Value
Added Tax Appeal
KUDYA
J:
The
answer sought in this appeal is whether, the appellant, a foreign
registered company is liable to pay value added tax in Zimbabwe.
The
appellant disputed liability for VAT arising from the purported
importation of goods into and the carrying on of trade in Zimbabwe
and appealed against a contrary determination of the respondent.
Introduction
The
appellant is an International Business Company incorporated on 19 May
2005 in the British Virgin Islands in Guernsey in the Channel Islands
but is not permitted to trade in that jurisdiction. The respondent is
a body corporate responsible for the collection, amongst other
imposts, of value added tax in Zimbabwe.
The
Facts
The
original intention of the appellant in Zimbabwe, prior to 1992, was
to invest in property and participate in the construction of the
Chitungwiza road.
Instead,
the appellant became a supplier of basic commodities to local
companies that included the WG, hereinafter referred to as the
holding company.
It
concluded an agency agreement with D & T, a subsidiary of the
holding company in 1992. By 1999 it was supplying basic commodities
under a US$10 million line of credit registered with the Reserve Bank
of Zimbabwe to the holding company and other local customers.
On
1 October 2007, the Governor of the Reserve Bank of Zimbabwe unveiled
the Basic Commodities Supply Side Intervention, BACOSSI, facility
designed to end the chronic shortages of basic commodities in
Zimbabwe.
The
facility commenced in May 2008 and continued until the introduction
of the multicurrency regime on 29 January 2009.
In
May 2008 officials of the RBZ amongst whom was the Governor and the
Senior Division Chief Strategic Planning and Special Projects, SDC,
visited the warehouse of D & T in Chitungwiza. The RBZ was
referred to the appellant by D & T.
The
appellant and the RBZ commenced negotiations which culminated in the
purchase of the non Bacossi basic commodities that were in the D &
T warehouse valued at US$7,987,207-54. The two parties also concluded
an agreement in which the appellant supplied basic commodities to the
RBZ in Zimbabwe, the bacossi goods, valued at US$11,698,174 between
July and September 2008.
The
baccossi agreement was reduced to writing
but was not signed by the parties apparently because the appellant
was unhappy with the preamble to the agreement.
A
verbal agreement, purportedly concluded between the RBZ represented
by the Governor and the appellant, represented by a named Ukrainian
lady governed the supply relationship between them.
The
respondent conducted a tax investigation of the purchases in foreign
currency of the Reserve Bank of Zimbabwe from the appellant for the
period between May 2006 and September 2008. The investigations
revealed non-payment of VAT on the supplies made in that period.
They
also revealed that D & T was paid commission, in terms of an
agreement between them, on the invoiced supplies from 1 January 2006
to 31 January 2009.
On
9 February 2009
the respondent made written demand on the finance director of the
holding company who was also the public officer of D & T for the
payment of VAT on the invoiced income paid to the appellant during
that period.
On
13 February a meeting was held at the RBZ between the Senior Division
Chief Strategic Planning and Special Projects, the investigators of
the respondent and the liaison officer of the appellant who was also
the sales and marketing director of the holding company of D & T,
the appellant's agent.
On
12 March the respondent appointed the CEO of the holding company of D
& T as the public officer for the appellant in terms of section
61 of the Taxes Act on the ground that his company was closely linked
and connected to the appellant's local trading activities.
The
CEO objected to the appointment on 17 and 20 March 2009 on the ground
that he was not an agent, employee, director or signatory to the bank
account of the appellant but the respondent did not relent in its
demand.
On
20 March 2009 at the respondent's offices, a meeting was held
between three representatives of the respondent and two tax advisors
from a local firm of accountants.
In
reply to Mr Magwaliba,
for the respondent's oral submissions, Mr de
Bourbon,
for
the appellant,
disputed that the appellant was represented at the meeting and
suggested that the tax accountants represented D & T.
The
purpose of the meeting was to get the respondent's version on the
VAT issues pertaining to both the appellant and D & T.
The
VAT head from the tax advisors provided respondent with two letters
of his firm's mandate to represent the client.
It
is inconceivable that he would not have received full instructions
from his client as he indicated were that client D & T.
I
am satisfied from the heading of the minutes minuted by the tax
advisors that they represented the appellant and not D & T.
In
any event, the briefing given him by the respondent related to the
alleged activities of the appellant including the payment of 0.1%
commission on the gross sales of the appellant in Zimbabwe to D &
T.
On
30 March the public officer of D & T disputed the legality of the
appointment of his CEO as a public officer for the appellant. He
nonetheless compiled and delivered the monthly breakdowns of the
income received by D & T during the period from January 2006 to
31 January 2009 requested in the letter of 9 February.
On
25 March 2015the
appellant wrote to the respondent objecting to the appointment of the
public officer outside its registered place of business in Guernsey
and to the tax liability claim.
The
basis of the objection was that it did not maintain offices nor
employ staff nor was it a VAT registered operator obligated to charge
VAT on goods purchased from its foreign based operations and supplied
to clients in Zimbabwe.
The
relevant part of the letter reads:
“We
object to your claim that we have a tax liability in Zimbabwe as we
do not have a self-established presence in the country. Our
involvement with Zimbabwe clients and the West Group is limited to
the supply of our stock to agents who operate on a commission basis
to store and handle our stock that we hold in Zimbabwe, for which we
have always operated with Reserve Bank Approval”.
The
objection by the appellant of 25 March and the further objection of
its compulsorily appointed public officer were dismissed by the
respondent on 31 March 2009.
On
1 April the respondent proceeded to appoint the holding company and
its subsidiaries as an agent for the collection of VAT due from the
appellant purportedly in terms of section 48 of VATA.
