The Grand Coastal Inn will have to pay to the Guyana Revenue Authority (GRA) the more than $31M it owes in value added taxes (VAT) after the Guyana Court of Appeal on Monday ruled that the procedure used by the Revenue Authority to assess its VAT liability was lawful.
In fact, the court noted that it was the process used by the hotel to mount its challenge against the GRA which was unlawful having regard to statutory stipulations which it contravened.
In this regard, the appellate court pronounced that Grand Coastal’s action sought to falsely secure for them the temporary financial respite at the expense of the nation as the case wound its way through the court for over seven years.
The court noted that not only will Grand Coastal now have to pay the full sum of $31,290,473 which it owes in taxes for 2007-2008, but all consequential interest imposed by the VAT Act.
Having declared GRA’s method of assessing the hotel’s VAT liability to be fair, Justices of Appeal Dawn Gregory, Rishi Persaud and Rafiq Khan discharged the nisi orders which it had previously been granted.
Additionally, the court awarded GRA costs to the tune of $250,000 which has to be borne by the respondents.
Consequent to an audit of Grand Coastal’s VAT affairs for the periods January 2007-December 2008, the GRA said it found that the hotel owed taxes to the tune of $31,290,473.
Advancing, however, that the decision of the Commissioner General of the GRA that it was liable to pay additional VAT for the mentioned periods was ultra vires, Grand Coastal thereafter commenced proceedings in the High Court against the Revenue Authority.
They sought and were granted by former acting Chief Justice Ian Chang, orders nisi which were made absolute against the Commissioner General, in which the latter had to show cause why his decision should not be quashed on grounds that it had been made in excess of the powers conferred on him under the Value Added Tax Act.
They argued that his decision was unreasonable and had been made without or in excess of jurisdiction and in breach of the rules of natural justice.
Grand Coastal had also been granted an order of prohibition against the Commissioner General and agents prohibiting them from demanding or imposing additional VAT for the disputed periods.
From court documents seen by this newspaper, while the hotel had submitted to the GRA self-assessed returns for VAT as required by the Act, the amount computed, which was not disclosed in the court papers, had been disputed by the GRA.
As a result, the Revenue Authority, having conducted its own audit, found the hotel’s additional VAT
liability to be $31,290,473.
Grand Coastal argued in the High Court, that the GRA’s VAT assessment was unlawful since it was done by auditors and not the Commissioner General himself, who only merely approved what the auditors had done.
It was against this backdrop they argued in their notice of motion filed on November 15, 2010, that the assessment which was raised by the auditors, was unlawful and ultra vires the VAT Act.
In response, however, the Commissioner General said that the tax officers (auditors) did not raise any assessment, but rather did the additional assessment from the information available, noting that the auditors had not acted outside of their powers to so do in accordance with the Act.
According to GRA, the information provided by Grand Coastal “failed to dislodge the computations made by the tax officers,” and based on the information made available, an estimate of the taxes payable by the hotel was made.
Citing section 33 (1) of the VAT Act 2005, GRA argued that the auditors are authorized to make assessments for “additional taxes,” and in so doing, may consider and utilize the information available consequent upon the examination of the taxpayer’s records.
In his decision, Justice Chang had declared the assessment to be null, void and of no legal effect on the ground that it had been made without legal authority and in contravention of the VAT Act.
He declared that the assessment should have been made by the Commissioner General or an officer engaged in making an assessment under his direction, control or supervision.
As a result, he made the rules nisi of certiorari and prohibition absolute.
Alternative remedies
As the Court of Appeal found, however, Justice Chang did not consider the submissions on alternative remedies made on behalf of the GRA, and as such made no findings thereon.
Finding that two letter notices containing the VAT assessment sent to Grand Coastal emanated from the Audit and Verification section of the GRA, and spoke to an audit investigation, which he said must be distinguished from an assessment, Justice Chang conduced to the finding that the Commissioner General had effectively abdicated his statutory responsibilities for making an assessment in favour of the auditors.
Accordingly, he held that the notices of assessment were not assessments made by the Commissioner.
In its appeal to Justice Chang’s ruling, however, the GRA argued among other things that the judge failed to properly assess the evidence before him and drew inferences that were both erroneous and bad in law.
Meanwhile, in granting the nisi orders the Revenue Authority submitted that Justice Chang misapplied the law relating to delegation of the powers of the Commissioner General pursuant to the Act.
Referencing case law, the Court of Appeal ruled among other things, that the scheme of the VAT Act permits taxing officers to perform the functions and duties of the Commissioner General, albeit under his direction, control or supervision and that communications signed by them are deemed to have been signed by the Commissioner.
