Judicial Review : Leave to Challenge Bill of Demand for Sales Tax - WMBS v Ketua Pengarah Kastam
In March 2021, WMSB, a taxpayer successfully obtained leave to commence judicial review to quash a bill of demand for sales tax issued to WMSB. The High Court granted the leave application despite the objections raised by the Attorney General Chambers (AGC) on the ground that there is an alternative remedy under the Sales Tax Act 2018 (STA 2018) i.e. appeal to the Customs Appeal Tribunal.
WMSB was successfully represented by our Tax, SST & Customs Partner, S. Saravana Kumar together with associate, Ng Kar Ngai.
WMSB is principally engaged in the export and sale of edible oil products. The commercial arrangements in WMSB’s trading activity are consistent whereby WMSB sources for edible palm oil and packaging materials from Malaysian manufacturers. The packaging materials will be delivered to the appointed packer of WMSB, who will fill the edible oil into the packaging materials in accordance with WMSB’s instructions. The appointed packer is also a Malaysian business entity.
Given the nature and volume of the edible oil, the edible oil cannot be sold to the overseas market without being packed into the packaging materials. The packaging materials will be labelled accordingly and packed into carton boxes. Upon completion, the goods will be exported to WMSB’s customers. The export declaration forms i.e. Forms K2 are lodged in the name of WMSB as the exporter.
In 2018, WMSB obtained a verbal confirmation from the Customs that WMSB is eligible for the exemption on the purchase of the packaging materials under Item 57, Schedule A of the Sales Tax (Persons Exempted From Payment of Tax) Order 2018 (Sales Tax Exemption Order). WMSB was also granted 17 certificates of exemption by the Director General of Customs (DGC) through the Customs. However, WMSB was subsequently informed by the Customs that WMSB is not eligible for the exemption under Item 57, Schedule A of the Sales Tax Exemption Order in relation to the packaging materials. Consequently, the DGC issued a bill of demand to WMSB. The bill of demand was raised on the following grounds:
a) WMSB’s description of goods and tariff codes declared in the Forms K2 do not match with the packaging materials purchased.
b)The said exemption is not intended for value added or processing activity.
Being aggrieved by the decision, WMSB applied for judicial review to set aside the said decision. The AGC relied on Section 96 of the STA 2018 to raise a preliminary objection that leave should not be granted as there is domestic remedy available in the form of statutory review and appeal procedures.
Section 96(1) governs the statutory appeal under the STA 2018. The provision states that:
“Any person aggrieved by any decision of the Director General may apply to the Director General for review of any of his decision within thirty days from the date the person has been notified of such decision provided that no appeal has been made on the same decision to the Customs Appeal Tribunal or court.”
Based on a plain reading of the provision above, there is nothing contained in the legislative provision that prohibits WMSB from making a judicial review application.
The High Court’s Ruling
The High Court allowed WMSB’s application for leave to commence judicial review and accepted the arguments advanced on behalf of WMSB that:
a) A customs appeal is vastly different from an income tax appeal. The latter contains a domestic appeal procedure that is governed by Section 99(1) of the Income Tax Act 1967, which allows taxpayers to file a notice of appeal to the Special Commissioners of Income Tax when it is aggrieved by a notice of assessment or additional assessment. However, the domestic appeal procedure for income tax does not have a similar provision to Section 96(1) of the STA 2018. An analysis of Section 96 of the STA 2018 clearly illustrates that an appeal before the High Court is not discounted by the draftsmen. In fact, it highlights that taxpayers have the option of applying to the DGC for review, appealing to the Customs Appeal Tribunal or commencing proceedings at the High Court.
b) Be that as it may and in any event, even if there is a domestic restriction, this does not preclude WMSB from seeking judicial review. In Government of Malaysia & Anor v Jagdis Singh  2 MLJ 185, the Supreme Court has recognised that judicial review is available even where there is an alternative remedy in the following exceptional circumstances:
i) Clear lack of jurisdiction; or
ii)Blatant failure to perform statutory duty; or
iii)A serious breach of the principles of natural justice.
c) Further, it is trite law that the threshold for leave is extremely low, with the sole question to be asked ordinarily at the leave stage being whether the application is frivolous. This test was adopted by the Federal Court in Members of the Commission of Enquiry on the Video Clip Recording of Images of A Person Purported to be an Advocate and Solicitor Speaking on Telephone on Matters of Appointment of Judges v Tun Dato’ Seri Ahmad Fairuz bin Dato’ Sheikh Abdul Halim  6 MLJ 490.