On
3 April 2009 the appellant through its authorised signatories wrote
to the CEO of the holding company appointed as its public officer and
copied the letter to the head of investigations of the respondent and
the Senior Division Chief Strategic Planning and Special Projects on
the tax enquiry conducted by the respondent disputing tax liability
on two grounds:
(i)
The first was that it was not the importer; and
(ii)
the second was that the sale to the importer, the RBZ, took place
outside Zimbabwe.
I
believe exh 2 may have been written by the compulsorily appointed
public officer for the appellant between May 2009 and 17 June 2009
and not on 15 April 2008, as it is highly unlikely that the author
possessed prescient powers to predict the events that were to take
place between January and May 2009.
It
was addressed to the prospective external legal practitioner of the
RBZ.
The
writer summarised the history of the relationship between the
appellant and the holding company and one of its subsidiaries, D &
T before and during the bacossi period. He also dealt with the
relationship between these parties and the Reserve Bank of Zimbabwe
and exonerated the appellant from VAT liability.
In
response, on 17 June 2009 the external legal practitioner of the RBZ
wrote a six page legal opinion to the Senior Division Chief on the
US$4m tax dispute.
The
legal practitioner in question had apparently held a meeting on 21
April with the Senior Division Chief of the central bank and two
representatives of the holding company. He believed that his mandate
to protect the interests of the RBZ coincided with the interests of
the appellant.
He
had engaged the lawyers of record of the appellant. He identified the
common problem to be the demand for VAT on appellant in respect of
the supply of Bacossi goods and its agent on commission received from
appellant.
Apparently
the appellant declined to supply him with information on its business
profile, shareholders and directors, summary of significant business
activities in the 12 months to the date of the letter and on the
nature and extent of its business activities in Zimbabwe, its
certificate of registration, any board resolutions on Bacossi
transactions and its local call account.
In
the absence of this information, he could not state with certainty
that the appellant was not conducting local trading activities nor
exclude it from VAT liability other than on the mere say so of its
agent, D & T.
He
advised that the RBZ was liable for the payment of VAT in local
currency on the basis of the bills of entry that identified it as the
importer.
He
urged the RBZ, for strategic reasons that he set out in the opinion
to tender the duty in local currency hoping that if the respondent
accepted the payment the appellant would automatically be exempted
from liability.
On
1 July 2009 the Senior Division Chief wrote to appellant's legal
practitioner of record. She confirmed the importation of Bacossi
goods and the acceptance of liability for VAT by the RBZ.
On
20 August 2009 three members of respondent investigations team held a
meeting with four RBZ employees at the RBZ amongst whom was the SDC.
In that meeting the RBZ repudiated the concession made by the SDC and
laid liability at the doorstep of the appellant. However, in view of
the national importance of the project and the profile of the major
beneficiaries, the RBZ resolved to seek exemption for payment of VAT
on these goods from the Ministry of Finance by 25 August 2009.
A
further meeting was held on 7 October 2009 in the governor's
boardroom at the central bank between the Reserve Bank and the
holding company to discuss the appellant/RBZ VAT liability of
US$3.2m.
In
attendance were the governor, his advisor, bank secretary and a
strategic planning executive for the RBZ and the sales and marketing
director, indicated in exh 2 as the liaison officer of the appellant,
and another officer of the holding company.
Notwithstanding
that the respondent was not claiming VAT from the central bank, the
Governor prevaricated on whether the RBZ accepted liability or not.
In one vein he accused the SDC of erroneously accepting liability for
the central bank without his express authority and in the other he
was prepared to pay the VAT as long as it was charged in Zimbabwe
dollars.
The
sales and marketing director for the holding company declined to
answer for the appellant insisting that D & T acted as liaison
for appellant as the foreign supplier and local buyers.
The
underlying suggestion from her contribution was that the appellant
was not liable for VAT.
In
addition the concluding remarks of the meeting suggested the
existence of minutes of meetings between the RBZ and the appellant.
The
investigation prompted the respondent to raise against the appellant
schedules for outstanding VAT on both the non Bacossi and Bacossi
transactions initially on 17 March and later on 15 July 2009 in the
sum of US$6,302,712-13 inclusive of interest and penalties which it
corrected by the exclusion of zero rated products on 13 October 2009
by reducing the amount to the sum of US$6,249,496-70.
The
computations of the principal VAT due in each month for the non
Bacossi commodities were in the sum of US$1,198,081-13. The
respondent added an equal amount in penalties and a further amount of
US$206,799-52 in interest and requested payment of US$2,602,961.79
for the non Bacossi commodities.
In
regards to the Bacossi commodities it claimed a principal sum of
US$1,754,726-10 and a penalty in an equal amount and interest from 21
July 2008 to 23 October 2009 in the sum of US$137,082-72 totalling
US$3,646,534-92.
The
appellant lodged an objection to the assessment in terms of section
32 of the Value Added Tax Act [Chapter
23:12]
through its legal practitioners of record on 25 September 2009.
It
also applied for condonation from the Commissioner for filing the
objection outside the normal time limits. It set out four grounds for
condonation and eight grounds of objection. The respondent dismissed
the condonation and disallowed the objection. The appellant appealed
both decisions to this Court on 12 October 2009. The respondent filed
its reply on 12 November 2009.
In
the objection the appellant denied ever doing business in Zimbabwe
and indicated that the local transactions were imports carried out by
the holding company, the RBZ and other local companies.
It
averred that the appellant was authorised by the RBZ to sell the
goods in foreign currency using free funds from non-resident
entities.
It
supplied goods in bond to its local agent D & T for commission.
The
local buyer took delivery of the goods after paying the appellant
from free funds.
On
receipt of payment the appellant instructed D & T to pay duty and
VAT before releasing the goods.
The
appellant averred that the VAT claim on non Bacossi goods constituted
a double claim for VAT already paid by D & T.
The
appellant called the evidence of the founder and chairman of the
holding company and director of D & T.
