Civil Reference No. 7 of 2004
Geita Gold Mining Limited (GGML) operated a gold mine in Geita and, to power its operations, contracted Golden Construction Limited (GCL) to build a power plant and supply and install seven large generators, with Geita Power Plant Limited engaged to manage and operate the plant. When the seven generators failed after installation, GCL's holding company, Rolls Royce, entered into a hire agreement with Aggreko International Project Ltd (AIPL) to install 24 smaller generators as an alternative, without GGML being privy to that agreement. The agreement between GGML and the power plant operator fixed a fuel consumption rate, with penalties for excess consumption payable by GGML. The 24 generators consumed fuel exceeding the contractual limit, prompting GGML to invoice GCL for excess fuel used between January 2001 and September 2002, amounting to USD 5,527,553.85 plus 20% VAT of USD 1,105,510.77. During a tax audit, the Tanzania Revenue Authority found this invoice in GGML's books and demanded payment of the VAT charged. GGML objected, contending the excess fuel supply was not vatable and it was not liable to remit the VAT. GGML's objections failed before the Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal, leading to this appeal.
(1) Whether there was a vatable (taxable) supply of fuel between GGML and GCL, such that GGML was liable to pay VAT on the excess fuel invoiced to GCL. (2) Whether the Tribunal erred in relying on the existence of the invoice to hold VAT payable without properly considering sections 4 and 5 of the VAT Act, 1997. (3) Whether the Tribunal erred in dismissing the appeal and ordering GGML to pay costs.
The appellant (GGML) argued that there was no vatable supply because the fuel was ultimately consumed by GGML itself as the mine owner, not sold to GCL for GCL's own use; it characterised this as 'self-supply' under section 5(1)(c) of the VAT Act, which it contended fell outside the scope of taxable supply. It admitted GCL breached the fuel consumption terms and that GGML issued an invoice charging VAT as a penalty, but argued the mere existence of an invoice should not determine tax liability where no genuine supply occurred. It contended section 57 (now 58) of the VAT Act, which makes VAT shown on an invoice recoverable, must be read together with section 5 and presupposes an actual supply; since there was none, section 57 was inapplicable. It urged a purposive and harmonious construction of the VAT Act. The respondent (Commissioner General) argued that GGML undisputedly supplied fuel to GCL, raised an invoice charging VAT, and never cancelled that invoice. Relying on sections 4(1) and 5 of the VAT Act, it contended the fuel supply was a taxable supply made by a taxable person (GGML) in the course of its business to another taxable person (GCL). It further argued that under section 25(2) of the Tax Revenue Appeals Act, the factual finding of sale by the Tribunal should not be revisited. It relied on section 57 of the VAT Act, which makes any VAT amount shown on an invoice recoverable from the issuer regardless of whether the supply was genuinely taxable, invoking strict construction of taxing statutes (citing Cape Brandy Syndicate v. Inland Revenue Commissioners and Resolute Tanzania Limited v. Commissioner General).
The Court of Appeal dismissed the appeal in its entirety with costs, upholding the Tribunal's decision. It held that the supply of fuel by GGML to GCL, to enable the 24 generators (installed under an agreement to which GGML was not a party) to run, constituted a 'taxable supply' within section 5(1) of the VAT Act, made by a taxable person in furtherance of its business, and was therefore not exempt under section 4(1). The Court further held that section 57 of the VAT Act plainly provides that any amount shown as VAT on an invoice is recoverable from the person issuing the invoice, regardless of whether the supply was genuinely taxable or the issuer was a taxable person; since GGML admittedly issued the invoice charging VAT and it was never cancelled, GGML was liable to remit that VAT, and the plain language of section 57 did not require purposive interpretation. On the third ground, the Court found that the Tribunal had in fact considered sections 4, 5 and 11 of the VAT Act (as shown in the record) but concluded these provisions did not save the appellant from VAT liability, so the ground failed. On the fourth ground, the Court held there was no justifiable reason to fault the Tribunal's costs order against the losing party.
The judgment reinforces the principle that VAT liability under section 57 of the Tanzania VAT Act, 1997 attaches to any amount shown as VAT on an issued invoice, regardless of whether the supply was genuinely taxable or whether the issuer was a taxable person, thereby precluding purposive reinterpretation where the statutory language is plain. It also affirms strict construction of taxing statutes, following Cape Brandy Syndicate v. Inland Revenue Commissioners and Resolute Tanzania Limited v. Commissioner General, and illustrates that an uncancelled invoice charging VAT will be enforced against its issuer even where the issuer later disputes the existence of an underlying vatable supply. It further confirms that appellate tax tribunals' factual findings, once made, are given weight and that costs orders against unsuccessful tax appellants will ordinarily stand.
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