The parties in this application are embroiled in a bitter dispute over the implications of their failure to specifically include Value Added Tax (abbreviated herein as “VAT”) matters in agreements for the milling of sugarcane.
The applicants are both companies duly incorporated in terms of the laws of Zimbabwe whose names over the years have become synonymous with sugar and sugar cane production in Zimbabwe. They grow, source, and mill sugar-cane and market its products. They carry on this agro-based business in and around the Lowveld towns of Triangle and Chiredzi.
The first respondent is the Zimbabwe Revenue Authority (ZIMRA): a statutory body whose chief mandate is to assess, collect, and enforce the payment of all revenues on behalf of the State. It is established in terms of the Revenue Authority Act [Chapter 23:11].
Save for the 10th (Farai Dumo Augustine Musikavanhu) and 11th (Roy Bhila), the rest of the respondents are organisations representing the interests of sugarcane farmers in the Lowveld (Zimbabwe Sugar Cane Development Association, Zimbabwe Cane Farmers Association, Mkwasine Sugar Cane Farmers Trust, Commercial Sugar Cane Farmers Association of Zimbabwe, Hippo Valley Productive Farmers Association, Zimbabwe Sugar Cane Development Association Royal Trust, Chipiwa Mpapa Mill Group and Chiredzi Productive Cane Growers Association).
The 10th (Farai Dumo Augustine Musikavanhu) and 11th (Roy Bhila) respondents are individual sugar cane farmers.
They were probably singled out on account of the positions they hold as Members of Parliament for the Chiredzi South and Chiredzi North constituencies respectively over and above their roles as sugar-cane farmers. They also occupy and serve in specialised Parliamentary capacities.
BACKGROUND
Solely for purposes of convenience and brevity, the second to eleventh respondents (Zimbabwe Sugar Cane Development Association, Zimbabwe Cane Farmers Association, Mkwasine Sugarcane Farmers Trust, Commercial Sugarcane Farmers Association of Zimbabwe, Hippo Valley Productive Farmers Association, Zimbabwe Sugarcane Development Association Royal Trust, Chipiwa Mpapa Mill Group, Chiredzi Productive Cane Growers Association, Farai Dumo Augustine Musikavanhu and Roy Bhila) will be referred to simply as “the farmers” and the first respondent as “ZIMRA”.
It is common cause, that, pursuant to the terms of either of two types of written agreements between them, the farmers supply the sugar cane that they produce to the applicants. These contracts are generally referred to by the parties as the “Cane Milling Agreement” and the “Cane Purchase Agreement.”
Under the former, the basic idea (as is implicit in the name) is that the applicants merely provide a milling service to the farmers. In addition, the applicants also proceed to market, on behalf of the farmers, the sugar and molasses thereby produced as well as other by-products, and, thereafter, remit to the farmers the proceeds thereof after deducting the expenses associated with the milling of the sugarcane and marketing of the sugar and the other by-products.
It is further common cause, that, under the cane milling arrangement, there is an existing agreement that the charge for the milling is calculated according to a pre-determined ratio referred to as the “Division of Proceeds” (DoP) ratio. This ratio currently stands at 23 percent of the proceeds which the applicants retain in the wake of the marketing of the products of the milling process. The farmer gets the remainder.
The Cane Purchase Agreement operates differently.
According to the parties, this agreement involves a direct and complete sale of the sugar cane by the farmers to the applicants with risk and benefits passing to the latter upon the delivery of the cane.
During oral submissions in court, counsel for the applicants referred to a rather convoluted method by which the purchase price of the cane is computed under this arrangement; suffice it to say that there is no convergence as among the parties as to whether the supplies of cane that gave rise to the current dispute constitute a Cane Milling Agreement or a Cane Purchase Agreement.
Be that as it may, it is common cause, that, in a decision (which has since been appealed against to the Fiscal Appeals Court), the first respondent determined that the set-up which currently obtains, chiefly characterised by the distribution of proceeds arrangement, constitutes one which attracts value added tax (VAT).
Therein lies the genesis of the dispute.
This is because the simple question to be answered is whether the 23 percent retained by the applicants, post the milling and marketing, incorporates value added tax (VAT) (as contended by the farmers) or it does not (as maintained by the applicants).