He
confirmed the foreign status of the appellant and its relationship
with D & T before the Reserve Bank of Zimbabwe came onto the
scene.
The
holding company, D &T and the appellant were not related
companies.
The
contact between the appellant and D & T was facilitated by his
Russian partners in 1992. The relationship between the appellant and
D & T was one of principal and agent.
The
central bank appeared on the scene in May 2008. At that time, the
agent, D & T, imported the goods into Zimbabwe that were supplied
by its principal, the appellant.
The
central bank concluded two agreements with the appellant:
(a)
The first related to the purchase of the goods stored in the
warehouse that had been imported by D & T, referred to in the
appeal as the non Bacossi goods.
(b)
The second agreement concerned the Bacossi good sunder which the
central bank directly imported in excess of 400 truckloads of goods
from South Africa between July and September2008.
At
Beitbridge, the goods were checked against the bill of entry before
they were taken to the bonded warehouse and unlike direct home
consumption imports, the bill of entry was not surrendered at that
stage.
D
&T stored the Bacossi goods for the Reserve Bank for a fee.
The
relationship between the appellant and D & T was suspended during
the duration of the Bacossi imports.
The
goods were received and secured by the RBZ.
The
RBZ would take the goods from the warehouse once D & T received a
release order from the appellant confirming receipt of the purchase
price and after D & T had paid duty and VAT for the goods.
The
clearing agent invoiced D & T for clearance fees. D & T in
turn added these to the storage fees for the account of the Reserve
Bank of Zimbabwe.
He
identified the South African export documents and the Zimbabwean
import documents encompassing pp33-90 of exh 1. Amongst these
documents were local bills of entry that identified the importer as
the Reserve Bank of Zimbabwe.
The
witness confirmed his managing director's assertion in the letter
of 30 March to the respondent that D & T was not paid commission
by the appellant during the subsistence of the Bacossi imports.
It
was on the basis of this evidence that Mr de
Bourbon
submitted that the sole witness was credible and reliable in all
material respects.
I
do not agree with the contention by Mr de
Bourbon
that the witness was a credible and reliable witness who gave his
evidence well.
Under
cross examination, he contradicted material parts of his
evidence-in-chief.
He
abandoned his earlier version that the relationship of principal and
agent between the appellant and D & T was suspended during the
Bacossi imports. He categorically stated in cross examination that
the relationship did not change for both the Bacossi and non Bacossi
imports as the appellant continued to pay D & T in foreign
currency commission at the rate of 1% of the value of each
transaction.
The
appellant maintained its grip on the goods in the warehouse and
directed its agent to pay duty and VAT and thereafter release the
goods after confirming receipt of the transaction value of each
consignment from the Reserve Bank of Zimbabwe.
He
incorrectly stated that VAT was paid for the non
Bacossi
goods. That VAT was never paid was demonstrated by the abandonment of
the double claim ground at the hearing of this appeal.
He
did not participate in the discussions that culminated in the
agreement between the appellant and the central bank. He was not
privy to the terms and conditions of the agreement. He did not
interact with any of the directors and authorised signatories of the
appellant.
He
had met an officer of the appellant whose name appears in the last
paragraph on p112 of exh 1 once in Harare.
He
was not a director, employee or official of the appellant or the
clearing agent.
His
version on the motivation of the clearing agent to invoice D & T
rather than the RBZ was not confirmed by evidence from the clearing
agent or the central bank.
He
did not produce any evidence to show that D & T included the
charges of the clearing agent in the storage fees levied on the
central bank.
The
evidence of the sole witness left gaps that could only be filled by
the directors, employees, officials or agents of the appellant.
His
averments preceding the incorporation of the appellant on 19 May 2005
underscored his unreliability and the need for the testimony of the
active officers or agents of the appellant.
It
is simply incomprehensible how he could have dealt with the appellant
before it was incorporated.
The
respondent's investigation established that the RBZ purchased non
Bacossi goods between May 2006 and June 2008 contrary to his
testimony that the purchase started in May 2008.
I
am satisfied that he was not a credible and reliable witness.
Rule
5(c) Documents
The
respondent did not file Rule 5(c) documents within 14 days of
entering his reply as required by Rule 5.
The
material correspondence contemplated by Rule 5(c) would consist of
the notice claiming the outstanding VAT, the letter of objection and
the commissioner's response to the objection.
Rather,
at the hearing and soon after the appellant had closed its case Mr
Magwaliba,
for
the appellant,
produced the purported documents from the bar.
The
documents consisted of a letter of objection dated 21 October 2014, a
set of original VAT assessments issued by the respondent against the
appellant on that date for the period May 2006 to August 2008, the
letter of objection of 25 September 2009 and the unsigned agreement
on the supply of basic commodities between the appellant and the
Reserve Bank of Zimbabwe.
It
did not file the ruling dismissing the condonation sought and
disallowing the objection.
In
the letter of objection the appellant refers to “assessments the
last of which are dated 15 July 2009”.
The
earlier assessments of 17 March and 22 May and the letters of 24 June
and 10 September 2009 referred to in the notice of appeal were not
produced in evidence nor did they form part of the Rule 5(c)
documents or the pleadings.
The
respondent must simply comply with the law to obviate unnecessary
delays associated with his failure to abide by the law in this
regard.
The
documents constitute a type of record of proceedings, which helps
this Court understand the real dispute between the parties and the
basis on which the determination appealed against was made.
That
the objection was dismissed on the ground that it was filed out of
time was only disclosed in the respondent's reply to the notice and
grounds of appeal.
Rule
5(c) documents are simple documents that the respondent always has in
its possession even before filing his reply. This kind of
dilatoriness on its part is totally inexcusable. The respondent is
directed to comply with Rule 5(c) in all future cases.
Condonation
At
the pre-trial hearing of 17 September 2014, by consent of the
parties, the delay in the filing of the notice of objection by the
appellant and the failure to file Rule 5(c) documents timeously by
the respondent were condoned.
