Tuesday, 23 July 2013

The Director General, Mauritius Revenue Authority v Paradis Brabant Hotel

[2013] UKPC  Case Ref. 24
Privy Council Appeal No 0090 of 2012


The Director General, Mauritius Revenue
Authority (Appellant)


Paradis Brabant Hotel

From the Supreme Court of Mauritius


Lord Neuberger
Lord Wilson
Lord Carnwath
Lord Toulson
Sir Paul Girvan



23 July 2013

Heard on 11 June 2013

Philip Baker QC
Karuna Gunesh-Balaghee
Laurent Sykes & Associates)
(Instructed by Carrington

P. Maxime Sauzier SC
Michael King Fat
(Instructed by Blake Lapthorn)

1.         This is an appeal brought by the Mauritius Revenue Authority (“the MRA”) against an order of the Mauritius Supreme Court dismissing the MRA’s appeal against the decision of the Assessment Review Committee (“the Committee”). 
2.         The issue before th e Committee concerned the appr opriate rate of Hotel and Restaurant Tax (“HRT”) applicable to taxable receipts in respect of supplies made by each of the fifteen or sixteen respondent    s, in connection with          its hotel and/or restaurant business.
3.         The respondents contended that the rate should be that prevailing at the date on which a respondent r eceived payment of a sum in resp            ect of a particular supply, whereas, the MRA contended that it should be the rate prevailing at the date on which the supply was actually m ade. The C ommittee agreed with t he respondents and t hat decision was upheld by the Supreme Court (Matadeen and Angoh JJ) on appeal.
4.         The difference between the parties can be demonstrated through the example of a hotel booking for 1 September 1998, offered by a respondent to a customer on 1 July 1998 for a particular sum, which the customer accepted on 1 August 1998, although it  actually paid the sum on 1 October 1998. In such a case, the respondents contend, and the Committee accepted, that the relevant date for assessing the rate of tax on the sum in question should be 1 October 1998, when the customer pays –i.e. the date on which the sum is received. The MRA’s case is that the relevant date sh ould be 1 September 1998, when the contract was m ade, and the commitment was given to the customer –  i.e. when the service was supplied and the respondent became entitled to payment.
5.         The issue is one of statut   ory c onstruction, so it is   appropriate to start by  referring to the two relevant statutes.
The Hotel and Restaurant Tax Act 1986

6.         HRT was introduce d by the H otel and Restaurant Tax Act 1986 (“the 1986 Act”).
7.         Section 3 of that Act was headed “Liability to tax”, and it provided:


“(1) The manager of every designated establishment shall be liable to a tax on the taxable receipts of that establishment.
(2)       The tax shall be calculated at the rate sp ecified in the Third    Schedule.
(3)       The liability to         tax shall accrue da  ily but shall be discharged monthly.
(4)       The manager may recover from customers the tax payable on the taxable receipts.”

8.         A “designated establishment” , referred to in section 3( 1), was defined in the First Schedule to the 1986 Ac t as comprising any restaurant, hotel or similar concern. “Taxable receipts”, referred to in section 3(         1) and (4), were defi ned in section 2 as  meaning “the gross receipts … arising fr            om the suppl y of [specified] g oods an d services”, subject to an irre levant exception. (The B oard was told that this definition was subsequently amended, and that, while the contention was that the amendment be withdrawn, this did not happ en; it was agreed be tween the parties that the definition should be treated as always ha ving been in its original form.) The Third Schedule to the 1986 Act, mentioned in section 3(2), simply stated “Rate of Tax: 10%”.
9.         Section 5 required every designated establishment to issue, and keep copies, in sequential order, of “a serially numbered bill in respect of every receipt”. Section 6 stated that such an estab lishment should  ke ep “a full and true written record … of  every trans action”, and to do so for at             least “6 years after the completion of the transaction to which it relates”.
10.      Section 7(1) of the 1986 Act re quired every designated establishm ent, on or before the end of each month, (a) to submit a monthly return “specifying the taxable receipts of the establishment” for the prev ious month, and (b) “to pay the tax due”. The form of the return is, according to section 7(2), to be approved by the MRA.
11.      Section 11 was concerned with “cessati on of busine ss” and it provides as follows:
“(1) … [W]here the manager of   a designated establishment ceases to carry on business … , he shall … (b) not later than the last day of the m           onth followi ng  the m onth i n which he ceased to carry on       business, submit … (ii) in respect of the last m onth in which he carried on business, a return which shall include any am           ount owi ng  to the establishment as taxable r   eceipts at the date of the cessation  of business … and pay the tax specified therein.


