Addax Tanzania Limited vs Attorney General and Others (Misc. Civil Cause No. 46 of 1999) [2000] TZHC 598 (27 October 2000)

( ( 1 SIN THE HIGH COURT OF TANZANIA (DAR ES SALAAM MAIN REGISTRY) AT DAR ES SALAAM MISC. CIVIL CAUSE NO.46 OF 1999 ~ ·IN THE MATTER OF AN APPLICATION BY ADDAX TANZANIA LIMITED FOR LEA VE TO APPLY FOR THE ORDERS OF CERTIORARI, MANDAMUS AND PROHIBITION AND IN THE MATTER OF SECTION 13C OF THE INCOME TAX ACT BETWEEN ADDAX TANZANIA LIMITED ........ APPLICANT AND THE ATTORNEY GENERAL................. ) RESPONDENTS THE PRINCIPAL SECRETARY-MINISTRY OF) ENERGY & MINERALS ) TANZANIA ELECTRICITY SUPPLIES ) COMPANY LTD ) 7l-..(l: CoM1s£10K &f l~'C-D'4e'TA)C RULING . MSUMI,JK: This is an application for orders of certiorari, mandamus and prohibition. Essentially the applicant is challenging the decision of the fourth respondent the

.. ) ( \ 2 Commissioner for Income Tax of levying windfall tax on the amount of fuel type Jet-Al which was imported by the applicant during the material time. Specifically the applicant is complaining against the acts of fourth respondent of issuing him with 24 hour notice demanding payment of the assessed tax and of withdrawing from its bank account shs.65,599,196/06 as part recovery of the said tax. The total assessed amount of windfall tax demanded by the fourth respondent is shs. 3,483,933,877/=. The following are the short background facts which culminated to this case. In October 1995 the Tanzania Electric Supplies Company Ltd (TANESCO) in conjunction with the Ministry of Energy and Minerals represented by the second respondent invited bids from oil companies for supply of the aforementioned type of fuel for running Ubungo thermal power station. The applicant won the tender and subsequently entered into agreement with the third respondent. Among other terms the contract stipulated that third respondent was to secure from the proper authorities remission of all taxes on the said fuel. It was further agreed that the said fuel was to be sourced offshore and excluded from local pricing system. After the applicant had supplied the fuel, on 15/3/99 the fourth respondent issued him with two notices demanding shs. 3,483,933,877/= as windfall tax on the supplied amount of fuel. Dissatisfied with the assessment, applicant filed an objection. However, without considering the objection, fourth respondent took

_) ( ) 3 measures for recovery of the tax by withdrawing from the applicant's bank account shs.65,399,196/06 and threatened to take fμrther actions on applicant's property. Advocating for the applicant Mr Isn1ail submitted four grounds in support of the application. First since Jet - Al fuel is not included in the pricing system maintained by the second respondent, it is not subject to windfall tax as defined under section 13C of the Income Tax Act 1973. Secondly the imposition of the tax in dispute contravenes Article 4 of the Memorandum of Understanding whereby second respondent, through the Ministry of Finance, had indicated to the applicant that the fuel would be imported free of duty. Thirdly even if the tax was due and payable, the notices of assessments dated 15/3/99 requiring the applicant to pay the said tax on the following day, that is 16/3/99, were unlawful as they are contrary to the requirements of section 99(2) of the Act which provides for a mandatory minimum of 30 days for such notices. Fourthly, upon filing the objection, the fourth defendant was duty bound to hear and determine the objection in accordance with section 92 of the Act and this would have led the applicant, in case it was dissatisfied with the decision, to appeal to the Tax Appeal Board and later on to the Tax Appeals Tribunal in accordance with section 93(1) and 93(2) of the Act. To the contrary the fourth respondent has not detem1ined the applicant's complaint against the assessments to date.

( ) 4 In reply, counsel for the fourth respondent made the following submission. First he is subn1itting that as fuel importer applicant is required under section l 3C(l) of the Act to pay fuel taxes including the windfall tax. Secondly in the · absence of exemption order signed by the Minister of Finance, the alleged Article 4 of Memorandum of Understanding cannot be relied on as legal authority allowing the applicant to import the fuel free of duty. Thirdly, as regards the 24 hours notice for payment of the assessed tax, the learned counsel argued that the provision of section 99(2) of the Act does not apply in a situation, as it is in the present case, whereby the tax recovery measures are for arrears due for a number of years. As noted earlier, counsel for the applicant is submitting that the amount of JET-Al fuel imported during the material time is not subject to payment of windfall tax. Under section 13(1) and 13(2) of the Act, windfall tax is defined as: 13(1) in relation to petroleum and petroleum products means the profit accruing as a result of the fall in the world market prices on which the domestic price are pegged on the effective date as set out in paragraph 2 of this section. (2) with effect from the tenth day of September 1990, there shall be charged, levied or collected in respect of petroleum and petroleum products imported and sold by a dealer, a windfall I I