The
Issues
The
four issues referred for appeal were:
(a)
Was the appellant the importer of the goods in question into
Zimbabwe?
(b)
Does the appellant operate a business in Zimbabwe?
(c)
In terms of section 6 of the VAT Act [Chapter
23:12]
who
was responsible for the payment of VAT on the imported BACOSSI goods
and separately on the imported non-BACOSSI goods?
(d)
Was the appellant liable to pay any outstanding VAT in foreign
currency?
I
proceed to resolve each issue in turn.
Was
the appellant the importer of the goods in question into Zimbabwe?
It
was common cause that the onus was on the appellant to establish the
identity of the importer of the basic commodities in question.
Mr
de
Bourbon
submitted that the evidence of the sole witness called by the
appellant and the documentation produced established on a balance of
probabilities that the Reserve Bank of Zimbabwe rather than the
appellant was the importer.
Mr
Magwaliba
submitted that the evidence and documentation showed the appellant as
the importer.
The
Import Documentation in Exhibit 1
The
exportation of goods from South Africa is facilitated by the
production of the Republic of South Africa Exchange Control
Declaration F178
also known as the foreign currency payment declaration and the South
African bill of entry.
The
F178 foreign currency payment declarations in exh 1 were marked SL15
to SL20 for easy of reference.
These
were issued to the appellant for the basic commodities destined for
Zimbabwe. Attached
to the foreign currency declarations are commercial invoices of the
South African vendor indicating both the purchaser and vendor and the
purchase price.
The
South African vendor is indicated as the exporter/consignor. The
appellant is shown as the consignee.
Attached
to some of the foreign currency declaration forms are customs road
consignment notes/delivery notes CIF Harare and export clearing and
forwarding instructions raised by the transporter.
The
vendor is described as the shipper while the appellant is described
as the consignee.
The
customs road manifest placed the responsibility for customs clearance
and delivery of the goods under official supervision at the
destination on the appellant as consignee.
The
appellant paid the South African clearing agent.
The
customs road freight manifest on pp69 and 70 identified the two
different clearing agents in South Africa and Zimbabwe. The consignee
in Zimbabwe on one of the road manifests was D & T.
The
Zimbabwe Customs and Excise require the South African exchange
control declaration and the commercial invoice of the South African
vendor and their attachments for the goods to enter Zimbabwe.
Zimbabwe
Revenue Authority Bills of Entry Form 21 together with commercial
invoices issued in the name of the appellant were presented, accepted
and processed by Zimbabwe Customs at Beitbridge.
The
commercial invoices from the appellant were generated by the
appellant under its letter head.
The
importer is shown as the RBZ, delivery CIF Harare to the agent of the
appellant on condition the goods are not released unless pre-paid to
the offshore account in the appellant's name with the Royal Bank of
Scotland.
The
local bills of entry Form 21 are marked SL and WP in exh 1.
All
the SL bills of entry were generated by the clearing agent MCFZ
between 25 July and 8 August 2008 while all the WP bills of entry
were generated by a different clearing agent BCS between 20 and 28
June 2008.
These
bills identify the appellant as the exporter/consignor and the
Reserve Bank of Zimbabwe as the importer/consignee.
No
duty was charged for all the SL consignments while duty was demanded
from the declarant/clearing agent for 2 of the WP consignments.
The
ones for which no duty was levied were released on the strength of
the customs release orders attached to each bill of entry. There are
invoices issued by MCFZ to D & T account RBZ for import handling
fees.
The
invoices
of 31 July and 26 August 2008 show that the clearing fees submitted
to D & T were inclusive of VAT.
It
was on the basis of the bills of entry that Mr de
Bourbon
submitted that the appellant was not liable for VAT as it was not the
importer.
In
his supplementary written heads of argument filed with the leave of
the Court on 27 January 2015, he relied on section 12 of the Civil
and Evidence Act and R
v Karge & Anor
1971 (3) SA 470 (T) at 473F.
Section
12 reads:
“12
Public and official documents
In
this section —
'public
document' means a document —
(a)
which was made by a public officer pursuant to duty to ascertain the
truth of the matters stated in the document and to make an accurate
record thereof for public use; and
(b)
to which the public have a right of access;
'public
officer' means a person holding or acting in a paid office in the
service of the State or a local authority.
(2)
A copy of or extract from a public document which is proved to be a
true copy or extract or which purports to be signed and certified as
a true copy or extract by the official who has custody of the
original, shall be admissible in evidence on its production by any
person and shall be prima
facie
proof
of the facts stated therein.”
In
R
v Karge (supra),
at 473F Hiemstra J stated that:
“A
public document is one made by a public officer in the execution of a
public duty; it must be intended for public use and the public must
have a right of access to it (Northern
Mounted Rifles v O'Callaghan
1909 TS 174 at pp176-177). The mere production will furnish prima
facie
proof of the contents provided that it is the public duty of the
person who keeps the register or the records to make entries
satisfying himself of the correctness thereof.”
Mr
de
Bourbon
submitted that these bills of entry were public documents that were
proffered and accepted in terms of the Customs
and Excise Act established that the RBZ and not the appellant was the
importer.
In
his response of 4 February 20105 Mr Magwaliba
conceded that the bills of entry were public documents provided by
the respondent for the entry of goods into Zimbabwe.
He,
however, forcefully argued that the other evidence led by the
appellant together with the unsigned agreement of the supply of basic
commodities between the appellant and the RBZ eclipsed all reference
in the bills of entry of the RBZ as the importer.
It
is indisputable that Customs officials employed by the respondent are
public officers who hold paid office in the service of the State. The
bills of entry are public documents whose contents are
prima facie
correct.
I
accept that the evidentiary onus to disprove the correctness of the
contents of the bills of entry shifted to the respondent.
