Civil Reference No. 7 of 2004
The Commissioner of the Tanzania Revenue Authority (TRA) had assessed VAT on airline travel tickets issued by M/S Skylink Travels & Tours (T), a travel agency. The agency's objection was upheld by the Tax Revenue Appeals Board, but on further appeal by the Commissioner, the Tax Revenue Appeals Tribunal reversed the Board's decision. Skylink then appealed to the Court of Appeal of Tanzania (Civil Appeal No. 8 of 2007), which allowed the appeal with costs, reversing the Tribunal and effectively reinstating the finding that the agency's commission was not taxable. Following that judgment, Skylink (the Decree Holder) filed a bill of costs totalling Tshs. 24,117,000/=, comprising costs for conduct of the case (including 20,000,000/= as instruction fees, court attendance fees, and 18% VAT on the instruction fees) and disbursements (court fees). The Commissioner (Judgment Debtor) contested several items as excessive.
Whether the amounts claimed in each item of the bill of costs, particularly the instruction fee of Tshs. 20,000,000/=, the cost for attending the hearing, and the claim of 18% VAT on the instruction fees, were reasonable and properly taxable given the nature of the appeal and the statutory position of the Tanzania Revenue Authority regarding tax exemption under the Tanzania Revenue Authority Act, Cap 399.
Counsel for the Decree Holder (Mr Magusu Mugoka) argued that the instruction fee of 20 million was justified because the appeal was complex and unprecedented, requiring research into comparable common law jurisdictions, and relied on an invoice showing the fee had actually been charged and paid. He also sought 300,000/= for attending the hearing citing lengthy rival submissions, and claimed 18% VAT on the instruction fees as a disbursement, along with smaller standard fees for various procedural steps and court fees paid as disbursements.
Counsel for the Judgment Debtor (Mr Juma Beleko) argued that the matter was a straightforward statutory interpretation issue under the Value Added Tax Act, Cap 148, not unique or complicated enough to justify 20 million, proposing 3 million instead. He argued the hearing attendance fee was excessive and should be reduced to 60,000/=, and that the bill-drawing fee should be reduced to 15,000/=. He conceded several minor items. Most significantly, he opposed the VAT claim, arguing VAT is a tax on the service recipient (the Decree Holder) which cannot be shifted to another party, and further that the Commissioner/TRA was statutorily exonerated from paying any tax under Cap 399, and therefore could not be ordered to refund or bear VAT as part of costs.
The Taxing Officer held that the sole issue for determination was whether the amounts claimed in each item were reasonable, applying the guidelines under paragraph 9(2) of the Third Schedule to the Tanzania Court of Appeal Rules, 2009, and case law (Joretu Ltd v Kigano & Associates; Premchand Raichand v Quarry Services; Haji Athumani Issa v Rwetama Matatu; Hotel Traveltime Ltd v National Bank of Commerce), which require considering the amount involved, nature, importance and difficulty of the matter, the interest of the parties, and other relevant circumstances. Having reviewed the Court of Appeal record, the Taxing Officer found the appeal, which turned on a single question of statutory interpretation under the VAT Act as to whether a travel agent's commission was a taxable supply, was not so complicated as to justify an instruction fee of 20 million; only one hearing day occurred. The instruction fee was reduced to Tshs. 10,000,000/=, with the balance taxed off. On the VAT question, the Taxing Officer examined sections 28 and 29 of the Tanzania Revenue Authority Act, Cap 399, and section 15 of the Government Proceedings Act, Cap 5, concluding that while section 28 exempts TRA from paying tax on its own operations, section 29 applies the Government Proceedings Act to cost orders against TRA as if it were the Government, and section 15 of that Act requires that provisions on payment of interest and costs apply to Government as to private persons. Accordingly, although VAT is ordinarily borne by the service recipient (the Decree Holder, who paid VAT to its own counsel), the Decree Holder would not have incurred this VAT liability but for the Civil Appeal, and thus 18% VAT on the reduced instruction fee of 10 million was properly allowed as part of costs, with the excess taxed off. The hearing attendance fee (item 2) was reduced to Tshs. 60,000/=; the fee for drawing the bill of costs (item 4) was reduced to Tshs. 15,000/= per the Court of Appeal Rules scale; and items 3, 5, 6, 7 and 8 were taxed as prayed. The final taxed bill of costs was Tshs. 11,920,000/=, with the balance taxed off.
The ruling reaffirms the established principles governing taxation of instruction fees under paragraph 9(2) of the Third Schedule to the Tanzania Court of Appeal Rules, 2009 — namely that reasonableness is assessed by reference to the amount involved, the nature, importance and difficulty of the matter, the interests of the parties, and all relevant circumstances, as previously articulated in Joretu Ltd v Kigano & Associates, Haji Athumani Issa v Rwetama Matatu, and Hotel Traveltime Ltd v National Bank of Commerce. It reiterates the Court of Appeal's guiding principle (from East African Development Bank v Blueline Enterprises Ltd) that costs are meant to indemnify a successful litigant for reasonably incurred expenses rather than serve as a penalty, cautioning against excessive instruction fee claims for matters of ordinary statutory interpretation. The ruling also clarifies the interaction between the tax-exemption provisions for the Tanzania Revenue Authority under sections 28 and 29 of the Tanzania Revenue Authority Act, Cap 399, and section 15 of the Government Proceedings Act, Cap 5, establishing that although TRA is exempt from paying taxes on its own operations, it is not thereby shielded from bearing VAT as a cost component when ordered to pay costs to a successful party, since costs orders against TRA are to be treated as if made against the Government under the applicable statutory framework.
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