It is further common cause that the Zimbabwe Revenue Authority (ZIMRA), having made the decision that the aforementioned arrangement was one that attracts value added tax (VAT) in terms of the law, and that the applicants were therefore legally obligated to have, all along, charged and collected from the consumers (i.e. the farmers) and remitted the amounts so collected to it, directed that the said amounts be paid to it.
In compliance with that decision, the applicants aver, that, they have since calculated the outstanding amounts in this regard and remitted the same to the first respondent.
Through the current application, the applicants seek;
(i) A declaratory order to the effect that they are legally entitled to recover from the farmers the value added tax (VAT) which they have since paid to the first respondent; and
(ii) Secondly, that they are legally entitled to continue charging and collecting value added tax (VAT) from the farmers over and above the 23 percent milling charge.
The applicants also take exception to the fact that the first respondent (through some of its officials) took it upon itself to render certain advice to the farmers which advice they contend amounts to an unwarranted interference in matters that are purely contractual.
Part of that advice related to the first respondent's interpretation of the tax implications of the failure to include value added tax (VAT) matters in the cane supply agreements.
The terms of the declaratur sought by the applicants are captured in the draft order annexed to the application which reads:
“Wherefore, after reading papers filed of record and hearing counsel, IT IS ORDERED THAT:
1. The application succeeds with costs.
2. It be and is hereby declared that -
(a) The conduct by the first respondent to give advice to the applicants and the second to eleventh respondents on what are purely contractual matters is ultra vires its functions and responsibilities as an administrative authority and therefore unlawful.
(b) To the extent that they are liable to pay VAT for milling costs, the applicants are entitled to charge, levy, and collect such VAT in accordance with the VAT Act on and in addition to the value for the milling charge.
3. The first respondent be and is hereby ordered and directed to refrain from gratuitously interfering in pricing and contractual issues between the applicants and the second to eleventh respondents.
4. The respondents shall, jointly and severally, the one paying the others to be absolved, pay the applicants costs of suit on an attorney–client scale.”
The applicants raised a number of arguments in support of their contention that they should be permitted to recover that which they have since paid to the Zimbabwe Revenue Authority (ZIMRA) in the wake of the latter's aforementioned determination.
The main thrust of their argument, as I see it, however, is that the very fact that the Act makes it clear that the burden to pay the tax in question rests on the consumers, who in this case are the farmers, yet it was them (applicants) who were compelled to pay it, necessarily implies that they can recover the same from the farmers.
Reliance was placed, inter alia, on the elucidation by GOWORA JA, of the tripartite relationship in the value added tax (VAT) equation. This was in the case of ZIMRA v Packers International (Private) Limited SC28-16 where the following exposition was made:
“The system of collection of VAT, as embodied in the VAT Act, involves the imposition of tax at each step along the chain of manufacture of goods or the provision of services subject to VAT;”
And further that:
“…, tax under the VAT Act consists of monies that have been taxed on goods and services paid by consumers for onward transmission to the Commissioner. All that is required of an operator is to calculate the amount so paid, submit a return, and make payment.”
Flowing from this basic premise, according to the applicants, are two applicable precepts that emanate therefrom, namely, unjust enrichment and equity.
The latter, though not specifically pleaded in their papers, was nevertheless amply canvassed during the oral submissions in court.
Regarding unjust enrichment, it was averred, that, should the court not find in the applicants favour, an injustice will ensue in that the respondents will have been unjustly enriched at their expense.
For the requirements and application of the principle of unjust enrichment, the following cases were cited as authority; Industrial Equity v Walker 1996 (1) ZLR 269 (H); Chioza A.M. v Siziba S.W. SC04-15; and Trojan Nickel Mine Ltd v Reserve Bank of Zimbabwe HH169-13.
It was contended, that, the facts of this case point to the fact that all the pre-requisites for a finding for the applicant on the basis of unjust enrichment have been met.
The nub of the equity argument is that justice and fairness simply demand that the applicants be allowed to recoup from the farmers that which they paid to the Zimbabwe Revenue Authority (ZIMRA) in compliance with the latter's determination.
It is clear that this is merely an extension or adjunct of the unjust enrichment contention.