The
respondent used the unsigned agreement as an antidote for the bills
of entry.
The
preamble indicates that the appellant was represented by the liaison
officer who it will be recalled was also the sales and marketing
director of the holding company while the RBZ was represented by its
Senior Division Chief Strategic Planning and Special Projects.
The
preamble further suggested local incorporation and a local business
address for the appellant.
The
main body of the agreement identified the products, their quantities
and transactional values.
The
main features were that the appellant was responsible for delivering
the goods CIF Harare or any other destination in Zimbabwe and was to
be paid cash on delivery weekly for 3 months. It was also responsible
for weighing, inspection and packaging at loading sites outside
Zimbabwe where the RBZ could conduct random inspections at the
appellant's expense. The RBZ undertook to facilitate expeditious
clearance of the goods at the Zimbabwe ports of entry.
While
the respondent had the duty to disprove that the importer was the
RBZ, the true, overall and unchanging onus to prove the correct terms
and conditions in the agreement reached between the appellant and the
RBZ lay on the appellant.
In
other words, the onus to establish that the terms and conditions in
their agreement were different from those captured in the unsigned
agreement was on the appellant.
The
appellant did not lead any evidence on this aspect.
The
evidence placed before the court by the appellant was that the
agreement was not signed because of what counsel termed “erroneous
information in the preamble”.
The
erroneous information related to its place of incorporation and
business address.
I
agree with Mr Magwaliba
that the unsigned agreement placed the duty to import the goods into
Zimbabwe on the appellant.
Again,
the delivery of the goods cost insurance and freight Harare strongly
suggests that the appellant imported the goods into Zimbabwe.
It
would not make sense for the RBZ to undertake to expeditiously
facilitate the quick clearance of its imports.
The
obligatory cost, insurance and freight Chitungwiza bonded warehouse
delivery clause and the expeditious clearance clause suggests that
the appellant was the importer.
The
strategic planner for the RBZ stated in the minutes of 13 February
2009 that the appellant was responsible for the importation of basic
commodities under the bacossi project and that the goods in the
Chitungwiza bonded warehouse belonged to the appellant from where
they were received, secured and dispatched by the RBZ.
She
also stated that D & T was a representative of the appellant that
looked after all the interests of the appellant in Zimbabwe.
She
was supported by other officials of the RBZ such as the special
advisor to the governor in the minutes of 20 August 2009 and the
governor on 20 October 2009.
She
even intimated the existence of cross shareholding between the
appellant and D & T preceding the bacossi project.
She,
however, subsequently confirmed that the RBZ imported the Bacossi
goods from the appellant and accepted liability for VAT in her letter
of 1 July 2009.
The
concession reinforced the assertions of the public officer for D &
T in his letter to the respondent of 30 March 2009, the testimony of
the sole witness, the letter of the appellant of 3 April 2009 to the
purported public officer and copied to both the RBZ and the
respondent, the purported public officer's letter to the
prospective external legal advisor of the RBZ erroneously dated 15
April 2008 and that legal advisor's letter to the RBZ of 17 June
2009.
The
onus to call evidence to establish what the correct factual position
of the RBZ was lay on the appellant.
This
much was admitted by Mr de
Bourbon
in his heads of argument by reference to Commissioner
of Taxes v 'A' Company 1979
(1) RLR 29 (A) at 42; 1979 (2) SA 409 (RAD) at 416; 41 SATC 59 (RAD)
at 68.
The
appellant did not produce the bill of entry from South Africa which
would have shown who the exporter of the goods from South Africa was.
The
sole witness stated that the importer of the non-bacossi goods was D
& T.
The
definition of 'export' and 'exporter' in section 2 of the
Customs and Excise Act [Chapter
23:02]
and 'exported' and 'export country' in section 2 of the Value
Added Tax Act denote the removal of goods from Zimbabwe.
Exporter
is defined in the Customs and Excise Act as “any person in Zimbabwe
who takes goods or causes goods to be taken out of Zimbabwe and
includes any employee or agent of such person and the owner of such
goods as are exported.”
On
the other hand to import is “to bring goods or cause goods to be
brought into Zimbabwe” and an “importer in relation to goods
includes any owner of or other person possessed of or beneficially
interested in any goods at any time before entry of the same has been
made and the requirements of this Act fulfilled.”
In
my view, the business activities of the appellant fell outside the
definition of “exporter” but squarely fit the definition of
“importer”.
It
was a misnomer to refer the appellant in the bill of entry as an
exporter.
An
importer is identified with ownership or possession of the goods or
beneficial interest in the goods before entry and the fulfilment of
the requirements of the Customs Act.
Entry
is defined in section 2 of the Customs Act “in relation to
clearance of goods for importation means the presentation in
accordance with this Act of a correctly completed and signed
declaration on a bill of entry in writing”.
The
documents generated in South Africa show that the RBZ was not the
owner nor possessor nor beneficiary of the goods before the correctly
filled and signed bills of entry were presented to Customs officials
of the respondent.
Rather,
these South African derived documents show beyond even a shadow of
doubt that the goods were for the benefit of the appellant who owned
and possessed them before any of the bills of entry were presented to
Customs officials.
Even
though the sole witness stated that D & T was the importer of the
non-bacossi goods, it was clear that it was operating as an appendage
of the appellant.
There
was preponderance of evidence establishing that D & T acted at
all times as an agent importer in behalf of the appellant.
I
am satisfied that notwithstanding the contents of the bills of entry
and other documents complied by or at the instance of the appellant
to the contrary, the appellant was the owner or possessor of the
goods who also had a beneficiary interest in them before they entered
Zimbabwe who brought them or caused them to be brought into Zimbabwe.
I
hold that the appellant was the importer of both the non-Bacossi and
the Bacossi goods.
Does
appellant operate as a business in Zimbabwe?