(2) Where the m anager of a designated establishm ent, who ceases to carry on bus iness at that establishment, sells … the busine ss together with the am ount owi ng t o the establishment as taxable r eceipts at the date of the cessation of business, he shall not pay tax on those taxable receipts but the purchaser or transferee shall be liable to  pay the tax on those taxable receipts …”.

The Finance Act 1998

12.      In May 1996, the Minister announced that the rate of HRT was to be increased to 15% from 1 June 1996, but this increase was abandoned, although there was a week from 1 J une 1996 duri ng which an increase took effect. It is          agreed between the parties that nothing hangs on that for present purposes, and that the issue in this case can be approached on the           basis that the rate of HRT remained at 10% until 6 September 1998. 
13.      With effect from      7 Septem      ber 19 98, V alue Adde d Ta x (“VA T”) was introduced into Mauritius by the Value Added Tax Act 19 98. The intention was that VAT would replace HRT (as well as Sales Tax).  Accordingl y, the Finance Act 1998 (“the 1998 Act”), as well as including a num ber of other unrelated measures, phased out HRT by means of a stepped decrease. 
14.      Section 3 of the 1998 Ac t amended the Third Schedule to the 1986 Act “with  effect from the different dates specified in section 24”:
“(a) by deleting the words ‘10 percent’ and replacing t hem by the words ‘4 percent’;
(b)       by deleting the words ‘4 percent’ and replacing them by the words ‘2 percent’; and
(c)       by deleting the words ‘2 percent’ and replacing them by the words ‘zero percent’.”

15.      Section 24 included the following relevant subsections:
“(3) Section 3(a) shall, in respect of taxable receipts arising on or  after 7 September 1998, come into force on 7 September 1998.
(4)       Section 3(b) shall, in respect of taxable receipts arising on or after 1 July 1999, come into force on 1 July 1999.
(5)       Section 3(c) shall come into force on 1 July 2000.”

The factual background
16.      The facts are within a very            small compass. In respect of the period after 6             September 1998, the responde nts account ed for, and pai     d ove r, HRT at the rate prevailing at the date on wh    ich they received payment            for any relevant goods or services.
17.      So far as a custom   er was c oncerned, it appears, at leas t from the evidence which the Board was shown, that the res pondents would often quote a f igure (e.g. per  item, such as a night in a room or a meal , or else an overall “package” figure) which was expressed “inclusive of Governm   ent tax as applicable” (or s ome similar expression). Thus, there was no breakdown or explanation to the customer as to what taxes were included, let alone at what rate any tax was being assum ed to be paya ble. (It is only fair to reco rd that, after the hearing, the B oard’s attention was dr awn to other evidence which showed that some of t he respondents did som etimes include a  specific sum in respect of HRT in the bills presented to customers).
The approach favoured by the Board

