High Court Rules Sale Of Agricultural Land Falls Under GST Exempt Supply

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On 26 June 2025, the High Court allowed the taxpayer’s judicial review application to challenge the decision of the Minister of Finance (MOF) in agreeing with the Director General of Customs (DGC) to subject the 27 lots of agricultural land sold by the taxpayer to a property developer to goods and services tax (GST).

The taxpayer was successfully represented by the firm’s Tax, SST & Customs partner, S. Saravana Kumar, together with senior associate, Nur Hanina binti Mohd Azham.

Background

On 26.5.2016, the taxpayer entered into a sale and purchase agreement to sell 27 lots of agricultural land (the Lots) to a third-party company (the buyer), which was involved in property development. As the lots were agricultural land, the taxpayer did not subject the sale (i.e. the supply) to GST pursuant to Item 1(1) of the First Schedule of the Goods and Services Tax (Exempt Supply) Order 2014 (Exempt Supply Order).

On 27.10.2020, the DGC issued a bill of demand amounting to RM 724,253.04 against the taxpayer on the basis that the Lots were intended to be used by the buyer for commercial purpose.

Although on 25.1.2021, the taxpayer had filed a judicial review application against the bill of demand issued by the DGC, the High Court held the taxpayer’s judicial review application against the DGC was premature as the taxpayer did not exhaust all statutory rights i.e. making an application to the MOF pursuant to paragraph 2(2) of the Exempt Supply Order for a decision whether the sale of the lots fell under the First Schedule of the Exempt Supply Order.

Accordingly, pursuant to the High Court’s ruling, the taxpayer wrote to the MOF to obtain a decision.

On 18.10.2023, the MOF gave its decision and took the position that the sale of the lots does not fall under the Exempt Supply Order as the Lots were intended to be used for commercial purposes by the buyer. As such, the MOF agreed with the DGC’s earlier decision that the sale should be subjected to GST at the standard rate of 6%.

Being aggrieved by the MOF’s decision, the taxpayer filed a fresh judicial review application. On 14.11.2024, the High Court dismissed the preliminary objection by the Attorney General’s Chambers (AGC) and granted leave to the taxpayer to commence judicial review proceedings against the MOF’s decision.

Last week, upon hearing the substantive arguments from the parties, the High Court delivered its decision in favour of the taxpayer.

The Taxpayer’s Submission

The crux of the taxpayer’s case was that the Lots qualifies as an exempt supply under the First Limb of the Exempt Supply Order as it was used for agricultural purposes. In essence, the arguments advanced by the taxpayer can be summarised as follows:

i.                 Under Item 1(1) of the First Schedule of the Exempt Supply Order, any land used or intended to be used to the extent of it being used or intended to be used for residential or agricultural, or general use is an exempt supply.

ii.                The phrase “any land used” is drafted by the draftsmen in the past tense which makes it an express condition that the land in question must have been put into use, in the past or at the time of sale, for residential, agricultural or general use purposes in order for the land to qualify as an exempt sale. If a plot of land had been used in the past or at the time of sale for agricultural purposes, then the land is an exempt supply which falls under the First Limb.

iii.              Based on the wording of the First Limb, the sale of the Lots made by the taxpayer to the buyer would qualify as an exempt supply if the Lots were used for agricultural purposes.

iv.              It is an undisputed fact that the “category of use” for the Lots is stated as “agriculture” in the land titles and the express condition of the Lots was for “rubber plantation” before and during the completion of the SPA and the transfer of the Lots by the taxpayer to the buyer.

v.               It is trite law that Parliament does not legislate in vain. If a word or phrase appears in a statute, it was put there for a purpose and must not be disregarded. Our courts have held that due regard must be given to the tense which has been used by Parliament in a statutory provision.

vi.              The phrase “intended to be used” only signifies an objective assessment to be made on the characteristics or nature of the subject matter and not the subjective intention of any person. This principle has also been endorsed and applied by the Australian courts in GST rulings such as Sunchen Pty Ltd v Commissioner of Taxation [2010] FCAFC 138 and Marana Holdings Pty Ltd & Anor v FC of T [2004] FCSFC 307.

vii.            Furthermore, in Setia Fontaines Sdn Bhd v Menteri Kewangan & Anor (WA-25-332-07/2019), the High Court held that the sale of any land used for agricultural purposes is an exempt supply under Item 1(1) of the First Schedule of the Exempt Supply Order and thus, was not subject to GST. 

viii.           In Q Sentral Retail Lot 11-2 Sdn Bhd V. Cosy Bonanza Sdn Bhd [2016] 1 LNS 942, the High Court has held that sale of agricultural land was exempted from the imposition of GST under the Exempt Supply Order.

The MOF’s Response

The MOF’s arguments in objecting to the taxpayer’s judicial review application can be summarised as follows:

         i.          By applying the literal interpretation, the taxpayer failed to prove that the supply of the Lots is an exempt supply pursuant to the Exempt Supply Order. This is because the buyer intended to use the Lots for commercial purposes (i.e. to build solar panel).

       ii.           The MOF also referred to the Malay version of the Exempt Supply Order.  According to the Malay version, the word “used” is interpreted as “yang digunakan” which means that the current use of the land is residential or agriculture. Thus, as the buyer had the future intention to use the Lots for commercial purpose, the Lots should be subjected to GST.

      iii.          The MOF further contended that the taxpayer has failed to produce other evidence to show that the past or current usage of the Lots were agricultural except for the categories of use in the land title.

      iv.          Therefore, the sale and transfer of ownership of the Lots, constituted a supply of goods and is subject to the imposition of GST.

       v.          It is within the power of the MOF to decide whether or not any supply of goods or services falls within an exemption and that decision shall be final. Thus, MOF’s decision was in accordance with the law.

The High Court’s Decision

The High Court allowed the taxpayer’s judicial review application and among others, granted an order to quash the MOF’s decision to subject the sale of the lots to GST.  The High Court accepted the taxpayer’s contention that the sale of the lots by the taxpayer to the third-party developer would qualify as an exempt supply under the Exempt Supply Order.

This decision clarifies that the sale of land used or previously used for agricultural purposes qualify as an exempt supply under Item 1(1) of the Exempt Supply Order, regardless of the buyer’s intended future use. Furthermore, the High Court’s ruling is much welcomed as it signals that the MOF and DGC do not have absolute discretion in interpreting exemption provisions. This important ruling serves as a reminder that any decisions made by the MOF and DGC that are disproportionate are amenable to judicial review.

4 July 2025