Civil Reference No. 7 of 2004
The appellant, Panafrican Energy Tanzania Limited, is a registered Tanzanian company engaged in production and marketing of natural gas from the Songo Songo gas fields under a Production Sharing Agreement (2001) with the Government, TPDC, and the appellant. It operated Songas Limited's gas processing plant under an Operatorship Agreement, under which it procured equipment, materials and services in its own name and transferred them to Songas at cost, receiving reimbursement. In 2013 the respondent (TRA) audited the appellant's accounts for 2008-2012 and issued Assessment No. VAT 312 for additional VAT of TZS 12,263,250,914 (principal TZS 6,012,588,034 plus interest TZS 6,250,662,880), citing over-claimed input tax and unaccounted VAT on imported services under the Operatorship Agreement. The appellant objected, arguing entitlement to input tax credits, wrongful assessment of output tax without corresponding input deduction, and that the procured items were not taxable supplies. After correspondence, the TRA maintained its assessment. The appellant's challenges before the Tax Revenue Appeals Board and then the Tax Revenue Appeals Tribunal were both unsuccessful, the Tribunal upholding the Board's decision. The appellant appealed to the Court of Appeal on four grounds concerning whether the Operatorship arrangement constituted a taxable supply, whether output VAT could be imposed without corresponding input tax on imported services, whether voluntary correction of errors should have been recognized, and whether interest on the disputed VAT was properly imposed.
(1) Whether the arrangement between the appellant and Songas Limited under the Operatorship Agreement constituted a 'taxable supply' for VAT purposes under section 5(1) of the Value Added Tax Act, 1997. (2) Whether the respondent was justified in imposing output VAT on imported services without allowing a corresponding input tax deduction. (3) Whether the appellant's correction of errors regarding VAT on imported services was 'voluntary' under Regulation 4 of the Value Added Tax (Correction of Errors) Regulations, 2000, thereby exempting it from interest liability. (4) Whether the respondent was justified in imposing interest on the disputed VAT amounts. A threshold procedural issue was whether certain grounds raised purely factual matters barred from consideration under section 25(2) of the Tax Revenue Appeals Act, which limits appeals to the Court of Appeal to questions of law only.
The appellant, through Dr. Mwiburi, argued that the reimbursement arrangement with Songas did not constitute a taxable supply because the appellant merely acted as an agent procuring goods on behalf of Songas at cost, without any value addition or markup, and without issuing tax invoices as required for taxable supplies; he relied on the English case Institute of Chartered Accountants in England and Wales v Customs and Excise Commissioners and academic commentary, and sought to distinguish the Court's own precedent in Geita Gold Mining Ltd (where a tax invoice was issued) to argue no taxable supply arose absent an invoice. On the correction of errors, he conceded the appellant had omitted to account for VAT on imported services but claimed the subsequent correction, made four days after the TRA's audit notice, was voluntary since the notice did not amount to 'physical contact' under Regulation 4(2), and that the respondent wrongly failed to credit corresponding input tax against the output tax assessed. He further argued interest could not be imposed on a non-existent tax liability. The respondent, through Ms. Achimpota, contended the appellant was an independent taxable person who procured goods in its own name, making the transaction a taxable supply under section 5(1) and section 59(3) of the Act, regardless of absence of a markup; she argued the question of furtherance of business was a factual matter barred by section 25(2) of the TRAA. She distinguished the Institute of Chartered Accountants case as based on different statutory provisions, and argued that under section 29(1) of the Act the appellant was itself legally obligated to issue a tax invoice, so its own failure to do so could not negate the existence of a taxable supply, thereby also distinguishing Geita Gold Mining Ltd. On corrections, she argued the TRA's audit notice constituted sufficient 'contact' under Regulation 4(2), rendering the correction involuntary and interest properly due, and relied on Mbeya Cement Company Limited regarding the time-barred nature of input tax claims on imported services. She also argued the interest computation ground raised a factual matter outside the Court's jurisdiction under section 25(2) of the TRAA.
The Court of Appeal dismissed the appeal and upheld the concurrent decisions of the Board and the Tribunal. It held, first, that under section 25(2) of the Tax Revenue Appeals Act, appeals to the Court of Appeal lie only on questions of law, and therefore declined to consider the factual questions of whether the transaction was made in furtherance of the appellant's business and whether interest was computed on a wrong principal amount, as these had already been properly determined below. On the substantive issues, the Court held that the transaction between the appellant and Songas under the Operatorship Agreement constituted a taxable supply under section 5(1) of the VAT Act, because the appellant, a registered taxable person, procured the equipment and materials in its own name in the course of its business and transferred them to Songas, making it an independent agent rather than a mere agent acting on behalf of a principal. The Court further held that under section 29(1) of the Act the appellant was itself legally obligated to issue a tax invoice for the transaction, and could not rely on its own failure to do so (an illegality) to escape VAT liability; it distinguished Geita Gold Mining Ltd and found the English authority relied upon inapplicable due to differing statutory provisions. On the correction-of-errors grounds, the Court held that the TRA's written audit notice constituted sufficient 'contact' under Regulation 4(2) of the VAT (Correction of Errors) Regulations, 2000, so the appellant's subsequent correction (made four days after the notice) was not voluntary and was properly liable to interest; it also noted the statutory time-bar on claiming input tax on imported services and endorsed the Tribunal's reliance on Mbeya Cement Company Limited. Consequently, the fourth ground regarding imposition of interest also failed, as there was a valid underlying tax liability.
The judgment reaffirms the statutory limitation under section 25(2) of the Tax Revenue Appeals Act confining Court of Appeal review of Tribunal decisions to questions of law, precluding re-litigation of factual findings. Substantively, it clarifies that a taxable supply under section 5(1) of the VAT Act arises whenever a registered taxable person supplies goods or services in its own name in the course of its business, irrespective of whether it acts under an agency-type arrangement or without a profit markup, and that the taxpayer's own failure to issue a mandatory tax invoice under section 29(1) cannot be used to negate liability for VAT on that supply—distinguishing the earlier decision in Geita Gold Mining Ltd on its facts. It also clarifies that a written notice of tax audit constitutes sufficient 'contact' under Regulation 4(2) of the VAT (Correction of Errors) Regulations, 2000, disqualifying subsequent error corrections from being treated as 'voluntary' for purposes of interest exemption, reinforcing the Court's earlier reasoning in Mbeya Cement Company Limited regarding time-bound input tax claims on imported services.
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