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High Court Makes GST Ruling On Non-Reviewable Contract

Recently, the High Court ruled in favour of the taxpayer in Konsortium CMC Engineering Sdn Bhd – Colas Rail SA – Uni-way Sdn Bhd v Ketua Pengarah Kastam, Jabatan Kastam Diraja Malaysia [2023] 12 MLJ 393. The taxpayer was successfully represented by the firm’s Tax, SST & Customs Partner, S. Saravana Kumar and Associate, Amira Rafie. 


This alert provides a summary of the High Court’s findings regarding the determination of whether the construction contract entered into by the taxpayer with Prasarana Malaysia Bhd (Prasarana) was a non-reviewable contract under Section 187 of the Goods and Services Tax Act 2014 (GST Act).


Brief Facts


The taxpayer was contracted by Prasarana to deliver the system works package for the Kelana Jaya (KLJ) Line Extension Project (Contract). The contract was entered during the Service Tax 1975 era and progressed well into the GST era. During the transition period, where there was uncertainty about the implementation of the new laws, the taxpayer sought clarification from the Customs regarding their GST liabilities. The Customs informed the taxpayer that they were subject to GST. Despite being dissatisfied, the taxpayer proceeded cautiously, paying the GST sums to the Customs from 2015 to 2018 out of their own pocket. Throughout this time, various discussions ensued between the taxpayer, the Customs and the Minister of Finance regarding this issue, but to no avail.


Finally, the taxpayer made an application in the prescribed Form 2 for a refund of the GST, which was erroneously paid during the GST period from 1 April 2015 to 1 September 2018. The refund application was eventually rejected by the Customs. Aggrieved by the Customs’ decision, the taxpayer filed a judicial review application seeking an order for the Customs to exercise its power under Section 57(1)(a) of the GST Act, read together with Section 4(1)(b) of the GST Repeal Act 2018, to refund the GST erroneously paid by the taxpayer for the said period.


Key Issue


The sole issue to be determined in the judicial review application before the High Court was whether the contract between the taxpayer and Prasarana was a non-reviewable contract falling within the ambit of Section 187 of the GST Act whereby such contracts are to be treated as a zero-rated supply.


The Law


Section 187 of the GST Act is a transitional provision that allows a taxable supply made pursuant to a contract with no opportunity to review to be treated as a zero-rated supply for a period of five years from the effective date of GST, that is 1 April 2015, or until a review opportunity arises, whichever is earlier. This treatment is, however, subject to certain conditions:


(a)   There is a written contract that specifically identifies a supply and the consideration for the supply (Condition 1).


(b)   The contract must be a ‘contract’ with no opportunity for review (Condition 2).


(c)   The supply must be made pursuant to that contract (Condition 3).


(d)   Such a contract must have been entered into at least two years before the effective date of GST on 1 April 2015.


Apart from that, there are additional statutory requirements laid down in Section 187(2) of the GST Act:


(a)   The supplier and recipient of the supply must be registered persons (Section 187(2)(A) of the GST Act).


(b)   The supply must be taxable (Section 187(2)(B) of the GST Act).


(c)   The recipient must be making wholly taxable supplies (Section 187(2)(C) of the GST Act).


Essentially, zero-rated supply will only apply to registered persons who fulfil all the conditions stated above.


The Taxpayer’s Contentions


Before the High Court, the taxpayer’s position was that the judicial review application was premised on the grounds of illegality, irrationality/unreasonableness and legitimate expectations. In gist, the taxpayer’s contention revolved around the interpretation of Section 187 of the GST Act, as follows:  


(a)      The contract fell within the purview of Section 187 of the GST Act and accordingly, should be zero-rated.


(b)    The Customs failed to take into account the correct provision (Section 187) and instead considered the irrelevant provision (Section 124), leading to an error of law in their decision-making process.


(c)     The Customs’ decision contradicted the power and objective of GST, whereby the cost should not be borne by businesses.


(d)      The Customs failed to provide any justification for its decision.


(e)   The Customs’ decision violated the taxpayer’s legitimate expectation that the Customs would take cognisance of the law, which consequently disproportionately deprived the taxpayer and led to unjust enrichment on the part of the Customs.


The Customs’ Contentions


On the other hand, the Customs contended that zero-rated supply was not applicable to the taxpayer primarily on the grounds that the Contract was a reviewable contract. The reasons were as follows:


(a)     The Variation Order entered into by the taxpayer and Prasarana changed the value of the Contract.


