This is an appeal against the judgment of the High Court sitting at Masvingo, delivered on 24 June 2020, which dismissed with costs the application made by the two appellants for a declaratory order and an interdict.
FACTUAL BACKGROUND
The two appellants are sugar-producing giants in the Lowveld while the first respondent (Zimbabwe Revenue Authority) is the statutory body charged with revenue collection in Zimbabwe. The remainder of the respondents are either sugar cane farmers or associations representing such farmers (Zimbabwe Sugarcane 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, Farai Dumo Augustine Musikavanhu and Roy Bhila).
The respondents will be referred to in this judgment, for convenience, as Zimbabwe Revenue Authority and the farmers respectively.
The appellants and the farmers entered into two types of agreements, either a “Cane Milling Agreement” or a “Cane Purchase Agreement” in terms of which the appellants would either provide milling services to the farmers and market their sugar and molasses or outrightly purchase the sugar cane.
The dispute which arose between the parties did not involve the outright purchase and sale of sugar cane. As such this judgment does not deal with that scenario at all. The judgment concerns itself with the cane milling agreements entered into between the parties.
In terms of the cane milling agreements, the charge for milling and marketing services, payable by the farmers to the appellants, was calculated in terms of a pre-determined ratio referred to as the “Division of Proceeds” (DoP) ratio. It was fixed at 23 percent of the proceeds the farmers would get; meaning that, the appellants would retain 23 percent of the proceeds while remitting the balance of 77 percent to the farmers.
Regrettably, in fixing the milling and marketing charge, the appellants did not include Value Added Tax (VAT) as required by law. It follows, that, no Value Added Tax was paid by the appellants to the Zimbabwe Revenue Authority in that regard.
It was in the process of auditing the appellants Value Added Tax (VAT) assessments for the period 2009 to 2017 that the Zimbabwe Revenue Authority decided that the milling and marketing charges of 23 percent of the proceeds levied by the appellants against the farmers attracted VAT.
The Zimbabwe Revenue Authority proceeded to issue assessments of value added tax (VAT) for those years and demanded payment of same from the appellants. These assessments related to the past supplies where the appellants ought to have, but failed, to collect and remit VAT to the Zimbabwe Revenue Authority.
The appellants objected to the assessments which objections were all disallowed by the Zimbabwe Revenue Authority. The appellants appealed to the Fiscal Appeals Court but paid the assessed value added tax (VAT) to the Zimbabwe Revenue Authority notwithstanding.
An appeal does not exonerate a tax payer from paying the assessed tax.
After effecting payments to the Zimbabwe Revenue Authority, the appellants sought to recover such value added tax (VAT) from the farmers on the basis that they were obliged to charge and collect the VAT from the consumers of the service, the farmers, but had not done so.
The appellants were of the view, that, it was only fair and reasonable that the farmers should re-imburse them of the value added tax (VAT) paid by them to the Zimbabwe Revenue Authority.
There being no convergence between the farmers, who had obtained advice from the Zimbabwe Revenue Authority, that, the 23 percent Division of Proceeds ratio was inclusive of value added tax (VAT), and the appellants, the latter filed an application in the court a quo.
In their application, the appellants sought declaratory relief that they were legally entitled to continue charging and collecting value added tax (VAT) from the farmers - over and above the 23 percent milling charge.
The appellants also sought to be reimbursed the monies they paid to the Zimbabwe Revenue Authority on past assessments.
In addition, they accused the Zimbabwe Revenue Authority of interfering with contractual issues between them and the farmers by rendering advice to the farmers on the value added tax (VAT) dispute.
Accordingly, the appellants sought an order interdicting the Zimbabwe Revenue Authority from what they called “gratuitously interfering in pricing and contractual issues” between them and the farmers.
The application was opposed by the Zimbabwe Revenue Authority and most of the respondents.
DECISION A QUO
It was the view of the court a quo, that, the entire dispute revolved around the interpretation of section 69 and section 72 of the Value Added Tax Act [Chapter 23:12].