The applicants further referred to various sections of the Act which, in their view, fortify their position. Reliance was placed in this regard to section 9(2) which provides as follows:
“The value placed on any supply of goods or services shall, save as is otherwise provided in this section, be the value of the consideration for such supply, as determined in accordance with subsection 3, less so much of such value as represents tax: Provided that -
(a)…,.;
(b) Where the portion of the value of the said consideration which represents tax is not accounted for separately by the registered operator, the said portion shall be deemed to be an amount equal to the tax fraction of that consideration.”
Similarly, reliance was placed on section 9(5) of the Act which provides:
“Where goods or services are deemed to be supplied by a registered operator in terms of subsection (2) or (8) of section 7, the supply shall be deemed to be made for a consideration in money equal to the lesser of -
(a) The cost to the registered operator of the acquisition, manufacture, assembly, construction, or production of goods or services, including -
(i) Any tax charged in respect of the supply to the registered operator of such goods or services or of any components, materials, or services utilised by him in such manufacture, assembly, construction or production;
(ii) Where such goods or any right referred to in subsection (2) of section seven, when held by the registered operator, constituted trading stock as defined in section 2 of the Taxes Act, any further costs, including tax incurred by him in respect of such goods or right;
(iii) Any costs, including tax, incurred by the registered operator in respect of the transportation or delivery of such goods or the provision of such services in connection with the transfer of such goods or the provision of such services as contemplated in subsection (8) of section seven; and
(iv) Where such goods or services were acquired under a supply in respect of which the consideration in money was in terms of subsection (4) of this section deemed to be the open market value of the supply or would in terms of that provision have been deemed to be the open market value of the supply were it not for the fact that the recipient would have been entitled under subsection (3) of section fifteen to make a deduction of the full amount of tax in respect of that supply, such open market value to the extent that it exceeds the consideration in money for that supply: or
(b) The open market value of such supply.”
THE POSITION OF THE RESPONDENTS
The third (Zimbabwe Cane Farmers Association) and fourth (Mkwasine Sugar Cane Farmers Trust) respondents did not ultimately participate in the proceedings on account of the fact that the former did not file any opposing papers and the latter filed its heads of argument outside the prescribed time and was therefore barred.
In a similar vein, there was no appearance by or on behalf of the sixth (Hippo Valley Productive Farmers Association), ninth (Chiredzi Productive Cane Growers Association) and eleventh (Roy Bhila) respondents on the day of the hearing.
Effectively, therefore, only the positions of the first (Zimbabwe Revenue Authority), second (Zimbabwe Sugar Cane Development Association), fifth (Commercial Sugar Cane Farmers Association of Zimbabwe), seventh (Zimbabwe Sugar Cane Development Association Royal Trust), eighth (Chipiwa Mpapa Mill Group), and tenth (Farai Dumo Augustine Musikavanhu) respondents were before the court.
ZIMBABWE REVENUE AUTHORITY's POSITION (ZIMRA)
Regarding the implications of the failure by the applicants and the farmers to specifically incorporate value added tax (VAT) matters in their Division of Proceeds (DoP) arrangements, ZIMRA articulated two distinct positions, namely;
(i) That which relates to past supplies of cane; and
(ii) That which attends to present and future supplies of cane.
In respect of past supplies of sugarcane, the Zimbabwe Revenue Authority (ZIMRA) averred that a proper construction of section 69 of the Value Added Tax Act shows, that, in the absence of the express mention of value added tax (VAT) component in any price for goods or services, then the price will be deemed to contain the said tax.
As far as the alleged impropriety of the advice it rendered to the farmers, it contended that whatever advice it gave to the farmers was not only within its legal powers to give but also that it did so at the behest of the applicants.
It further averred, that, it has a duty to provide education to taxpayers not only to impart knowledge of the same but also to inculcate and engender a spirit of compliance.
First (ZIMRA) respondent's position on VAT implications for present and future supplies of cane
In its papers opposing this application, the Zimbabwe Revenue Authority (ZIMRA) does not commit itself on what the tax implications in respect of present and future supplies are. It opted, instead, to confine itself to the question of past supplies.
However, it soon became apparent that its position is that the applicants are not only at liberty to charge, levy, and collect from the farmers the said tax, but that they are in fact obligated to do so.