d) This leave application is clearly not frivolous as the DGC and the Customs had failed to give effect to Item 57, Schedule A of the Sales Tax Exemption Order despite WMSB having satisfied all the conditions, thus depriving WMSB of the exemption granted to it.
e) Alternatively, even if there is a domestic restriction, this does not preclude WMSB from seeking judicial review where there are exceptional circumstances as stated in Jagdis Singh (supra). Our superior courts in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor Dengan Tanggungan  3 CLJ 65 and Syarikat Kenderaan Melayu Kelantan Bhd v Transport Workers Union  2 CLJ 748 have established that an error of law amounts to a clear lack of jurisdiction and certiorari will lie to correct it.
f) The DGC’s decision in the present matter has clearly arisen from an error of law amounting to a clear lack of jurisdiction as:
i. The DGC and the Customs have failed to give effect to Item 57, Schedule A of the Sales Tax Exemption Order, notwithstanding that WMSB had satisfied all the conditions. In Syarikat Pendidikan Staffield Bhd v Ketua Pengarah Hasil Dalam Negeri  5 CLJ 916, the High Court held that once the taxpayer had satisfied all the conditions under the Income Tax Exemption Order, the DGC and the Customs must give effect to the said Exemption Order and are not allowed to disregard such exemption arbitrarily or impose additional condition to the grant of the exemption.
ii. As there was no cancellation of the tax exemption granted under the Sales Tax Exemption Order, WMSB ought to be able to enjoy the tax exemption granted to it and the DGC and the Customs are not allowed to disregard such tax exemption. This principle was applied by the High Court in Ketua Pengarah Hasil Dalam Negeri v Latex Manufacturing Sdn Bhd (2016) MSTC 30-125.
iii. By disallowing WMSB’s application for exemption under the Sales Tax Exemption Order, the DGC and the Customs had failed to adhere to the clear principles of interpretation of taxing statutes set out by the Supreme Court in National Land Finance Co-operative Society Ltd v Director General of Inland Revenue  4 CLJ 339, where it was stated that an exemption from tax cannot be removed except by sufficiently clear words to achieve that purpose.
iv. Even if one is to adopt a purposive approach, in considering the object of the statute, one must look at the words which have been used by the draftsmen to ascertain what has been said. In Metramac Corporation Sdn Bhd v Fawziah Holdings Sdn Bhd  3 CLJ 177, the Court of Appeal observed that the primary duty of the court is to give effect to the intention of the legislature as expressed in the words used by it. Applying this decision to the case at hand, the DGC and the Customs have failed to consider that Item 57, Schedule A of the Sales Tax Exemption Order did not limit the type of goods qualified for the exemption. On the contrary, the Sales Tax Exemption Order clearly states that the exemption is accorded to all goods locally manufactured.
This landmark ruling is probably one of the first few indirect tax cases in Malaysia where the High Court has exercised its jurisdiction to allow a taxpayer to seek recourse by way of judicial review instead of going through the review and appeal route under the STA 2018. This is in line with the decisions prior to the enactment of the STA 2018, such as Levi Strauss (Malaysia) Sdn Bhd v Ketua Pengarah Kastam, Malaysia (2011) MSTC 30-021 and Tobacco Importers and Manufacturers Sdn Bhd v Ketua Pengarah Kastam Jabatan Kastam Diraja Malaysia  1 LNS 1738, where the High Court granted leave to commence judicial review to the taxpayers and agreed with their submissions that despite the existence of the Customs Appeal Tribunal and the Goods and Services Tax Appeal Tribunal, the taxpayers have the option of pursuing their appeal before the High Court.
In this regard, it is noteworthy to highlight that the wordings of Section 96(1) of the STA 2018 are vastly different from Section 68(1) of the Sales Tax Act 1972 (the predecessor of the STA 2018), where Section 96(1) of the STA 2018 specifically provides taxpayers an option of commencing proceedings at the High Court. Premised on this case, there is now authority to suggest that taxpayers are not prohibited by any domestic restrictions under the STA 2018 and judicial review may be the appropriate forum and remedy available to taxpayers where there are exceptional circumstances.
23 June, 2021
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