18.      It is clear from section 3( 1) of the 1986 Act that HRT was a tax on receipts: thus it was onl y payable on money actually received by a respond ent for a specified  good or service. It is equally clear from se ction 3(3) of the 1986 Act that the liability to tax only actually accrued on receipts. Although it doe s not follow as a matter of strict logical necessity that the tax to be ca lculated under section 3(2) of the 1986 Act must be also calculated by reference to the rate prevailing at the date of receipt, that is clearly the natural inference, at least in the absence of any indication to the contrary
19.      In other words, given that (i) receipt       of a sum is the necessary and s     ufficient condition for payment of HRT, ( ii) the amount of HRT (whateve r the rate) is to be assessed by reference to the s          um receive d, and (iii) the HRT accrues on the sum received from the date of receipt, it would be surprising, at least in the absence of any indication to the contrary, if the rate of HRT payable on the sum was not also assessed as at the date of its receipt.
20.      It was suggested on behalf of t he MRA that sections 5, 6 a nd 11 of t he 1986 Act tended to support the contrary view, na mely that the rate was to be assessed by reference to the moment of supply. The Board does not agree. 
21.      The notion that section 5 s upports the contrary view is based on t he point that the bill will precede the receipt , but that is of little assi stance. The bill may well not bear the same date as the date of supply, but even if it does, the fact that the bill has to be retained is scarcely much of an indicatio        n that the date of the bill is the date by    reference to which the rate of HRT is to be      assessed. After all , the issue of the bill does not give rise to liability, and it is by no means necessa rily the case that the sum specified in the bill would be the sum on which HRT is payable. The tax is payable on whatever sum, if any, is eventually received for the goods or services referred to in the bill.
22.      Section 6 is of no assistance, save that , by tying the 6-year retention period t o “completion”, it is consistent with the notio n that completion, ie payment of the su m due, is the crucial event. However, in the Board’s view, that is no more harmful to the MRA’s case than section 5 is helpful to it. 
23.      Section 11(1)(b)(ii) was a deeming provision which would accelerate liability  to pay HRT if a respondent’s business closed down. It is equally consistent with either interpretation. The e xpression “amounts ow ing ... as taxable receipts” is entirely       consistent with the notion that there is no ta x until there is an actu al receipt.  As for section 11(2), it simply transfer s liability for future HRT to a transferee of a business and it is also irrelevant for present purposes.
24.      The MRA’s contention that se ction 11(1)(b)(ii) is only consistent with the rate of HRT being fixed by reference to a date earlier than receipt is based on the point  that, if the respondents are correct, it would      be impossible to know w hat rate of tax would be appropriate when the provision applied. The answer to that is that the effect of the provision is that the rate is that which is appropriate for “taxable receipts at the date of the cessation  of business”. Quite apart from that , section 11(1)(b)(ii) is not a helpful guide as to the ba   sis on which HRT was norma        lly to be assessed, as it represented, on any view, a departure             from the norm al way in w hich H RT was  payable. That is because it gave rise to a liability for HRT on sums which might never be received, whereas it is common ground that HRT is only payable in respect of sums which are received. In any event, section 11(1)(b)(ii) was enacted at a time when there was no question of the rate of HRT being va ried, and it would ther efore be unsafe to look to it in connection with the issue raised on the present appeal. 
25.      Turning to the 1998 Act, sec tion 3 intr oduces a trio of changes in the rate of tax, but it gives no steer on the issue raised on this appeal. However, that means that it does nothing to undermine the natural implication that one would draw from section 3 of the 1986 Act, as explained in paras 18 and 19 above, namely that the rate of HRT is to be assessed as at the date it is charged.
26.      Section 24(3), (4) and (5) provide more assistance. They each state that a new rate, 4%, then 2%, then 0%, is to apply,   successively, “in respect of taxable receipts arising on or after” a certain specified da  te. The natural meanin g of t he expression “receipts arising” is sums which are being received, and the requirement that any such sum must arise on or after a certain date suggests that the sum must be received on or after that date, which is consistent with the respondents’ case.  
27.      That is admittedly a contextual reading, and one must inte rpret the words in  their context. A vital part of that context is , of course, the 1986 A ct, which sections 3 and 24 of the 1998 Act amend. Reference to the 1986 Act brings one back, in the first place, to section 3 of the 1986 Act, whose natural implica tion, as already mentioned, is that the rate of HRT is to be assessed as at the date of recei pt. Secondly, the words  “receipts arising” in sections 24(3), (4) and (5 ) of the 1998 Act link back to s ection 2  of the 1986 Act, in which “taxable receipts ” are defined as “gro ss receipts … arising from the supply of go        ods and s ervices”. It seems cl ear from that definition that “receipts arising” in the 1986 Act is a refe  rence to sums which are received. There must be a s trong presumption that the drafter of section 24 of  the 1998 Act intended  the expression to have the same meaning, a conclusion supported by the fact that it is the natural meaning of the words.
Contrary arguments