Regarding the past supplies of sugar cane to the appellants, the court a quo found, that, the literal meaning of section 69 of the Value Added Tax Act suggests, that, it is irrelevant whether the registered operator has charged VAT or not. If the price does not reflect the tax component, section 69 of the Value Added Tax Act operates such that there is a presumption that a price not reflecting VAT included that tax.
It was the finding of the court a quo, that, the section serves to “estop” a registered operator, who has not reflected value added tax (VAT) on the price, from denying that the price includes that tax.
It also found, that, section 69 of the Value Added Tax Act precludes such registered operator from subsequently claiming VAT not reflected on the price.
In the court a quo's view, permitting the appellants to recoup value added tax (VAT) in retrospect would render nugatory the deeming provision of section 69 of the Value Added Tax Act as the deeming provision cannot be interpreted to mean different things to two different people.
Regarding the claim for value added tax (VAT) on present and future supplies of sugarcane, which the contracts of the parties are still silent on, the court a quo took the view, that, it was up to the parties to re-negotiate or clarify the terms of their contracts in order to plug the existing lacunae.
If they do not, then, section 69 of the Value Added Tax Act will continue to apply.
The court a quo was not persuaded that a case was made for an interdict against the first respondent.
It recognised, that, the appellants had made a formal request to the first respondent to intervene and educate the farmers on the tax implications of their agreement. They could not, thereafter, cry foul after such intervention.
In addition, the court a quo found no evidence of the first respondent's interference with the pricing issues between the appellants and the farmers.
On the question of costs, the court a quo found no basis for departing from the general rule, that, costs follow the result. It dismissed the application with costs granted in favour of only those respondents who participated in the suit.
The appellants were aggrieved. They noted this appeal to this Court on the following grounds;
GROUNDS OF APPEAL
1. The learned judge of the court a quo erred and misdirected himself in finding that section 69 of the Value Added Tax Act [Chapter 23:12] operated to preclude the appellants from recovering value added tax (VAT) for past supplies on an alleged milling service which the first respondent considered to have been rendered to farmers.
2. Further, the court a quo erred and misdirected itself in failing to pronounce, definitively, on the appellants right and entitlement to charge, levy, and collect value added tax (VAT), and the farmers respective obligation to pay same, in addition to the value of the alleged milling service, with respect to current and future supplies pursuant to the first respondent's decision to impose tax.
3. The learned Judge of the court a quo erred and misdirected himself in failing to find, that, the letter by the first respondent to the farmers, with respect to the farmers tax obligations, strayed upon purely contractual matters which it was not competent for the first respondent to prescribe to parties.
4. The court a quo erred in awarding costs against the appellants, and in favour of the respondents in general, and, at any rate, most especially as it relates to 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 in particular.
ISSUES
The grounds of appeal may be four, but they speak to essentially two narrow issues for determination in this appeal. They are:
1. Whether or not the court a quo erred in refusing to grant the declaratur and the interdict.
2. Whether or not the court a quo erred in granting costs against the appellants....,.
It remains for me to deal with the question of costs.
The court a quo granted costs against the appellants in favour of those respondents who participated in the proceedings.
It premised its decision on the general rule that costs follow the result.
Its attention was not drawn to the widely held principle, in tax cases, that, the High Court or the Special Court, is loathe to make an order as to costs save where the claim is held to be unreasonable or the grounds of appeal are frivolous: see section 65(12) of the Income Tax Act [Chapter 23:06].
On appeal, counsel, again, did not address that issue at all.
It occurs to me, that, the court a quo was incapacitated in respect of costs by the failure to bring its attention to the prevailing jurisprudence on such costs. As a result, it misdirected itself, a misdirection entitling this Court to interfere with its exercise of discretion.
There is nothing in this case suggesting that the appellants case was unreasonable or that it was frivolous.
Quite to the contrary, they raised quite pertinent issues which required the court to embark on a detailed interpretation of the law. The same applies to the appeal.
In my view, this is a classic case in which the costs, both a quo and in this Court, should not be awarded to any party....,.
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3. The judgment of the court a quo is amended by the deletion of paragraph 5 and its substitution with the following:
“5. Each party shall bear its own costs.”