It suffices, however, to note that this does not address the issue of whether this will be over and above the 23 percent being charged for the milling of the cane.
THE FARMERS POSITION
As earlier stated, only the positions of the second (Zimbabwe Sugar Cane Development Association), fifth (Commercial Sugar Cane Farmers Association of Zimbabwe), seventh (Zimbabwe Sugar Cane Development Association Royal Trust), eighth (Chipiwa Mpapa Mill Group), and tenth (Farai Dumo Augustine Musikavanhu) respondents were effectively before court.
Save for a few instances of divergence (which will be highlighted below) the farmers were united not only in their resistance to the application but also on the grounds thereof.
The rallying point in their opposition to the quest by the applicants to recover the tax for past supplies was section 69 of the Value Added Tax Act. Their position essentially mirrors that of the Zimbabwe Revenue Authority (ZIMRA).
Over and above the import of section 69 of the Value Added Tax Act, however, a few additional arguments were presented to buttress their position and these are:
1. The very fact that the Zimbabwe Revenue Authority (ZIMRA) has determined that the 23 percent milling charge includes value added tax (VAT) as far as the second (Zimbabwe Sugar Cane Development Association), eighth (Chipiwa Mpapa Mill Group) and tenth (Farai Dumo Augustine Musikavanhu) respondents are concerned, is dispositive of the whole dispute.
They go as far as contending that the decision of ZIMRA is binding.
They further assert, that, in their view, the applicants have merely abdicated from their responsibility to remit the value added tax (VAT) so collected to ZIMRA and the consequences attendant thereto cannot be visited on them.
2. That the endeavour, on the part of the applicants, to recover the value added tax (VAT) they paid from them amounts to an attempt to vary the implied terms of their contract.
3. That, as far as the fifth (Commercial Sugar Cane Farmers Association of Zimbabwe) respondent is concerned, its cane supply arrangement with the applicants is governed by neither a cane milling agreement nor a cane purchase agreement, but, rather, by what it terms a “memorandum of understanding.” A copy of which was attached.
4. A further point raised by the fifth respondent (Commercial Sugar Cane Farmers Association of Zimbabwe) was that the very fact that invoices relating to disbursements of the individual farmer's share of proceeds is silent on the collection of value added tax (VAT) necessarily implies that VAT was included in the 23 percent milling charge.
During oral addresses in court, yet another argument was presented, namely, that, the Division of Proceeds (DoP) ratio was decided upon by the Minister responsible for the superintendence of the sugar sector, namely, the Minister of Industry and Commerce.
It was averred, in this regard, that, during the negotiations leading up to those figures (of 23 percent and 77 percent) it was in the contemplation of the parties that value added tax (VAT) was incorporated in the 23 percent milling charge.
In apparent departure from the positions held by the other respondents, the seventh respondent (Zimbabwe Sugar Cane Development Association Royal Trust) maintained that section 69 of the Value Added Tax Act applies to all supplies of cane; past, present, and future.
THE ISSUES
In my view, there are two broad issues up for determination in this dispute, and, from each, two sub-questions arise. The two broad questions are:
(1) Whether the 23 percent cane milling charge includes or excludes value added tax (VAT); and
(2) Whether there has been an unjustifiable interference by the first respondent the Zimbabwe Revenue Authority (ZIMRA) in purely contractual matters between the applicants and the farmers.
The sub-questions in respect of (1) above are:
(a) Whether or not the applicants are entitled to recover from the farmers value added tax (VAT) which they (i.e. applicants) paid to ZIMRA for past supplies; and
(b) Whether or not the applicants are entitled to charge, levy, and collect from the farmers value added tax (VAT) over and above the 23 percent milling charge.
The sub-questions from (2) above are:
(a) Whether the applicants have satisfied the requirements for the declaratur sought in paragraph 2(a) of the draft order; and
(b) Whether the applicants have satisfied the requirements for the interdict sought in paragraph 3 of the draft order.
WHETHER THE 23% CANE MILLING CHARGE INCLUDES OR EXCLUDES VALUE ADDED TAX (VAT)
This is arguably the most significant question as it lies at the very heart of the dispute.
As indicated above, the applicants used various arguments in support of their contention that the 23 percent milling charge must be taken as excluding value added tax (VAT).
