THE TAX COLLECTOR AND RIGHTS OF THE TAXED
Following is the second part of the full speech made by Dr. K. Kanagisvaran, President’s Counsel, at the 22nd Annual Oration on Taxation organised by the Institute of Chartered Accountants of Sri Lanka.
Jean-baptiste Colbert (1619–1683), Finances Minister of France under King Louis XIV, famously said, “The art of taxation consists of so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing.”
Fiscal laws and retrospection
Retrospective tax laws are abhorred in every jurisdiction as these laws cause great inconveniences and introduce uncertainty into any tax regime. As Sir Edward Coke (1552 - 1634), the great English jurist, put it: “a new law to be prospective, not retrospective in its operation”.
Our constitution however, permits retrospective legislation by Article 75. It is also recognized by Section 6 of the Interpretation Ordinance.
Article 75 of the constitution reads: “Parliament shall have power to make laws, including laws having retrospective effect and repealing or amending any provision of the constitution or adding any provision to the constitution: Provided …”
Though many find it repugnant, Article 75 of the Sri Lankan constitution empowers the legislature to enact laws with retrospective effect. This includes fiscal statutes as well, so that taxes may be levied retrospectively under the authority of the law without the violation of the constitution.
The Interpretation Ordinance also deals with the question of retrospection but differently. It declares that when any written law is repealed, the repealing law will not have retrospective effect, therefore, a clear provision should be made with regard to the retrospective effect of such statutes. So that whilst Article 75 empowers retrospection, the Interpretation Ordinance affirms the rule that ordinarily no written law will have a retrospective effect unless Parliament expressly declares it to be so.
The retrospective effect of a law is required to be unambiguously stated because otherwise all rights acquired under the existing laws, legitimate arrangements made and the like may be rendered either illegal or of no effect in law. This is made clear by the Interpretation Ordinance.
Thus, Section 6(3) (b) of the Interpretation Ordinance No. 21 of 1901 provides as follows: “Whenever any written law repeals either in whole or part of a former written law, such repeal shall not, in the absence of any express provision to that effect, affect or be deemed to have affected – (a) … , (b) Any offence committed, any right, liberty or penalty acquired or incurred under the repealed written law.”
Therefore, a clear provision should be made in such statutes with regard to the retrospective effect of such statutes.
Bindra on ‘The Interpretation of Statutes’ explains the treatment by courts of retrospectivity with regard to fiscal laws, especially in respect of limitation and procedural provisions.
He states as follows: “Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to the litigant for an indefinite period on future unforeseen events. Proceedings, which have attained finality under the existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality.
Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the authorities to effect finality of tax assessments or to open up liabilities, which have become barred by lapse of time,” citing the case of KM Sharma v Income-tax Officer, Ward 13 (7), New Delhi, (2002) 4 SCC 339.
What the Supreme Court of India has enunciated is that even where procedural matters are concerned, as opposed to substantive law, clear intendment should also be there to apply it retrospectively.
Currently, I am told, there is pending before the Supreme Court of Sri Lanka an appeal from a decision of the Court of Appeal in Seylan Bank PLC Vs Commissioner General of Inland Revenue, in which the Court of Appeal had held that an Assessment made under S.163 (5) of the Inland Revenue Act 2006 was not time barred on the basis that it is a procedural law.
The Court of Appeal, I am told has taken the view that: “It regulates the procedure of sending an assessment against the assessee by an assessor in the event that the tax return send by the assessee is not accepted by the assessor. Even if the amendment has a retrospective effect, it applies, if the amendment is only on procedural law. No party can have vested right on procedure.”
The principle that one cannot have a vested right on procedure is established in law. Indeed, Maxwell on The Interpretation of Statutes, 12th edition, page 222, articulates it as follows: “The presumption against retrospective construction has no application to enactments which affect only the procedure and practice of courts. No person has a vested right in any course of procedure but only the right of prosecution or defence in the manner prescribed for the time being, by or for the Court in which he sues and if an Act of Parliament alters that mode of procedure, he can only proceed according to the altered mode.”
However, Maxwell goes on to state that the presumption that enactments affecting only the procedure and practice of courts are retrospective is a rebuttable presumption. As you well know in the eyes of the law presumptions are twofold, rebuttable presumptions and irrebuttable presumptions.
Maxwell also says: “Alterations in the form of procedure are always retrospective, unless there is some good reason or other why they should not be.”
Clearly therefore where there is some good reason or other the presumption becomes rebuttable. I believe that this argument might well assist the Appellant in the Seylan Bank case in the Supreme Court, namely the presumption that enactments pertaining to procedure and practice of courts is rebuttable, in addition to relying on the provisions of the Interpretation Ordinance section 6(3) (b) that an acquired right cannot be affected by an amending law repealing the existing law in the absence of any express provision to that effect.
Further, when one compares the two amendments effected to S.163 by Acts No 19 of 2009 and No 22 of 2011, the intention of Parliament is clear and that the presumption has been rebutted in terms of S.6(3)(b) of the Interpretation Ordinance.
