Kandelite Engineering Company Limited v. Federal Inland Revenue Service (2023)

LawGlobal-Hub Lead Judgment Report – COURT OF APPEAL

MUHAMMAD IBRAHIM SIRAJO, JCA (Delivering the leading judgment)

The appellant was a registered company engaged in Electrical and Mechanical Engineering businesses, who has private individuals and corporate persons as its clients, and also, by virtue of the provisions of the Value Added Tax Act, 2004, the appellant is regarded as a Taxable Person which implies that, the appellant company has registered under the law for the purposes of collection and remittance of Value Added Tax to the respondent Tax Board.

The respondent, as a statutory body, was saddled with the power to administer, collect, regulate, and to account for all taxes collected to the Federal Government, and also to do all such things as may be necessary and expedient for proper assessment and collection of all taxes, and account for the entire amount so collected to the Federal Government.

The respondent was said to have taken the appellant up for its failure and or refusal to file tax returns for some years listed. This was refuted by the appellant, consequent to which the respondent filed a tax appeal at the Lagos Division of the Tax Appeal Tribunal, vide a notice of appeal dated 11/05/2011 and copied at pages 4 – 6 of the record of appeal.

The Panel of the Tax Appeal Tribunal; composed of Mr. Kayode Sofola, SAN, (Chairman) with Catherine A. Ajayi, (Mrs.); D.H Gapsiso; Mustafa Bulu Ibrahim, and Chinua Azusu, as Commissioners, (The tribunal), sat and heard the appeal and consequently delivered its judgment on 11/06/2014, in the said tax appeal with appeal No: TAT/LZ/007/2001, between the parties in the instant appeal. In the said decision, the tribunal ordered the appellant, who was the respondent in the tax appeal, to pay to the respondent, the appellant in the tax appeal, a withholding tax of N3,641,462.00, with the outstanding VAT of N4,327,012.00 for 2004; penalties for late filing of CIT and EDT returns of N1,175,000.00, and also the VAT and penalties for late returns, totalling N21,105,875.31. The said judgment can be found at pages 423 – 434 of the record.

The appellant was aggrieved by the decision of the tribunal and appealed to the Lagos Division of the Federal High Court, Coram: I.N Buba, J., (the lower court), vide the notice of appeal dated 03/07/2014, located at pages 435 – 437 of the record. The lower court delivered its judgment in the ensuing suit No. FHC/L/5A/2014, on 11/11/2015, domiciled at pages 590 – 617 of the record, wherein the appellants appeal was dismissed for lacking in merit.

The appellant, still aggrieved with the decision of the lower court in dismissing its appeal, further appealed to this court vide notice of appeal dated and filed on 22/12/2015, anchored on four grounds of appeal.

In line with the rules of this court, the appellant filed its brief of argument on 16/03/2018 but was deemed properly filed on 26/04/2022. In the said appellants brief, settled by Norrison Quakers, SAN with Ihedinma Uduogie, Esq.; B. F Ajudua, Esq.; Olatokunbo Fatai, Esq.; Oyinye Okonkwo, Esq.; Michael Ogunjobi, Esq.; Oyinkan F. Awe, Esq. and Mojeed Balogun, Esq., two (2) issues were formulated for determination of the appeal, which are reproduced as follows:

1. Whether the learned trial Judge was right in affirming the decision of the Tax Appeal Tribunal which held the appellant liable for the non-payment of Value Added Tax by customers of the appellant, in the face of overwhelming evidence that invoices were issued but the customers wilfully refused to pay the VAT despite being informed that same was issued for payment for and on behalf of the respondent. (Grounds 1 & 3)
2. Whether the learned trial Judge was right in affirming the decision of the Tax Appeal Tribunal which held the appellant liable for the non-payment and transmission of VAT by customers of the appellant by placing reliance on Best of judgment (BOJ) assessment. (Ground 2)

In response to the respondents brief, the appellant also filed a reply brief on 09/05/2023 but was deemed duly filed on 11/05/2023.

The respondents brief was filed on 19/10/2022 but deemed on 11/05/2023, wherein the respondent adopted the two issues formulated by the appellant.

Argument of parties on issue 1

On issue 1, learned senior counsel for the appellant argued that the lower court was wrong to have affirmed the decision of the Tax Appeal Tribunal as it did. He contended that, having issued invoices to its clients on behalf and for the benefit of the respondent, the appellant ought to have been absolved of liability under the ostensible agency relationship. While relying on the decision in Dehinsilu v. Mondec Pharmacy Ltd. (2008) LPELR-3547 at 38, senior counsel argued that the lower court misconstrued the procedure involved in the instance. He relied on the provisions of sections 2 and 46 of the Value Added Tax Act, 2004 and averred that the lower court was in error when it held the appellant liable for Value Added Tax not collected from the appellants clients who were said to have wilfuly refused to pay the tax. He argued further that the combined construction of the provisions of the law cited supra, shows two separate processes in the course of payment of VAT, to wit; the computation of VAT with the issuance of invoice thereto by the taxable person on the one part and the collection/deduction proper together with a remittance of such tax so collected, on the other part. It was further posited that it is the principle that where no VAT is collected, no VAT would be remitted, submitting in essence that, it is impracticable to proceed to the second part of the process where the first part is unsuccessful. It was argued that what the respondent had termed

VAT not collected was indeed the collectable VAT, duly demanded by the appellant vide the issuing of invoices as required by law. It was submitted that the contract for payment of VAT created in favour of the respondent by the appellant (through the issuance of invoice) was complete the moment the third party paid for the services of the appellant despite refusing to pay for the invoiced VAT through the appellant.

It was submitted that, at this stage, the statutory duty of the agent to the disclosed principal, the respondent in this instance, became fully discharged the moment the defaulting third parties made it impracticable and/or frustrated the appellant from proceeding to the second stage of deduction, collection, and remittance, noting in the circumstance that the appellant had acted within the scope of its authority as an agent for the respondent, and therefore could not have been held liable for the action or inaction of the defaulting third parties. The provision of section 14(1) of the VAT Act and decisions in Dehinsilu v. Mondec Pharmacy Ltd. (supra), Isa v. C.G.C Nig. Ltd. (2014) LPELR -23977 (CA) at 19, paragraphs D – E, were referred to in support.