The appellate court said it was satisfied that Grand Coastal was afforded an opportunity to make representations to taxing officers of the GRA before it was assessed for additional value added taxes.
In fact, the court said the hotel made such representations to the taxing officers before the assessment which resulted in a reduction in total VAT liability for the period in question from an initial amount of $31,990,375 to $31,290,473.
In its pronouncements, the court said that there is no legal requirement that the respondent be heard by the Commissioner himself as it would be too onerous a task to impose upon the Commissioner a duty to himself hear each and every taxpayer prior to assessment.
It would defeat the intention of Parliament the court said, which saw it fit in easing the burdens on the Commissioner in the exercise of his powers and duties under the Act to expressly vest the powers and duties granted to the Commissioner in taxing officers acting under his direction, control or supervision.
The court declared that in all instances, the process leading up to the assessment was fair.
Section 33(1) (b) of the VAT Act enables the Commissioner, if he is dissatisfied with a return to make an assessment of the amount of tax payable by the person. The court found that the Commissioner had so done.
Contending that Grand Coastal’s complainant had been against the assessments, the GRA advanced that the proper procedure would have been for the hotel to have availed itself of the statutory appellate procedure as stipulated by the Act before going to the court.
Part X
To aggrieved taxpayers, Part X of the VAT Act provides the remedy of first appealing to the Commissioner General, the VAT Board and finally to the court. This, the GRA argued, was the correct procedure for Grand Coastal to have invoked, as opposed to seeking the prerogative nisi remedies in the first place.
This argument was endorsed by the appeal court which added that the VAT Board of Review was the appropriate and better equipped tribunal to determine the method of assessment complaints raised by Grand Coastal.
To this end, the court cited the recent Caribbean Court of Justice (CCJ) ruling in Guyana Stores Ltd v. the Attorney General of Guyana et al. In that case, a challenge was made to the constitutionality of a 2% minimum corporation tax created by the Fiscal Enactments (Amendment) Acts.
The CCJ rejected the appellant’s arguments that the 2% tax was unconstitutional and held that while the appellant was entitled to pursue a claim for constitutional relief, that “entitlement did not alter the fact that at root, the underlying and primary issue the company had, was with the liability to pay the demanded taxes.”
As such, the CCJ ruled that this was precisely suited for resolution by the specialized processes and tribunal established by the Income Tax Act for producing such resolution.”
The Caribbean court concluded that there was “no sudden and unheralded imposition of and demand for taxes from the Revenue Authority and, it appears, it was no arbitrary assessment.
In the case between GRA and Grand Coastal, the Court of Appeal found that the additional VAT was assessed after an investigation which included meetings with and representations on behalf of the respondent hotel.
It concluded that indeed there was “no sudden and unheralded imposition of and demand for taxes from the Revenue Authority,” or arbitrary assessments. There was nothing to prevent the respondent from lodging an objection and invoking the jurisdiction of the VAT Board of Review if the objection was rejected.
The appeal court added further, that there were no exceptional circumstances either or for that matter no circumstances shown to justify prerogative remedy proceedings in the light of the more appropriate and specialized appellate procedure established under the VAT Act.
Delivering the ruling on behalf of the court, Justice Khan declared that what Grand Coastal’s action, “misconceived as it was,” succeeded in doing was to falsely secure for them, temporary financial respite at the expense of the nation while the case wound its way through the court processes for over seven years.
The court made it clear, however, that such a strategy “if one may call it that,” in no way helps the respondent who will still remain liable for the taxes assessed along with the consequential interest imposed by the Act.
The justices of appeal declared that it “therefore behooves the Courts before whom applications such as this are initially heard to exercise great care in making the orders prayed for, lest they become unwitting participants in a charade,” though acknowledging that there undoubtedly will be genuine cases for prerogative remedies while adding that these should be “exceptional.”
Referencing case law, the court said “it is a cardinal principle that, save in the most exceptional circumstances [the judicial review] jurisdiction will not be exercised where other remedies were available and have not been used”.
Against this backdrop, the judges declared, “the Court therefore must not shirk its responsibility to quickly identify the wolf in sheep’s clothing and dispatch it with all due haste.”
The court found that the hotel failed to establish any exceptional circumstances which would justify the preference of the prerogative writ procedure to the statutory appellate procedure.
In allowing GRA’s appeal, the Court of Appeal discharged the orders nisi previously granted to Grand Coastal while ordering them to pay the Revenue Authority court costs in the sum of $250,000.
Representing GRA were attorneys Joy Persaud, Hessaun Yassin Nandlall and M Halley. Meanwhile, Grand Coastal was represented by attorney Robin Hunte.
