Criminal Appeal No. 211 of 2020
Serengeti Breweries Ltd was VAT-registered and underwent a TRA tax audit for the 2014 and 2015 years of income. The audit revealed a discrepancy between sales recorded through Electronic Fiscal Devices (EFDs) and the VAT returns filed by the company. TRA assessed additional VAT amounting to approximately TZS 5.474 billion.
Serengeti disputed the assessment. It argued that the difference arose from its trade incentive/marketing arrangements with distributors, under which it issued credit notes. According to Serengeti, those incentives effectively reduced the value of its taxable supplies and therefore the VAT payable.
The Tax Revenue Appeals Board initially found in favour of Serengeti. TRA appealed to the Tax Revenue Appeals Tribunal, which reversed the Board and upheld the VAT assessment. Serengeti then appealed to the Court of Appeal.
The principal issues were:
Whether the credit notes issued by Serengeti in connection with distributor incentives legally reduced the value of the taxable supplies for VAT purposes under Regulation 11 of the VAT (General) Regulations, 1998.
Whether the VAT assessment raised by TRA for 2014 and 2015 was legally sustainable.
Whether the Court of Appeal could reconsider factual findings and re-evaluate evidence relating to Serengeti's distribution and incentive arrangements, given that section 25(2) of the Tax Revenue Appeals Act restricts appeals to the Court of Appeal to questions of law.
The Court of Appeal dismissed the appeal with costs.
The Court held that the credit notes issued by Serengeti did not have the legal effect of reducing the value of the relevant taxable supplies for VAT purposes. Consequently, Serengeti could not use those credit notes to reduce its VAT liability.
The Court therefore upheld the Tribunal's position that TRA was justified in assessing the difference between the VAT reflected in the sales records and the VAT declared in the company's returns.
Importantly, the Court also gave a significant interpretation of section 25(2) of the Tax Revenue Appeals Act. It stressed that an appeal from the Tribunal to the Court of Appeal lies only on questions of law, not ordinary complaints concerning the evaluation or sufficiency of evidence.
The Court explained that a question of law may include:
interpretation of the Constitution, legislation or relevant legal doctrines;
whether the Tribunal properly applied a legal provision or doctrine to the evidence; and
in appropriate circumstances, a decision resulting from a complete failure to consider evidence or a complete misconception of evidence producing a clear failure of justice.
But a ground which merely asks the Court to re-open factual matters or re-evaluate evidence is not a question of law and falls outside the Court's jurisdiction.
The case is particularly important for two reasons.
First, on VAT: a taxpayer cannot simply characterise commercial incentives or credit notes as reductions in the value of supplies and thereby reduce VAT. The substance and legal effect of the transaction must satisfy the applicable VAT requirements. In this case, the Court found that the credit notes did not extinguish or reduce Serengeti's VAT obligation.
Second, and perhaps more importantly, on appellate jurisdiction: Serengeti Breweries is now an important authority on the boundary between a question of law and a question of fact in tax appeals. The Court made it clear that the Court of Appeal is not a further fact-finding forum in tax disputes. Factual and evidentiary disputes should ordinarily be resolved at the Board and Tribunal levels.
The principle has subsequently been relied upon by the Court of Appeal in later tax cases, including Tanzania Breweries Public Limited Company v Commissioner General, TRA, where the Court again referred to Serengeti Breweries for the proposition that factual complaints cannot ordinarily be entertained under the statutory limitation on tax appeals.
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