Misc Application No. 77 of 2022
Scania Tanzania Ltd (Plaintiff) sold a Scania truck and trailer to Afro Star (T) Limited (1st Defendant) on credit, with 70% of the purchase price financed by Stanbic Bank. Max Kirita Minja (2nd Defendant), Managing Director of Afro Star, executed a Promissory Note for USD 38,319.50 in favour of the Plaintiff, and Afro Star issued a post-dated cheque for the same amount, which payment was later stopped. The Plaintiff sued jointly and severally for USD 37,289.06, alleged to be the unpaid 30% balance of the purchase price, plus interest and costs. The Defendants denied the claim and filed a counter-claim/set-off, alleging that the Plaintiff had issued an invoice including VAT (USD 35,600) which Stanbic Bank paid on the Defendants' behalf, that the Defendants were VAT-exempt as approved investors, that the Plaintiff cleared the truck through customs without paying VAT, and that the Plaintiff wrongly appropriated the VAT sum instead of remitting it, leaving the Defendants obligated to repay the Bank. The Defendants sought recovery of the USD 35,600 plus 30% interest.
(1) Whether the Defendants were indebted to the Plaintiff for USD 37,289.06 as unpaid purchase price. (2) Whether the purchase price of the Scania truck and trailer was inclusive of USD 35,600 as VAT. (3) If so, whether the Defendants were entitled to recover the USD 35,600 VAT amount from the Plaintiff. (4) What reliefs the parties were entitled to.
The Plaintiff, through Mr. Kimwaga, argued that under the Promissory Note (Exhibit P1) and Post Dated Cheque (Exhibit P2), the Defendants remained jointly indebted for the unpaid 30% (USD 37,289.06) of the purchase price, the Bank having paid only 70%. On VAT, the Plaintiff argued that although the Defendants were tax-exempt investors, Stanbic Bank refused to finance the purchase unless VAT was included because TRA would not permit joint registration where an exemption existed; the Defendants therefore forwent the exemption in exchange for financing and were estopped under section 123 of the Evidence Act from later denying liability for the VAT-inclusive price reflected in Tax Invoice No. 170074 (Exhibit P3). The Defendants, through Mr. Ludovick, argued that per a letter dated 19 December 2007 from the Plaintiff to Stanbic Bank (Exhibit D1) and a receipt (Exhibit D1 collectively), the Defendants had fully paid their portion of the purchase price and the balance was to be settled by the Bank, so nothing remained outstanding. On VAT, the Defendants argued that the truck was imported and registered free of tax (per Customs Declaration Form, Exhibit D2) as they were tax-exempt, yet the Plaintiff issued an invoice including VAT which the Bank paid and recovered from the Defendants; the Plaintiff should reclaim any VAT mistakenly paid from TRA, and the Defendants were entitled to recover the USD 35,600 they had effectively borne, citing section 10 of the VAT Act and sections 6 and 10 of the Motor Vehicles (Tax on Registration and Transfer) Act.
The Court held: (1) On the first issue, the Defendants were not indebted to the Plaintiff for USD 37,289.06, since Exhibit D1 (the letter and receipt) established that the Defendants had fully paid their share and the remaining balance was payable by Stanbic Bank. (2) On the second issue, the purchase price paid by the Bank to the Plaintiff was VAT-inclusive to the tune of USD 35,600, as shown by the Tax Invoice (Exhibit P3) and admitted by Plaintiff's counsel that the Bank paid 70% including VAT, notwithstanding that the truck had in fact been imported free of tax (per Exhibit D2 and PW2's testimony that a tax-exempt entity cannot be required to pay tax absent a waiver). (3) On the third issue, since the Tax Invoice including VAT was mistakenly issued despite the tax-free importation, and the Bank recovered this VAT-inclusive price from the Defendants, the Defendants were entitled to recover the USD 35,600 mistakenly charged as VAT from the Plaintiff. (4) On reliefs, the Plaintiff's suit was dismissed with costs for failure to prove its case on the balance of probabilities; the Defendants' counter-claim succeeded, entitling them to USD 35,600 plus costs of the counter-claim. However, the claim for 30% (39% as stated) interest on the decretal sum was refused because the Defendants failed to establish any loss suffered from the mistaken VAT payment or any basis for that interest rate, and no post-judgment interest was claimed or awarded.
The judgment illustrates the evidentiary burden on a plaintiff relying on a promissory note and post-dated cheque to prove non-payment, which can be defeated by documentary proof (letters and receipts) showing the debt was discharged. It also clarifies that a party enjoying a statutory tax exemption cannot be compelled to bear VAT merely because a financing arrangement's invoice mistakenly included it, and that money mistakenly paid as tax which was passed through to a purchaser via a lender can be recovered by way of counter-claim/set-off. The case further underscores that a party seeking interest on a decretal sum must specifically establish the loss suffered and the basis for the claimed interest rate, absent which the court will decline to award it, even where the principal claim succeeds.
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