Counsel
were agreed that this was a factual issue. The onus was on the
appellant to establish on a balance of probabilities that it did not
operate a business in Zimbabwe.
It
was common cause that the appellant was a foreign company registered
in Guernsey in the Channel Islands. It was further common cause that
as an International business corporation it was by the law of its
domicile not permitted to operate in the Channel Islands and all the
territories that comprise the British Virgin Islands.
Mr
de
Bourbon
contended that the appellant did not conduct any business within
Zimbabwe but was merely an exporter and not an importer.
Mr
Magwaliba
contended that the appellant carried on business in Zimbabwe.
The
evidence led on behalf of the appellant from the sole witness showed
that it purchased goods from South Africa for the local market during
the period under consideration. It did not produce the bills of entry
issued by the South African Revenue Service Customs and Excise for
the exportation of goods to Zimbabwe.
The
South African documentation produced showed that it was the
consignee. It was common cause that a consignee is a recipient.
In
none of the South African documents that were produced was the
appellant described as the exporter or even as the consignor of the
goods.
Perhaps
the South African bill of entry may have revealed how the appellant
was regarded by South African Customs Service.
The
sole witness and some of the documentation testified to the long
history of the appellant's interaction with business activities in
Zimbabwe.
He
was helped connect D & T to appellant by Russian partners who had
a 15 year old US$30 million line of credit with the Reserve Bank of
Zimbabwe. The appellant averred in the letter of 3 April 2009 that it
had been extending financial support over the “past 10 years
despite the difficult environment in Zimbabwe” and was “continuing
to support and supply goods to Zimbabwe under our USD10 million line
of credit extended to the holding company and other customers in
Zimbabwe.”
The
same letter stated that sales to the RBZ “took place outside of
Zimbabwe”.
As
the appellant was only incorporated on 19 May 2005, it seems to me
that the 10 to 15 year periods mentioned by the appellant in the
letter of 3 April 2009 and by the sole witness in his evidence were
incomprehensible falsehoods.
The
waybills indicated that the appellant delivered the Bacossi goods
cost insurance and freight to the bonded warehouse of D & T from
where the RBZ took delivery and secured the goods with police help.
On
25 March 2009 the appellant strongly objected in writing to the head
of investigations of the respondent to the compulsory appointment of
the public officer outside its registered place of business in
Guernsey and denied being self-established in Zimbabwe. The appellant
intimated that:
“Our
involvement with Zimbabwean clients and the holding company is
limited to the supply of our stock to agents who operate on a
commission basis to store and handle our stock that we hold in
Zimbabwe, for which we have always operated with Reserve Bank
approval.”
The
appellant admits to storing, holding and handling stock in Zimbabwe
through agents who operated on commission.
The
existence of an agency agreement between the appellant and D & T
was confirmed by the sole witness in his testimony and maintained by
the compulsorily appointed public officer of the appellant in Exhibit
2, his letter to the prospective external counsel for the central
bank. The author indicated that the appellant had “in the past
provided trade services to various Zimbabwean companies” and his
holding company had utilized the “appellant's services over the
last years”.
The
commissions received were paid into the requisite foreign currency
account.
The
subsistence of the agency before the institution of the Bacossi
project was confirmed by the sole witness in his testimony.
Mr
Magwaliba
contended that the activities of the respondent constituted trade
under the definition of trade in section 2 of VATA. It reads:
“'trade'
means —
(a)
in
the case of any registered operator,
other than a local authority, any
trade or activity which is carried on continuously or regularly by
any person in Zimbabwe or partly in Zimbabwe and in the course or
furtherance of which goods or services are supplied to any other
person for a consideration, whether or not for profit, including
any trade or activity carried on in the form of a commercial,
financial, industrial, mining, farming, fishing or professional
concern or any other concern of a continuing nature or in the form of
an association or club; Provided that —
V.
any activity, shall to the extent to which it involves the making of
exempt supplies, be deemed not to be the carrying on of a trade;”
The
definition of trade is all encompassing.
The
phrase “or any other concern of a continuing nature” expands the
meaning beyond the seven examples of the activities that constitute
trade.
The
activities of the appellant in Zimbabwe were conducted from 2005.
Upwards
of 400 truckloads of goods were dispatched to Zimbabwe in the four
months covering the Bacossi period. These activities were carried on
continuously and regularly unlike in Young
v Van Rensburg
1991 (2) 149 (S) at 154F where Korsah JA held that the single
purchase of a farm in Zimbabwe did not constitute “carrying on….
a gainful occupation or activity” under sections 8(1)(b)(i) and
(ii) of the Exchange Control Regulations RGN 399 of 1977.
In
Mayhew
v Alcock NO
1991 (2) ZLR 203 (S) at 205A McNally JA held that 'carried on'
was synonymous with 'transacted.'
In
the present case, both the non Bacossi and the Bacossi goods were
supplied to the RBZ over a long period of time commencing from May
2006 and ending in September 2008.
The
appellant was accordingly trading in Zimbabwe.
Mr
de
Bourbon
took the point that as the appellant was not a registered operator,
it could not be liable for VAT.
It
is correct that the appellant was not a registered operator. However,
every trader in this country is liable to be registered for VAT from
the date of such liability under section 23(3) and (4) of the Act.
Subsection
(4)(b) reads:
“(4)
Where any person has -
(b)
not applied for registration in terms of subsection (2) and the
Commissioner is satisfied that that person is liable to be registered
in terms of this Act, that person shall be a registered operator for
the purposes of this Act with effect from the date on which that
person first became liable to be registered in terms of this Act:”
The
appellant under the provisions of section 23(4)(b) is deemed to have
been a registered operator.
Again,
section 56(1) and (3) deem the principal to be the supplier of goods
supplied or imported on its behalf by its agent.