(b)     The taxpayer failed to prove that Prasarana was making wholly taxable supplies.  


The High Court’s Decision


After considering submissions from both parties, the High Court concluded that the Customs’ decision was irrational, illegal and unreasonable for the following reasons: 


1. Non-Reviewable Contract under Section 187(1) of the GST Act


Having examined the evidence tendered by the parties during the proceedings, the High Court found the following:    


(a)  There was a written contract identifying the supply and its consideration. The contract related to works to be executed for the KLJ Extension Project, such as the undertaking of the engineering, procurement, construction, testing and commissioning of system works. The Contract stipulated a fixed lump price, which was not subject to any adjustment or recalculation.


(b)   The Contract was executed at least two years before the effective date of the GST.


Evidently, the taxpayer fulfilled Conditions 1, 3 and 4, leaving Condition 2 as the focal point – whether the contract qualified as a ‘contract with no opportunity to review’ within the meaning of Section 187 of the GST Act.


2. Meaning of “contract with no opportunity to review”


Section 187(3)(a) of the GST Act specifically defines “contract with no opportunity to review” to mean any written contract or agreement which has no provision for a general review of the consideration for the supply for such a period until a review opportunity arises. In order to make the determination on whether the Variation Order constituted a “general review of the consideration”, the High Court sought guidance from the Federal Court in Palm Oil Research and Development Board Malaysia & Anor v Premium Vegetable Oils Sdn Bhd & Another Appeal [2005] 3 MLJ 97 whereby words are to be given their ordinary meaning. Citing the English case of Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64, the Federal Court held:


“…one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption so to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”


In this case, the High Court also referred to an Australian case, recognising the similarity between Section 13 of the Australian A New Tax System (Goods and Services Tax) Act 1999 and Section 187 of the GST Act. The Federal Court of Australia in MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd v Commissioner of Taxation [2012] FCAFC 89 interpreted the term ‘general review’ as a ‘complete or almost universal’ review of the consideration or a review encompassing ‘nearly all of the consideration’. In this regard, the Contract entered into by the taxpayer with Prasarana clearly does not allow any departure from the fixed consideration.


3. Variation Orders does not equate to a General Review of the Contract


The High Court determined that Clause 58 of the Contract, which pertains to variations, is a standard provision in construction contracts. It facilitates changes in the scope of works but does not provide a mechanism for parties to reassess the consideration for supply.


Echoing the High Court’s earlier decision in Ketua Pengarah Kastam & Ors v George Kent — Lion Pacific JV & Anor [2022] MLJU 1542, the Court held that the Customs erred in suggesting that the variation orders opened up an opportunity for a general review. The Contract did not contain provisions for such a review. The variation orders specifically delineated the limited areas subject to review, such as design or technical specifications. The consideration of the contract, i.e. the contract price, was a fixed lump sum that could not be adjusted or recalculated.


Based on the foregoing, the High Court ruled that the taxpayer had fulfilled all the conditions under Section 187 of the GST Act, rendering the contract non-reviewable and qualifying it as a zero-rated supply. Therefore, the taxpayer should not have been required to pay GST and was entitled to claim refund for the amount erroneously paid under Section 57(1)(a) of the GST Act.




This recent ruling by the High Court marks a significant victory for the taxpayer, granting its judicial review application against the Customs for a refund of GST erroneously paid in relation to a non-reviewable contract.


This landmark decision not only underscores the importance of strict interpretation of tax statutes but also reaffirms the judiciary’s role in upholding the principles of fairness and justice in tax matters. In the learned Judge’s words:


“Judicial review is generally concerned with the decision making process where the impugned decision is flawed on the ground of procedural impropriety. However, the law has now developed to allow a decision to be challenged on grounds of illegality and irrationality, which then permits the courts to scrutinise the decision not only for the process, but also for substance. It is settled law that the High Court will not interfere with a decision of the respondent unless it can be established that the decision is infected with errors of law.”


In essence, the Court's comprehensive analysis, highlighting the erroneous application of the law by the Customs and the violation of the taxpayer's legitimate expectations, sets a precedent for similar cases and emphasises the need for meticulous consideration of legal provisions in making tax assessments and facilitating refunds.

30 May 2024


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