Ergo, the holding of the Court of Appeal, that it is retrospective simply because it is a procedural provision ought not to be accepted as a correct interpretation in the circumstances because a provision of a statue cannot be amended so as to affect any rights acquired under the repealed statute, in the absence of clear and express provision to that effect.
The Faculty of Taxation no doubt awaits the determination of the Supreme Court with great expectations to establish a milestone in its efforts in protecting the rights of the tax payer.
Statutory appellate procedure
Talking of procedure, perhaps the most critical and important right afforded to a taxpayer to safeguard his or her rights springs from the right to challenge the decisions of the tax collector provided for under various fiscal statutes.
I cannot, because of constraints of time, present to you the complete picture in respect of the appeal and recovery process as provided for in the Inland Revenue Act No. 24 of 2017. I will therefore focus only on certain areas which I believe warrant attention.
Up until the introduction of the Inland Revenue Act No. 24 of 2017, the Sri Lankan tax regime provided a four-stage appellate procedure: first, an appeal from the decision of the assessor to the CGIR; second, an appeal from the decision of the CGIR to the Board of Review, later replaced by the Tax Appeals Commission; third, from the Tax Appeals Commission to the Court of Appeal by way of Stated Case on a question of law and finally from the Court of Appeal to the Supreme Court.
In providing for the rights of appeal, the Nation Building Tax (NBT) Act and Economic Service Charge (ESC) Act achieve this by incorporating by reference the appellate procedure set out in the Inland Revenue Act, whereas the Value-added Tax (VAT) Act has its own appellate procedure, which is almost identical to the one under the Inland Revenue Act.
The enactment of the Inland Revenue Act of 2017 however, has brought in its wake inconsistencies, to use aneuphemism, with regard to the application of its provisions to other fiscal statutes that are now extant and the applicability of the appellate procedure in respect of challenges to decisions in pending matters under those acts and the act of 2017.
The appellate procedure in the Inland Revenue Act of 2017 applies to the ESC Act, whereas in respect of NBT assessments and appeals, the appellate procedure under the older regime would continue to apply as per the rules pertaining to incorporation by reference notwithstanding the repeal of the principal act.
By rules of ‘incorporation by reference’ is meant, the principle of law that when a current statute A, refers to another current statute B, in its text, in respect of any given matter, (example appellate procedure) notwithstanding the repeal subsequently of the statute B, the provisions of B referred to in A will continue to apply.
The NBT Act declares: “Inland Revenue Act means the Inland Revenue Act, No. 10 of 2006.”
This means that notwithstanding the repeal of the act of 2006 by the act of 2017, the 2006 act apply in respect of the NBT.
The ESC Act declares: “Inland Revenue Act means the Inland Revenue Act, No.10 of 2006 or any successor thereto providing for the taxation of income.”
So that as and from April 1, 2018, the act of 2017 only will apply.
On the rules of incorporation, N.S. Bindra’s Interpretation of Statutes, 10th Edition, page 1538-1539, opines: “It is not necessary that such incorporation must be with reference to a valid or existing law. Such an incorporation makes the section so incorporated part of the new statute and even the repeal of the statute containing the incorporation section does not have the effect of repealing that provision in the statute in which it is incorporated.”
However, Section 16 - Interpretation Ordinance declares: “Where in any written law or document reference is made to any written law, which is subsequently repealed, such reference shall be deemed to be made to the written law by which the repeal is effected or to the corresponding portion thereof.”
This conflict is further confounded by the provision pertaining to appeals to the Tax Appeals Commission enacted in the Inland Revenue Act No. 24 of 2017, running parallel with like provisions in the Tax Appeals Commission Act No 23 of 2011, creating a veritable trap and vexation to the taxpayer in relation to the requirement of furnishing a security by way of a deposit/bank guarantee when an appeal is taken.
Section 140 (4) of the Inland Revenue Act No.24 of 2017, provides: “(4) Notwithstanding anything contained in Chapter XVI, where the Tax Appeals Commission is satisfied that tax in accordance with its decision upon the appeal may not be recovered, the Tax Appeals Commission may require the appellant to furnish security for payment of the tax, if any, which may become payable by the appellant as may seem to the Tax Appeals Commission to be proper.”
However, Section 7(1) of the Tax Appeals Commission Act No. 23 of 2011 commands: “Provided that, every person who wishes to appeal to the commission under paragraph (a) shall, at the time of making of such appeal, be required to pay into a special account which shall be opened and operated by the Commission for such purpose, an amount- a) as is equivalent to ten per centum which is non-refundable;orb) as is equivalent to twenty five per centum which is refundable subject to subsection (1A) of this section or a bank guarantee for the equivalent amount which shall remain valid until the appeal is determined by the Commission.”
How equitable is it to request a nonrefundable 10 percent or refundable 25 percent security to obtain a right to appeal to Tax Appeals Commission? We might well agree with Judge Sturgess that: “Justice is open to everyone in the same way as Ritz Hotel.”