Section
56(1) and (3) provide that:
(1)
For the purposes of this Act, where an agent makes a supply of goods
or services for and on behalf of any other person who is the
principal of that agent, that supply shall be deemed to be made by
that principal and not by that agent:
Provided
that, where that supply is a taxable supply and that agent is a
registered operator, the agent may, notwithstanding anything to the
contrary in this Act, issue a tax invoice or a credit note or a debit
note in relation to such supply as if the agent had made a taxable
supply, and to the extent that that tax invoice or credit note or
debit note relates to that supply, the principal shall not also issue
a tax invoice or a credit note or a debit note, as the case may be.
----
(3)
For the purposes of this Act, where any goods are imported into
Zimbabwe by an agent who is acting on behalf of another person who is
the principal for the purposes of that importation, that importation
shall be deemed to be made by that principal and not by such agent:
Provided
that a bill of entry or other document prescribed in terms of the
Customs Act in relation to that importation may nevertheless be held
by such agent.”
I
am satisfied that the appellant was carrying on the business of
supplying goods in Zimbabwe through the agency of D & T during
the non Bacossi and Bacossi periods but certainly not in the 10 to 15
years enumerated in evidence by the appellant and its sole witness.
The
agent received commission and not the purchase price. It released the
goods on the instructions of the appellant, apparently after the
appellant had received payment as stipulated in the waybill and the
commercial invoices issued by the appellant.
In
terms of section 6 of the Value Added Tax Act [Chapter 23:12] (VAT
ACT) who was responsible for the payment of VAT on the imported
BACCOSSI goods and separately on the imported non-BACCOSSI goods?
Both
counsel were agreed that the obligation to pay duty and VAT rested
with the importer. Mr de
Bourbon
contended
that the Reserve Bank of Zimbabwe was the importer and submitted that
it had the obligation to pay VAT. Mr Magwaliba
on the other hand identified the appellant as the importer who had
the duty to pay VAT.
Section
6(1) and (2) of the VAT Act state:
“6
Value Added Tax
(1)
Subject to this Act, there shall be charged, levied and collected,
for the benefit of the Consolidated Revenue Fund a tax at such rate
as may be fixed by the Charging Act on the value of —
(a)
the supply by any registered operator of goods or services supplied
by him on or after the 1st January, 2004, in the course or
furtherance of any trade carried on by him; and
(b)
the importation of any goods into Zimbabwe by any person on or after
the 1st January, 2004; and
(c)
the supply of any imported services by any person on or after the 1st
January, 2004; and
(d)
goods and services sold through an auctioneer (as defined in section
56(6)) by persons who are not registered operators.
(2)
Except as otherwise provided in this Act, the tax payable in terms of -
(a)
paragraph (a)
of subsection (1) shall be paid by the registered operator referred
to in that paragraph; and
(b)
paragraph (b)
of subsection (1) shall be paid by the person referred to in that
paragraph; and
(c)
Paragraph (c)
of subsection (1) shall be paid by the recipient of the imported
services; and”
I
have already found that the appellant was the importer.
It
was liable for payment of VAT in the pre-Bacossi and during the
Bacossi era.
Whether
VAT was due on entry or on release of the goods from the bonded
warehouse for home consumption does not exonerate the appellant from
payment of VAT.
Again
on the basis of my findings in regards to registration, I am also
satisfied that it was liable even under section 6(1)(a). It supplied
goods after 1 January 2004 in the course or furtherance of its
business activities.
I
am satisfied that the appellant was liable to pay VAT.
Was
the appellant liable to pay any outstanding VAT in foreign currency?
It
was common cause that the appellant received payment for the goods
that it supplied in foreign currency.
Mr
de
Bourbon
contended that the provisions of section 38(4) promulgated by section
16 of the Finance Act 2006 (No.6 of 2006) rather than the present
section 38(4) substituted by section 29 of the Finance Act (Act 3 of
2009) is applicable in determining the appropriate currency of
payment for VAT.
The
2006 section 38(4) reads:
“(4)
Notwithstanding section 41 of the Reserve Bank of Zimbabwe Act
[Chapter
22:15]
and the Exchange Control Act [Chapter
22:05]
where a registered operator receives payment of any amount of tax in
foreign currency in respect of the supply of goods or services, that
operator shall pay that amount to the Commissioner in foreign
currency.
In
this subsection 'foreign currency' means United States dollars,
Euros or any other currency denominated under the Exchange Control
(General) Order, 1996, published in Statutory Instrument 110 of 1996,
or any other enactment that may be substituted for the same.”
The
2009 amendment introduced a new para (b) and extended the definition
of foreign currency to include the British pound, South African rand
and Botswana pula.
Section
38(4) presently reads:
“(4)
Notwithstanding section 41 of the Reserve Bank of Zimbabwe Act
[Chapter
22:15]
and the Exchange Control Act [Chapter
22:05]
where a registered operator —
(a)
receives payment of any amount of tax in foreign currency in respect
of the supply of goods or services, that operator shall pay that
amount to the Commissioner in foreign currency;
(b)
imports or is deemed in terms of section 12(1) to have imported goods
into Zimbabwe, that operator shall pay any tax thereon to the
Commissioner in foreign currency.
In
this subsection 'foreign currency' means the euro, British pound,
United States dollar, South African Rand, Botswana Pula or any other
currency denominated under the Exchange Control (General) Order,
1996, published in Statutory Instrument 110 of 1996, or any other
enactment that may be substituted for the same.”
Mr
de
Bourbon
submitted that the appellant was not obliged to pay VAT in foreign
currency as it was not a registered operator and did not receive
payment of any tax.
I
have already determined that the appellant was required to be
registered under section 23(1) and (3) and (4)(b) as read with
section 56(1) and (3) of VATA and can be treated as would a
registered operator.
In
my view, in terms of section 69(1) of the Act, the failure to charge
or receive VAT does not exonerate the appellant from liability as VAT
is deemed to be included in the purchase price.
