refundable)

  Period 200110 - $745,472.36 (refundable)

  Period 200112 - $212.081.26

• 8. The Notices of Assessment dated July 15, 2002 were served on the appellant.

• 9. The respondent acceded to a request for waiver of the deposit prior to objection and the appellant thereafter objected to the assessment.

• 10. After considering the objection and representations by the appellant's representatives, the respondent confirmed the assessments. The amount under appeal for the four (4) periods is $4,010,364.77.

6 Before the Board the appellant argued that the sole question which arose for determination was the identity of the recipient of the services within the meaning of Item 12. It argued that the recipient was BCL and since that company was not within Trinidad and Tobago at the time of the supply and as the consideration for the supply was payable in United States dollars the supply fell within Item 12 of Schedule 2 of the VAT Act and was therefore zero rated. The respondent on the other hand contended that British Gas Trinidad and Tobago Limited (BGTT) was the recipient within the meaning of Item 12 and since that is a Trinidad and Tobago company carrying on business in Trinidad and Tobago, the supply by the appellant did not qualify to be zero rated. It further submitted that even if the Board did not agree that BGTT was the recipient, the supplies would still not be zero rated as BCL was “within Trinidad and Tobago” as that term is used in Item 12.

7 The Board, in affirming the assessment of the respondent, based its decision in its judgment on the ground that the recipient was BGTT. In the case stated (which incorporated the judgment) the Board said that it found as a fact that BCL must be regarded “as having a constructive presence within Trinidad and Tobago having regard to their connection with the [appellant]”. This finding of fact might support an alternative ground for the Board's decision namely that BCL was the recipient and within Trinidad and Tobago for the purposes of Item 12.

8 Before this Court, Mr. Pantin, Counsel for the appellant, submitted that the Board erred in law in concluding that the recipient was BGTT. He argued, as the appellant had done before the Board, that the recipient within the meaning of Item 12 on a proper construction of the VAT Act could only be BCL. Accordingly the commercial supplies were caught by Item 12 and were therefore zero rated.

9 Ms. Lucky-Samaroo, Counsel for the respondent, on the other hand sought (with one exception) to support the conclusion of the Board.

10 The exception to which reference is made is with respect to the Board's view as to whether the issue as to the identity of the recipient was a question of fact or law. The Board was of the view that the issue was one of fact only. This is obviously material since an appeal lies to the Court of Appeal from the Board on the questions of law only (see the Tax Appeal Board Act section 9). Counsel for the appellant submitted that this view of the Board was erroneous as the identity of the “recipient” called for a proper construction of that word as it appears in the VAT Act and that was a question of law. Counsel for the respondent did not seek to support the position of the Board and conceded that the issues on appeal would involve questions of law. This is clearly a correct concession.

11 Before I come to consider the submissions in more detail it would be appropriate to put the issue in its proper statutory context.

12 Value added tax is charged on a commercial supply within Trinidad and Tobago of goods and prescribed services by persons registered under the VAT Act (see section 6(b)). What constitutes a “commercial supply” for the purposes of this appeal is dealt with in section 14 (1). This section provides as follows:

• “14 (1) A supply of goods or prescribed services that is made in the course of, or furtherance of, any business is a ‘commercial supply’ for the purposes of this Act.”

It is not in dispute that in this case that there were commercial supplies and that the supplies were of services.

13 Section 7(1) prescribes the rate of tax. The amount of tax shall be calculated at the rate of 15% “or such other rate as the Minister by Order specifies, except in the case of an...