They relied, inter alia, on subsections 2 and 5 of section 9 of the Value Added Tax Act.
I however fail to see how section 9(2)(b) of the Value Added Tax Act assists the applicants.
Section 9 of the Value Added Tax Act, in general, is aimed at the determination of the value of supply of goods or services. Paragraph 2(b), in particular, is a proviso to the general provision that the value to be placed on any supply of goods or services is the value of the consideration.
This proviso however addresses a situation where the registered operator neglects to separately account for the value of the consideration which represents tax in which case it will be deemed to be the tax fraction of the consideration.
Implicit in this proviso is that the tax fraction is to be calculated from that consideration: not in addition to the consideration. A fraction of something is a piece, part, portion, or component of something. Put in context, therefore, the tax fraction is incorporated in not excluded from or to be added to the 23 percent milling charge which is the consideration.
Sub-section (5) of section 9 of the Value Added Tax Act equally does not avail the applicants.
It is simply a method aimed at assisting in the computation of the consideration of the supply of the goods or services in question in instances of “deemed supply”. The basic idea being that this involves a calculation of all the expenses incurred in or attendant to the acquisition of the goods or services (or any lesser amount) or simply the open market value of such supply.
Needless to say that this provision does not even come close to unlocking the current legal logjam, let alone assist the applicants....,.
UNJUST ENRICHMENT
The applicants averred, that, if they are not permitted to recoup that which they have since paid to the Zimbabwe Revenue Authority (ZIMRA) by way of value added tax (VAT) emanating from past supplies of cane, then, the farmers would have been unjustly enriched at their (applicants) expense. This is because the ultimate responsibility to pay value added tax (VAT) rests on the farmers who are the consumers of the milling service.
All things being equal, this argument would perhaps have carried the day for the applicants had it been established, one way or the other, that, the 23 percent milling charge does not include value added tax (VAT).
What has to be established, first, is whether or not it does.
It is only after that determination that one can legitimately argue that placing the burden on the applicants to foot this tax when the milling charge did not include tax as amounting to unjustly enriching the farmers at the applicants expense, or, conversely, that, permitting the applicants to recoup from the farmers what they (applicants) have since paid to ZIMRA when it is established that the 23 percent actually incorporated the tax can one argue the applicants as having been unjustly enriched at the expense of the farmers.
EQUITY
Counsel for the applicants made an impassioned plea for the court, in the name of equity, to find that the applicants are entitled to recoup the value added tax (VAT) in question which they have already paid.
In Sanudi Masudi v David Jera HH67-07 MAKARAU JP…, made short shrift of an argument based entirely on equity (a position I adopt in casu) she had this to say:
“That argument would have won the day were we a court of equity. We are but a court of law, and, as correctly advanced by both counsel, we are to be restricted by the pleadings filed by the parties to establish the cause of action that was before the trial court and the defense that was raised to meet that cause of action.”
Although the circumstances of that case were admittedly different from the present one, the fact remains, that, the court is confined to an application of the letter of the law to the facts and not necessarily the parties subjective views of what is right or wrong....,.
The real issue as I see it, lies in the interpretation of sections 69 and 72 of the Value Added Tax Act and their application to the facts of this matter....,.
REGARDING PAST SUPPLIES OF CANE
As indicated earlier, in this regard, the Zimbabwe Revenue Authority (ZIMRA) relied almost exclusively on the provisions of section 69 of the Value Added Tax Act (and the farmers adopt a similar stance) which provides as follows:
“69 Prices deemed to include tax
(1) Any price charged by the registered operator in respect of any taxable supply of goods or services, shall, for the purposes of this Act, be deemed to include any tax payable in terms of paragraph (a) of subsection (1) of section six in respect of such supply, whether or not the registered operator has included tax in such price.”
According to ZIMRA, the significance of this section is that where the price/charge (which, in this case, the milling price which is pegged at 23 percent of the value of the proceeds from the cane) is silent on the value added tax (VAT) component thereof, it is deemed, ex lege that VAT is included in that price.
Put in perspective, therefore, according to the first respondent, the Zimbabwe Revenue Authority (ZIMRA), it is deemed that the consumer of the goods or service (in this case the farmer) has already paid value added tax (VAT) in that price, and, by logical extension, all the registered operator (in this case the applicants) needs to do is to remit it to ZIMRA.
