High Court held Exceptional Input Tax Claims are made when GST Forms are submitted

Recently, the High Court held in a judicial review application in relation to an Exceptional Input Tax Claim (“Claim”) made under the Goods and Service Tax Regulations 2014 (“Regulations”) and Goods and Services Tax Act (“Act”) that an Exceptional Input Tax Claim which requires the Director General of Excise and Customs’ (“DGEC”) approval is deemed to be made when the GST Return Form is submitted. The DGEC had rejected the Taxpayer’s Claim by reason that the Claim was time-barred due to enactment of the Goods and Services Tax Repeal Act 2018 (“Repeal Act”).

The Repeal Act mandated all Goods and Services Tax (“GST”) input tax claims to be made before 29 December 2018 (“Prescribed Date”). However, the DGEC failed to appreciate that the Taxpayer was at all times acting in according with instructions directed from the DGEC and the Claim was made within time when the Taxpayer submitted its GST Return Form in September 2019 i.e. before the Prescribed Date.

Upon hearing the respective parties’ submissions, the High Court ordered that the Taxpayer’s Claim be allowed.

Background facts

The Taxpayer is in the business of property development. In 2017, the Taxpayer had purchased a piece of land for RM 91 million wherein RM 5 million was incurred as GST. In July 2018, the Taxpayer sold the land and, as required by the Act, registered to be a GST-registered person.

The Taxpayer proceeded to make the Claim under Regulation 46 of the Regulations. Regulation 46 allows a taxpayer to make an input tax claim in relation to GST incurred before a taxpayer was a GST-registered person. However, such claim would require the pre-approval of the DGEC. Accordingly, the Taxpayer made an application to obtain approval in July 2018.

The Repeal Act came into force on 1.9.2018 which, amongst others, mandated all unclaimed input tax claims to be made before 29.12.2018 (“Prescribed Date”). At the behest of the DGEC, the Taxpayer made its first and only GST return in September 2018 without stating the Claim.

Approval by the DGEC was finally given in March 2019. The Taxpayer then made the Claim vide an Amended GST return (“Amended Return”) as instructed by the DGEC. However, the DGEC subsequently rejected the Taxpayer’s Claim on grounds that the Claim was time-barred as it was made after the Prescribed Date and that the Amended GST return does not fulfill the conditions of Regulation 46 i.e. an Amended Return was not the first return as required under Regulation 46.

Aggrieved by the DGEC’s rejection, the Taxpayer filed this judicial review to seek relief.

Decision of the High Court

The Taxpayer’s main thrust of argument is that the Claim was protected under the Interpretations Act 1967 and 1948 and Regulation 4 of the Regulations. It was submitted that when the Taxpayer had made an application to make the Claim and submitted the GST Return before the Prescribed Date, the Taxpayer had an accrued right which is well protected under statutes and seminal case laws. In the premise, the DGEC ought to be precluded from hiding behind the veil of the Repeal Act to exculpate itself of liability.

Furthermore, in absence of clear and unambiguous language, laws are presumed to be interpreted prospectively and not retrospectively. Reliance was made on the case of La Salle Brothers v Ketua Pengarah Hasil Dalam Negeri [2018] 1 MLJ 376 where the court held:

But the amendment Act A471 did not also expressly provide that Part I of the Interpretation Acts 1948 and 1967 (Act 388) which includes the said s 30 of the Act shall not apply… As there is a doubt the ambiguity must be construed in favour of the tax payer as the said exemption from tax has not been removed by sufficiently clear words to achieve that purpose.

Since there were no words to exclude, extinguish or affect claims which were made pending the DGEC’s approval, such claims ought to be considered as “accrued rights” established when the taxpayers made the GST Return Form. Insofar as the Taxpayer recognised it’s rights and pursued it within time, it ought not be prejudiced by the delay DGEC’s approval.

Secondly, it was also evident from contemporaneous correspondences that the Taxpayer was acting strictly according to the DGEC directions in that the Taxpayer ought not to state the Claim in the GST Return unless and until approval was obtained. It is then irrational and unreasonable for the DGEC to reject the Amended Return which was made after approval was given.

Furthermore, the DGEC had represented to the Taxpayer that the raison d’être of the Claim is that DGEC’s approval was necessary. The blithered fixation on the Prescribed Date without taking into consideration the DGEC’s own representations had therefore violated the Taxpayer’s legitimate expectation when rejecting the Taxpayer’s Claim after approval was granted. Legitimate expectation had been recognised by the Malaysian Courts to be a right protected under the law as held in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor Dengan Tanggungan:

“Given the duty of a public body not to fetter its discretion under what circumstances will a legitimate expectation be protected in the face of a change in policy. Clearly, the change of policy must be ‘a lawful exercise of discretion”

The High Court agreed with the Taxpayer and ordered the DGEC to allow the Claim.

Comments

This case affirms the cardinal principle that statutes are presumed to be interpreted prospectively and does not affect anything act done and rights accrued before the implementation of any repeal or amendment.

Furthermore, this decision would hold tax authorities responsible for their own words to maintain public confidence in the government. Instructions ordered by tax authorities of its own volution would now be prevented from canvassing arguments to the opposite effect.