\ ) 5 tax amounting to one hundred percentum of the windfall tax. It is an undisputed fact that domestic prices of petroleum are fixed by Tanzania Petroleum Development Corporation (TPDC) and that such prices are pegged on the world market falls and thereby resulting to realisation of windfall profit. As general direction on the domestic petroleum market, TPDC periodically issues don1estic price list for different types of petroleum and petroleum products. It is essentially on the basis of domestic prices issued in these price lists that the fourth respondent can determine the appropriate tax, including windfall tax, on each particular type of petroleum and petroleum products. From the pleadings and submission of the counsel for the applicant it is evident that JET-Al fuel is not in the· lists of domestic prices issued by TPDC. This omission appears to be deliberate as revealed in the relevant letters from TPDC and second respondents. Thus in his letter to the fourth respondent dated 29/3/99 availed to court as annexture C to applicant's affidavit, second respondent partly says: You may also wish to la1ow that M/S Addax (T) Ltd were authorised to source the supply from outside (offshore) and to that extent the costing was devoid of the local petroleun1 pricing which is the basis for establishing windfall profit tax. In other words TANESCO were being billed on the basis of CIF, plus margin and not in accordance to the pricing

) ) 6 framework obtained in the sale of local products. fourth respondent tried to controvert this assertion through the counter affidavit of one Patrick Nyalando Kasera by arguing that the type of fuel in dispute was included in the price list issued by TPDC. In reply to this argument TPDC wrote a letter dated 23/9/99 in which it said: This is to confirm that list of fuel and prices attached to the counter affidavit of Kasera does not cover the type of JET-Al fuel you (Addax) supplied to TANESCO as it is of a different quality and was not imported by TPDC nor processed at Tipper Refinery during the period in question and hence not included in the said list and could not therefore be sold at the domestic price of the Jet-Al fuel in the price list which was ,pegged to reference world market price which would attract windfall profit. It is quite clear that in imposing the tax in dispute, fourth defendant acted under the mistaken belief that fuel JET-Al was included in the price list issued by TPDC. Since this belief has been proved wrong fourth defendant had no statutory basis specifically provided under section 13(1) of the Act to assess the tax in

) 7 dispute. There was no domestic market price pegged on world market on the basis of which windfall tax could be levied. This means that the disputed assessment of windfall tax was arbitrary hence illegal. The second ground in support of the application is not legally sustainable. The alleged Memorandum of Understanding has no legal authority to exempt the applicant to pay statutorily imposed tax. The power to exempt payment of tax is vested in the Minister of Finance who can do so by an order published in a Government Notice. This power cannot be assumed by any other authority. Hence the said Memorandum of Understanding does not relieve the applicant to pay the tax imposed according to law. According to the notice of assessment, fourth respondent required the applicant to pay the assessed tax within 24 hours. With respect this is wrong. The notice contravened the provision of section 99(2) of the Act which says: Where the tax charged in any assessment, other than a provisional assessment, shall be payable within thirty days from the date of service of notice of such assessment: Provided that where any person is assessed under section 79(2)(b) or 79(3) or 83 after the expiry of the aforesaid specified due date or the. due date

) '· J 8 ' specified in subsection (IA) of this section, the due date upon such assessment shall be the date on which the service of such assessment is deemed to have been effected under subsection (3) of section 135 of this Act. In the present case, the notice should have required the applicant to pay the assessed tax within thirty days. Any recovery measures should be effected after such period and not before as it happened in this case. For this reason, both the notice and the seizing of shs.65,599,196/06 from the applicant's bank account are illegal. The third ground of the application is therefore sustained. As for the fourth ground, Section 92(1) of the Act says: 92(1) On any objection under this Part, it shall be lawful for the Commissioner to hear or receive any evidence relevant tot he assessment and the Commissioner may - (a) amend the assessment m accordance with objection; or (b) an1end the assessment in light of the objection and any further evidence, according to the best of his judgment; or

) 9 © refuse to amend the assessment. In case an objector is dissatisfied with a decision of the Commissioner section 93 of the Act provides avenue for appeal to Appeal Board. After receiving assessment in this case, applicant filed notice of objection in accordance with section 91 (4) of the Act. This notice complied with the requirements of the law including being filed within thirty days from the date of notice of assessment. However, to date the Commissioner has not considered and detem1ined the objection. Instead without regard to the said objection, the Commissioner seized shs.65,599,196/06 from the applicant's bank account as part recovery of the disputed assessed windfall tax of shs.3,483,933,877/=. It is obvious that commissioner's acts are legally objectionable. The failure to determine the objection has rendered the applicant's right to appeal to the Appeal Board against the assessment nugatory. Except for the contention that the Memorandum of Understanding exempted the applicant from payment of tax on the imported fuel, the rest of the grounds in support of the application are sustained. It is the finding of this court that in so far as there is no domestic market price for the type of fuel in dispute, there is no basis as provided under section 13(1) of the Act on which windfall tax could be assessed. It is also the finding of this court that the Commissioner acted contrary to section 99(2) of the Act when he issued the assessment notice requiring the

applicant to pay the assessed amount of tax within twenty four hours. Such notice ought to have required the applicant to pay the -tax \Vithin thirty days. Lastly the court makes a finding that the Commissioner acted ultravires when he instituted measures for recO\·ery of the lax without first determining the objection notice of the applicant. Consequent to these findings, the notices of ,vindfa11 tax are declared to be illegal hence quashed. Furthem1ore, fourth respondent is prohibited from imposing or charging the tax except in accordance with appropriate provisions of the lncorne Tax Act. As a whole the application succeeds \Vith costs. JAJI KIONGOZI. 27.10.2000 For the Applicant: Ismail For 1st and 2nd Respondent: Werema For 4th Respondent: Songoro ...