Section
69(1) reads:
“69
Prices deemed to include tax
(1)
Any price charged by any 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.”
I
have already found that section 6(1)(a) applies with equal force to
the appellant.
VAT
is deemed to be included in the purchase price.
The
appellant bears the obligation to remit VAT in foreign currency to
the respondent.
Thus
even if section 38(4)(b) is held to have come into force on 30
January 2009 after the non-bacossi and bacossi importations, the
appellant remained liable for payment of VAT in foreign currency
under the 2006 amendment.
Was
the appointment the CEO of the holding company as the public officer
for the appellant proper?
Mr
de
Bourbon
contended both in his written heads and oral submissions that the
appointment of the CEO of the holding company as the public officer
of the appellant and the holding company and all its subsidiaries as
agents for the collection of VAT was unlawful and contrary to the
provisions of both section 61 of the Taxes Act and section 48 of the
Value Added Tax Act.
Mr
Magwaliba
agreed and indicated that the appointment was later revoked.
The
contention can only be correct if the appellant establishes on a
balance of probabilities that it was not a related party to the
holding company and any one of its subsidiaries.
In
my view, the architectural design of both the Taxes Act and the VAT
Act allows the Commissioner to compulsorily appoint a public officer
and an agent for the collection of VAT in the absence of a voluntary
appointment by the taxpayer.
Part
VI of the Taxes Act provides for the payment of income tax by a
representative taxpayer defined in section 53(1) to include the
public officer of a company or the agent who possessed, disposed of,
controlled or managed or owed income for the principal.
D
& T did not hold any income for the appellant.
The
only section through which the appointment could be done was section
61 under which every company which carries on a trade or has an
office or other established place of business in Zimbabwe is obliged
to appoint a local resident its public officer.
Where
voluntary appointment is absent, section 61(4) empowers the
commissioner to designate one from amongst the managing director,
director, secretary or other officer of the company as the public
officer.
In
my view, section 61 must be read in conjunction with the definition
of agent in section 2 of the Taxes Act which includes any company
when acting as agent.
It
seems to me that this wider definition is contemplated in subs (8)
for penalties and (9) for service of any notice, process or
proceeding under this Act.
Section
47(a) incorporates the public officer appointed under section 53 of
the Taxes Act to perform the duties imposed by VATA on any taxpayer.
The
Commissioner is empowered by section 48(2) to compulsorily appoint an
agent from any holder of money due to or belonging to the taxpayer as
the representative registered operator. Section 49(2) makes the
representative liable to pay tax, additional tax or penalties
chargeable under VATA in respect of moneys controlled or transactions
concluded or anything done by him in his representative capacity.
It
appears to me that the appointment of the CEO of the holding company
of D & T, the agent of the appellant, as a public officer and
representative registered operator was above board because D & T
acted as an agent of the appellant in Zimbabwe.
Use
of an arbitrary exchange rate
In
his written heads Mr de
Bourbon
contended that the respondent used an arbitrary exchange rate to
convert Rand denominated transactions to United States dollar values.
The
respondent averred in para 13 of the Reply that the invoice values
were supplied by the appellant's agents in both Rands and United
States dollars together with the appropriate conversions.
Mr
de
Bourbon
submitted
that the respondent had failed to establish how it converted the
Rands into United States dollars.
It
seems to me that the respondent bore no such onus. Rather the onus
was on the appellant to establish that the conversions were
arbitrary.
The
appellant did not lead any evidence in this regard.
In
any event the submission runs contrary to the sentiments in Fawcett
Security Operations (Pvt) Ltd v Director of Customs & Excise &
Ors
1993 (2) ZLR 121 (S) at 127F where McNally JA held that “the simple
rule of law is that what is not denied in affidavits must be taken to
be admitted.”
The
averment in para 13 was not denied in the evidence led for and by the
appellant.
I
am satisfied that the appellant failed to establish this ground of
appeal. I took it that it abandoned this ground at the appeal
hearing.
Costs
I
am satisfied that the appellant's objection raised important legal
points on the status of a bill of entry. The grounds of appeal were
not frivolous.
Disposition
Accordingly,
the appeal is dismissed with no order as to costs.
Gill,
Godlonton & Gerrans,
appellant's legal practitioners
1.
The testimony of the sole witness called by the appellant and the
minutes of 13 February 2009, p8 of commissioner's case
2.
Letter from appellant, p112-113 of exhibit 1
3.
Monetary Policy Statement para 6.21 and 6.23
4.
The unsigned agreement is on pp34-41 of the R5(c) documents
5.
Minutes of 20 March 2009, p91 exhibit 1, attended by three
investigators of respondent and two tax advisors of appellant, the
VAT head, as stated in exhibit 2 and the minute taker
6.
Pp20-21 of exhibit 1
7.
p31 of exhibit 1
8.
p20-29 of exhibit 1
9.
p105-110 of exhibit 1
10.
p95-104 exhibit 1
11.
p94-104 of exhibit 1
12.
Annexure C: p10-18 of respondent's case
13.
Similar to the local CD1 form
14.
found on pp73, 63, 49 and 39, respectively of exhibit 1
15.
pp50 to 53, 60 and 72 of exhibit 1
16.
SL17 pp46-48 of exhibit 1
17.
SL20 pp40 and 41
18.
pp36 & 38 dated 6 August 2008, p44 dated 4 August, and p62 dated
28 July 2008 of exhibit 1
19.
p35 for SL20, p56 to 58 for SL17, p65 to 67 for SL15, p75 for SL14
and p77 for WP1, p80 for WP2, p82 for WP3, p84 for WP5, p86 for WP6,
p88 for WP8 and p90 for WP9
20.
pp33, 61 and 68 of exhibit 1
21.
Para 6 of the appellant's memorandum of association p4 of exhibit 1
