Landmark Sales Tax Refund Ruling – Applicability Of The De Minimis Principle In Tax Cases





G(M)SB v Ketua Pengarah Kastam (Court of Appeal)

On 12.10.2020, the Court of Appeal unanimously allowed the taxpayer’s appeal against the High Court’s decision in dismissing the taxpayer’s judicial review application. The taxpayer challenged the decision of the Director General of Customs (“DGC”) decision in rejecting the taxpayer’s application for sales tax refund under Sections 190 and 191 of the Goods and Services Act 2014 (“GST Act 2014”).


The taxpayer was successfully represented by our Senior Partner, Datuk D.P. Naban and Tax, SST & Customs Partner, S. Saravana Kumar together with associate, Chew Ying.


This alert summarises the facts of the appeal and the arguments advanced by both parties.


Background Facts The taxpayer is a company involved in the business of operating a chain of supermarkets and hypermarkets in Malaysia. In its ordinary course of business, the Appellant purchases stock that is sourced from its international and local suppliers and sells the same in its outlets in Malaysia. The taxpayer is a registered person under the GST Act 2014.


In September 2015, the taxpayer submitted the application for sales tax refund to the DGC. Together with the application, the taxpayer also submitted an audit certificate signed by an approved auditor confirming that the refund information furnished by the taxpayer is prepared in accordance to the requirements under Sections 190 and 191 of the GST Act.


Consequent to the submission of the sales tax refund application, the taxpayer duly complied with the DGC’s request for supporting documents and access to premises. Following an audit, discussions and various exchanges of email, in early 2017, the DGC rejected the taxpayer’s sales tax refund application and no reason was supplied by the DGC.

In February 2017, the taxpayer filed an application for a review of the DGC’s decision in rejecting the taxpayer’s sales tax refund application.


Subsequently, in March 2017, the DGC rejected that taxpayer’s review application under Section 191(3) of the GST Act 2014 on the premise that the sales tax refund application contained incorrect information.


Aggrieved by the DGC’s decision, the taxpayer commenced judicial review proceedings to challenge the said decision. In January 2018, the High Court dismissed the taxpayer’s judicial review and held that the DGC’s decision was not illegal, irrational or unreasonable as certain information in the taxpayer’s sales tax refund application were found to be inaccurate.


The Taxpayer’s Submission At The Court of Appeal The main issue to be determined was whether the High Court erred in not applying the de minimis principle towards the inaccurate information contained in the taxpayer’s sales tax refund application. The taxpayer’s arguments before the Court of Appeal, among others, were as follows:


• Sections 190 and 191 of the GST Act 2014 were enacted to remedy the situation of double taxation faced by taxpayers by providing a refund of the sales tax paid prior to the GST regime.

• The taxpayer’s sales tax refund application has met all the requirements stipulated in Sections 190 and 191 of the GST Act 2014 and should be allowed.

• The High Court judge had erroneously held that the taxpayer’s sales tax refund Application was properly rejected under Section 191(3) of the GST Act 2014 as there are inaccuracies. Among others, the High Court found that there are a number of goods are not held in hand on 1.4.2015.

• However, the basis period used by the DGC to determine the taxpayer’s stock count was months after 1.4.2015. As the Appellant runs an ongoing retail business, the stocks were fast moving consumer goods where some goods were expired, spoilt, damaged and lost. through various reasons such as theft.

• The value of the inaccuracies found by the High Court is less than 0.4% of the total value claimed by the taxpayer in its sales tax refund application.

• In any event, the taxpayer had previously informed the DGC at they were agreeable to forgo the sales tax refund claim for items where there were mistakes as the documents involved in the sales tax refund application were voluminous.

• The principle of de minimis is a principle with general application and should have been considered by the DGC in reviewing the taxpayer’s sales tax refund application.

• The DGC’s decision to reject the taxpayer’s sales tax refund application due to inaccuracy is significantly and wholly disproportionate to the objective of the Parliament in providing the sales tax refund provisions in the GST Act 2014.


The Director General of Custom’s Response The DGC argued that its decision in rejecting the taxpayer’s sales tax refund application was correct pursuant to Section 191(3) of the GST Act 2014 which reads below:

“Where any information on the claim provided by the claimant is found to be false, inaccurate, misleading or misrepresented – (a) he shall not be entitled to a special refund and the officer of goods and services tax may refuse such claim…”

The crux of the DGC’s submission was that the word “inaccurate” contained in the above provision should be interpreted strictly and that the burden was on the taxpayer to furnish accurate information. As such, the principle of de minimis does not apply to the taxpayer’s application.


The Court of Appeal’s Decision Upon hearing the submission by both parties, the Court of Appeal unanimously allowed the taxpayer’s appeal and set aside the High Court’s decision. The Court of Appeal also directed the DGC to refund the total amount claimed by the taxpayer less the value in relation to the inaccurate information in the sales tax refund application within 90 days.


Commentary This decision is first of its kind in tax disputes where the judiciary has exercised its jurisdiction in applying the principle of de minimis (i.e. the law cares not for small things). Case law have established that it would be wrong to make an exhaustive classification of cases whereby this principle should or should not be applied. This decision strengthens the common law position that the principle of de minimis has to be applied generally in circumstances which warrants its application and that tax law is not excluded from this principle.


In reversing the High Court’s decision, the Court of Appeal has indirectly reinforced the position that the courts are not bound by the harsh and strictness in the application of Section 191(3) of the GST Act 2014 if such interpretation will lead to injustice or miscarriage of justice. It is trite that there is now a statutory recognition for courts to take a purposive approach in the interpretation of statutes (taxing statutes included).


Sections 190 and 191 of the GST Act 2014 are transitional provisions specifically enacted to remedy situations of double taxation and to provide relief. The strict approach taken by the DGC towards Section 191(3) of the GST Act 2014 arguably defeats the purpose of the introduction of the sales tax refund provisions.


This decision also serves as a reminder that all decisions and measures taken by public authorities must be fair, reasonable and proportionate to the objective a particular provision sought to achieve. The reach and extent of the court’s jurisdiction to review an administrative action is not limited to narrow grounds such as procedural impropriety, illegality, irrationality but may also include proportionality. Therefore, decisions made by public authorities including tax authorities that are disproportionate are amenable to judicial review.

October 20, 2020

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