Any purported attempt to recover the same from the consumer is untenable because that would not only amount to taxing the consumer twice but also runs contrary to the tenor and spirit of that section.
The Zimbabwe Revenue Authority (ZIMRA) further contended, that, doing so would inevitably lead to a fresh computation of the value added tax (VAT) payable because the one calculated and subsequently paid by the applicants was on the basis of section 69 of the Value Added Tax Act.
In a nutshell, accepting the position adopted by the applicants would yield higher figures for the value added tax (VAT) payable.
The applicants took a contrary view and argued;
(i) Firstly, that there is no need to resort to the deeming provision of any legislation when in fact the issue in question is adequately provided for elsewhere in that Act.
This is because, so the argument goes, it should only be resorted to in instances of omission on the part of a party with the duty to comply with a statutory obligation.
(ii) Secondly, they contended that section 69 of the Value Added Tax Act only serves to remove as a potential defence in situations such as the present when ZIMRA demands from it the value added tax (VAT) component of any price where same is not expressly stated therein.
However, according to them, it offers no sanctuary to a consumer when the registered operator now seeks to recover from him (i.e. consumer) that which they paid pursuant to ZIMRA's decision.
In my view, the position adopted by the applicants cannot be sustained.
Firstly section 9(2) and section 9(5) of the Value Added Tax Act, which they relied on, have already been found to be of no application to the current dispute.
Secondly, the plain and literal meaning of the section suggests that it is irrelevant whether or not the registered operator has in fact charged the tax in question; where the price does not reflect the tax component thereof it is presumed that the tax is incorporated in that price.
In other words, the phrase “whether or not the registered operator has included tax in such price” operates a twin blow to the registered operator: it serves to estop him from denying that the price in reality did not include tax in a bid to avoid accounting for the tax to the Commissioner. At the same time, it precludes him from purporting to claim from the consumer the tax that he may or may not have collected from the consumer.
The question of who bears the obligation under the Value Added Tax Act to pay the tax (who is obviously the consumer), which the applicants expended so much effort on, is hardly the issue.
To contend that section 69 of the Value Added Tax Act should be construed so as to permit the registered operator to pursue the consumer for the recovery of the tax they paid to the Zimbabwe Revenue Authority (ZIMRA) would, in my view, run contrary to the clear intention of the legislature.
The legislature must obviously have been alive to the fact, that, in most day to day supply of goods and services, the customer disappears without trace soon after the transaction.
How then would the registered operator be able to recoup the tax that he claims he did not in fact charge and collect?
Even if the customer could be traced, there would be an unnecessary proliferation of disputes between him and the registered operator as to whether the price included value added tax (VAT) or not.
It would create unnecessary uncertainty and confusion in the market place where the consumer will never know whether or not the price charged includes value added tax (VAT) and where he always runs the risk of being informed ex post facto that the price he paid actually did not include tax.
If the applicants are permitted to recover the tax in question from the farmers then the deeming provision will be rendered nugatory. It would mean the price cannot then be deemed to include tax - it is as simple as that.
Further, related to the above, the deeming provision cannot be interpreted to mean two different things to two different people.
The interpretation that the applicants want to foist on section 69 of the Value Added Tax Act will result in a mathematical or accounting incongruence and an absurdity in logic.
The Zimbabwe Revenue Authority (ZIMRA), in its papers, vividly illustrate the mathematical inconsistency that will arise when they juxtapose the outcomes of the two contrasting positions using the hypothetical figure of $1,000 as proceeds for the sale of sugar thus:
(a) Where section 69 of the Value Added Tax Act is invoked
Proceeds from sale of sugar = $1,000
Price for milling services at 23% of the proceeds = ($1,000 x 23%) = $230
VAT due after deeming that that price includes VAT = ($230 x 15/115) = $30
(b) Where the applicants recover the section 69 ($30) VAT from the farmers
Proceeds from sale of sugar = $1,000
Price for milling services at 23% of the proceeds = ($1,000 x 23%) = $230
VAT due after deeming that that price includes VAT = ($230 x 15/115) = $30
VAT due after the applicants recover the $30 VAT from the farmers = 15% ($230-30+30) = $34.50
What the applicants are moving the court to accept will also yield a further absurd result in the following context:
Where, from the standpoint of the first respondent, the Zimbabwe Revenue Authority (ZIMRA), vis a vis the applicants, value added tax (VAT) is deemed to be included in the price; yet, from the standpoint of the applicants vis-a-vis the farmer, the price is deemed not to include the tax.