28.      Mr Baker QC, who presented the case of the MRA, argued that the conclusion that the rate of tax was to be assessed        as at the date of receipt was not correct essentially for four reasons.
29.      First, it w as said that the Committee’     s co nclusion would render the HRT        system impractical, because a respondent would not know what rate of tax to pass on to a customer, unless that rate was fixed as          at the date of the supply of the relevant service. While that point has some force, it is not very telling. HRT is not a tax which has to be charged by a supplie           r to a customer as part of the cost of the supply           involved. All that section 3(        4) of the 1986 Act di            d was to ent itle the supplier to  recover from the customer a sum equal to the HRT which the supplier had to pay. 
30.      That could have been achieved in more than one way. For instance, the contract with a customer could provide that the cu stomer would include the appropriate figure  for HRT at the time he made the payment.         More likely, the c ustomer could simply agree a gross figure, as he or she will     normally only be concer ned about the overall cost as opposed to worrying how it is made      up. It is quite rational for the Act to contemplate that a supplier would quote a gross figure, and would then take the risk of the HRT rate moving up or down between the date of contract and the date of receipt. Indeed, that appears to have been the practice of at least some of the respondents – see para 4 a bove. As Mr Sauzier S C, who appeared for the respondents, said, such an approach would be similar to a supplier taking the risk on moves in currency exchange rates – a particularly apt analogy given that      hotel rates in Maur itius appear to have been quoted in South African rand (at least to some customers).
31.      It is perhaps rather question- begging and pejorative to describe as a windfall any benefit that a respondent gains as a result of a reduction in HRT between the date on which a gross sum is quoted to a customer and the date on which the sum is paid.
Where a respondent quotes a gross price, he is taking the risk of HRT changes, on the  basis that he is offering a fixed price to a prospective customer, who would normally be free to propose different terms or to fi nd another hotel, and would simply decide whether the holida        y (or other     service)         was worth the fixed price.  Different considerations may well apply i n cases wher e a responde nt quoted a price and t hen added HRT at, say, 10% in the quotation or estimate, and the respondent subsequently paid tax at, say 6%. In such a case, the cu stomer may well have a claim for recovery of the difference between the HRT at 10% and the HRT at 6%, but that is not an issue which arises, or which should be determined, on this appeal.
32.      Secondly, it was said by the MRA that it would be unsatisfactory if a taxpayer could manipulate the rate of HRT by putting off a payment, which would be the effect of the tax being assessed by refe rence to the date of receipt. While not without some force, the Board does not cons ider this to be an impressi ve point. It is by no m eans unknown for a rate of tax to be under t he control of t he taxpayer, in circumstances where the rate is changed as at a particular            date.   In any even t, the date on which payment is received is not in the sole cont        rol of a supplier: it also depends on the customer and/or the customer’s agent.  Furthermore, a supplier is unlikely, at least in many cases, to be keen to put off the customer making payment. Quite apart from this, even on the MRA’s construction, a supplier could manipulate matters in a case where it was not entitled to payment until it tendered its invoice, by waiting until the rate had decreased before formally contracting for a supply.
33.      Thirdly, it was argued that the rate of     tax should remain co nstant throughout the course of a particular transaction, and therefore it should be fixed as at the date the transaction is entered into. In the Board’ s view, that argument mischaracterises the tax. HRT is not a tax on a transaction, but on a sum which is rece ived pursuant to a  transaction, and it does not arise until rece         ipt of that sum. There is therefore no question of the rate of tax appl    ying at an y time during the course of a transaction before the moment of payment.
34.      The MRA rightly placed no reliance on th         e fact that HR T was or m ay have been paid at 15% dur ing the week w hen it was incre ased as m entioned in para 12 above. Even if taxpayers adopte d a stance on that occasion whic h was inconsisten t with that which the respondents are taking in these proc eedings, that cannot affect the proper interpretation of the legislation.

35.      In all the circumstances, the Board concludes that the meaning and effect of the 1986 and 1998 Act on the po            int at issue are clear, a        nd that, while the practical arguments raised by the MRA are not wholly           without force, they fall far short of justifying a court de parting from the natural  meaning of section 3 of the 1986 Act, when read together wi th sections 3 and 24 of the 1998 Act, namely that the rate o f HRT applicable to a receipt is the rate prevailing as at the date of that receipt.
36.      The Board accordingly dismisses the appeal of the MRA against the decision of the Supreme Court, upholding the decision of the Committee.
37.      With respect, I consider that the Board should have allowed the appeal.
38.      There is no doubt that under section 3(1) of the 1986 Act HRT is payable on receipts: it is only when a sum is received that the liability is triggered.  But to say that receipt triggers liability is not to say that the liability which then arises is to pay at the rate of HRT prevailing on the date of receip t.   I discern no “logica l inference” to that effect. Upon sums received from 1986 to 6 September 1998 (apart from one week in 1996) HRT was, in the event, payable at the rate prevailing on the date of receipt; but in my view that occurred onl y because the rate which was preva iling on the date of  receipt (10%) happened to be the same as         that which had prevailed on the date of supply.
39.      The situation which obtained during th at one week, whic h began on 1 June 1996, provides a good test of the respondents’ contentions: for the rate then increased  from 10% to 15%.  The Comm ittee found that, since the re spondents did not receive payment of HRT from customers at the rate of 15% during that week, they had paid it at the rate of only 10% fo r the entire m onth of J une 1996.  Nevertheless it follows from their contentions that they were legally obliged to pay that extra 5% on all sums received during that week, even (extraor       dinary though it may seem) in re  spect of supplies made prior to it; and, equally, that they would ha ve been obliged to pay the excess in respect of supplies made prior to 7 September 1998 but  paid for afterwards, if, instead of going down, the rate had then again gone up.
40.      The definition of “taxable receipts” in section 2 of the 1986 Act m akes clear that they are receipts “arising from [a] supply”.  In my view this definition informs the proper construction of the crucial subsections (3) and (4)  of secti on 24 of the 1998 Act. By subsection (3), the reduction to 4% was applied to “taxable receipts arising on or after 7 September 1998” and, by subsection (4), the reduction to 2% was applied to “taxable receipts arising on or after 1 July 1999”.   The word “arising” in the two  subsections should in my view be given the meaning which it is given in the definition in section 2 of the 1986 Act: in other words receipts arise from a supply so it is only if the supply occurs on or afte r 7 September 1998 and 1 July 1999 respectively that the receipts arise on or after those dates respectively.   