You will note that nothing is said in the act about the encashment of the bank guarantee. There is no provision to prohibit the Tax Appeals Commission from encashing the bank guarantee while the matter is pending in the Court of Appeal. Therefore, the Tax Appeals Commission can encash the bank guarantee. Is this equitable from the point of view of a tax payer?
The act of 2017 has also introduced new terminology in respect of challenges by dissatisfied taxpayers of the decision of the assessor. Thus, under Section 133(1), the taxpayer is provided a right to administrative review of “an assessment or other decision” of an assessor, as opposed to an appeal. Question. Does “other decision” include pre-assessment decisions as well as post-assessment decisions? That question may well arise.
Be that as it may, an aggrieved taxpayer is now required to make a request for “review” within 30 days of the notification of the assessment or other decision to the CGIR. So, what is provided for is a ‘review’ and not an ‘appeal’.
Section 139 (2) of the Inland Revenue Act states: “A request for review shall be made to the Commissioner-general in writing not later than 30 days after the taxpayer was notified of the decision and shall specify in detail the grounds upon which it is made.”
However, where you seek to challenge the determination of the commissioner, upon the request for a review, section 140 provides for an “appeal” to the Tax Appeals Commission from the decision of “the administrative review under section 139”.
I would like to flag some concerns here. Note the words used in the statue. It speaks of “[A]n assessment or other decision”. It speaks of a “review”, a “decision” and an “appeal”. Questions are bound to arise as to the meaning and scope of these words in the future. Does “review” differ in scope and meaning from an “appeal”? Does “other decision” in section 139, mean any decision of the Assessor at all? We will have to ask Humpty Dumpty!
Appeal, High Court writ jurisdiction
Talking of procedure, perhaps the most critical and important right afforded to a taxpayer to safeguard his or her rights springs from the right to challenge the decisions of the tax collector provided for under various fiscal statutes
Section 140 (4) of the Inland Revenue Act No.24 of 2017, provides: “(4) Notwithstanding anything contained in Chapter XVI, where the Tax Appeals Commission is satisfied that tax in accordance with its decision upon the appeal may not be recovered, the Tax Appeals Commission may require the appellant to furnish security for payment of the tax, if any, which may become payable by the appellant as may seem to the Tax Appeals Commission to be proper.”
Up until the introduction of the Inland Revenue Act No. 24 of 2017, the Sri Lankan tax regime provided a four-stage appellate procedure: first, an appeal from the decision of the assessor to the CGIR; second, an appeal from the decision of the CGIR to the Board of Review, later replaced by the Tax Appeals Commission; third, from the Tax Appeals Commission to the Court of Appeal by way of Stated Case on a question of law and finally from the Court of Appeal to the Supreme Court
Be that as it may, an aggrieved taxpayer is now required to make a request for “review” within 30 days of the notification of the assessment or other decision to the CGIR. So, what is provided for is a ‘review’ and not an ‘appeal’
A writ is a quick remedy against injustice, a device for the protection of the rights of citizens against any encroachment by the governmental authority. Writs originated in Britain where they were king’s or queen’s ‘prerogative’ writs and were commands to the judicial tribunals or other bodies to do or not to do something.
In our constitution, the power to issue writs has been vested in the Court of Appeal and High Court under Article 140 and Article 154P(4), respectively.
It is an extraordinary remedy which can be expected to be granted in exceptional circumstances such as, where a court, tribunal or other institution, has acted without jurisdiction or contrary to the principles of natural justice, resulting in an order that is void. It will not ordinarily be permitted to supplant the normal statutory appellate procedure - Halwan v Kaleelul Rahuman (2000) 3 SLR 50. As a discretionary remedy it can be refused on the ground of acquiescence, laches (delay) and available alternative remedy.
The writs recognized in our law, insofar as they are relevant here are, the writs of certiorari, prohibition and mandamus.
An order in the nature of a writ of certiorari is an order quashing an exercise of power by an officer or authority. The grounds for the issue of certiorari are:
Lack of jurisdiction or the authority declining jurisdiction where it legally belongs to it.
Excess of jurisdiction.
Abuse of jurisdiction.
Violation of the principles of natural justice. Error of law apparent on the face of the record – it includes not a mere error but a manifest error based on clear ignorance or disregard of the law or on a wrong proposition of the law or on clear inconsistency between facts and the law and the decision.
Prohibition is a judicial order to the agencies from continuing their proceedings in excess or abuse of their jurisdiction or in violation of the principles of natural justice or in contravention of the law of the land. It is issued primarily to prevent an inferior court or tribunal from exercising its jurisdiction i.e. exercising power or authority not vested in them.
Mandamus may lie against any authority, officers, government or even judicial bodies that fail to or refuse to perform a public duty and discharge a legal obligation, to compel them to exercise same.
The choice of the remedy is often influenced by several circumstances but suffice it to say that notwithstanding the statutory remedies provided for in tax statutes the alternative remedy by way of writ remains available as a check on the tax collector where he proposes to act or has acted without jurisdiction or contrary to the principles of natural justice because the law considers the resulting decision as null and void and of no force or effect in law.