It could never have been the intention of the legislature to produce such an absurd or anomalous situation.
The net result of the interpretation should be uniform, consistent, and certain not only to the parties but also to other persons similarly situated.
Section 69 of the Value Added Tax Act effectively places the registered operator on guard on the consequences of his failure to specifically include in his price the value added tax (VAT) component thereof.
Viewed differently, it is the responsibility of the registered operator to ensure that value added tax (VAT) matters are addressed in his dealings with the consumer. It is not a responsibility that the registered operator jointly shares with the consumer because the duty to account to the Commissioner ultimately rests with him (i.e. Registered Operator).
There can never be a conflation of the roles, duties, and responsibilities among the various parties: the burden to pay the tax lies with the consumer (the farmer), the duty to charge, collect, and remit the tax lies with the registered operator (the applicants).
In the context of this case, whether occasioned by inadvertence, oversight, or a mis-interpretation of the nature of the contract, the consequences of the failure to specifically include the value added tax (VAT) are that VAT is deemed included in the milling price.
During the proceedings, resort was made by the applicants to section 72(1) of the Value Added Tax Act which provides as follows:
“72 Contract price or consideration may be varied according to rate of value-added tax
(1) Whenever the value added tax is imposed or increased in respect of any supply of goods or services in relation to which any agreement was entered into by the acceptance of an offer made before the tax was imposed or increased, as the case may be, the registered operator may, unless agreed to the contrary in any agreement in writing and notwithstanding anything to the contrary contained in any law, recover from the recipient, as an addition to the amounts payable by the recipient to the registered operator, a sum equal to any amount payable by the registered operator by way of the said tax or increase, as the case may be, and any amount so recoverable by the registered operator shall, whether it is recovered or not, be accounted for by the registered operator under this Act as part of the consideration in respect of the said supply.”
In my view, this provision is meant to address the adjustments that may have to be made in contractual situations wherein, at the time the offer was made, there was no value added tax (VAT) imposable on that contract or it stood at a certain level; however, by the time the acceptance is made, that type of contract, by operation of the law, now attracts VAT or had been increased.
The imposition of or the increase in the value added tax (VAT) was not in the contemplation of the parties thereby necessitating an adjustment in the price.
This provision is clearly not applicable to the current dispute.
There was no imposition of a “new” tax which hitherto did not exist, nor was there an increase of the value added tax (VAT) chargeable and payable.
The parties merely failed to take into account a tax which was already in existence.
PRESENT AND FUTURE SUPPLIES OF CANE
Therefore, against the backdrop of a finding that the parties (whether through inadvertence, oversight, or mis-apprehension) failed to address value added tax (VAT) matters in their contracts, one cannot legitimately vouch for the perpetuation of the status quo.
It behoves the parties to re-negotiate or clarify the terms of their contract to plug that lacuna.
It suffices to state, that, failure to do so may very well result in section 69 of the Value Added Tax Act being continuously invoked.
I did not get the impression from the concession made on behalf of the second (Zimbabwe Sugar Cane Development Association), eighth (Chipiwa Mpapa Mill Group) and tenth (Farai Dumo Augustine Musikavanhu) respondents that they are necessarily agreeable to the charging of value added tax (VAT) by the applicants over and above the 23 percent milling charge.
What I gathered was a concession merely that the applicants can charge, levy, and collect value added tax (VAT) from the farmers in compliance with the requirements of the Value Added Tax Act....,.
1....,.
2. The application for a declaratur, as sought in paragraph 2(b) of the draft order, as it relates to past supplies of sugar cane, be and is hereby dismissed.
3. In respect of present and future supplies of sugar cane, it is hereby ordered that the applicants and the 2nd-11th respondents are at liberty to re-negotiate and/or clarify the terms of their contracts to specifically incorporate value added tax (VAT) issues and proceed on that basis.