41.      I find myself unable to agree with the re spondents that section 11(1)(b) (ii) of  the 1986 Act is equally consistent with the       contentions of each side.  Its w ording is interesting: the phrase “am            ount owing to           the establishm ent as taxable receipts”, replicated in subsection (2), shows that the word “receipts” in the Act must be handled with care and that, there at l east, it referred to sums which were to be received in the future as opposed to those wh ich had been received in th e past. More significant still was the effect of the provision: it was that        , save where he sold or transferred his           business in the circumstances set out in subs ection (2), the m anager of a designated establishment who ceased to carry on business had within one month to pay HRT on any amount owing to it as taxa ble receipts at the date of cessa    tion.  Ignorant, of course, as to the date when the am ount would be rece ived from the cust omer, how could he (on the respondents’ case) have computed the tax payable? The answer is, of course, tha t, instead, he ha    d to do s         o by reference to the date of supply.  The respondents may prefer to call it a special, deeming, s olution for a special situation; but it is more convincing to regard it as th e logical application to that situation of an Act which fixed the rate of tax by reference to the date of supply.
42.      That the tax should be paya          ble at the rate prevailing on the date of receipt, rather than on that of supp ly, seems to me to be scarce           ly workable for two related reasons.
43.      The first relates to the permission whic  h, by section 3( 4) of the 1986 A  ct, Parliament gave to t      he m anager of a de signated est ablishment to “recover from  customers the tax payable on the taxable recei pts”.  How in practice could he recover the proper sum from them if su ch was to depend on the date when they chos e to pay?  The respondents adm it that invoi ces to cu stomers for supplies made, for exam        ple, prior to 7 September 1998 included, whether expressly or otherwise, a charge to HRT at 10% and that, in respect of payments ag ainst such invoices as were received from customers thereafter (albeit prior to 1 July 1999), the respondents

(a)       paid HRT at 4% to the Commissioner of VAT;
(b)       failed to refund to th           e cust omers 60% ( or ind eed any part) of their payments referable to HRT; but, on the contrary,

(c)       kept the 60% and incl uded it in their ac counts as part of their turnover for the purposes of income tax.

The respondents accept th e description of the 60% as be ing a windfall, although (so they say) it was more than offset by the introduction on 7 September 1998 of VA T; but in my view the Act was not intende d to work in that way and, it is clear that, on their construction, the respondents have unlawfully exceeded the permission given to them by subsection (4) to recover from customers only the tax payable.  But if, upon receipt from the customers, HRT is payable             at the rate prevailing on the date of supply, no such bizarre consequences arise.

44.      The second relates to the facility for a manager to have reduced his liability for HRT by declining, until the da te when a reduction of HR T took effect, to invoice a customer in respect of a supply made on a date prior to the date of reduction.   For my part, I would not, without           clear words, construe a    scheme as being ope           n t o manipulation of that sort on the part of the tax-payer.
45.      One factor alone has caused m e to hesitate in offering this dissent.   It is the principle against doubtful penalisation, wh ich applies as much to the imposition of              taxes as to that of criminal sanctions: see Bennion on Statutory Interpretation, 5th ed.
(2008), Part XVII, section 271. In that no less than three members of this Board and two, also highly respected, judges of the Supreme Court have reached a conclusion in favour of the respondents, how can there not – to put it at its lowe st – be doubt about my conclusion that the respondents have failed to pay the full amount of the tax due?   But in the end, rightly or wrongly, I consider that the proper construction of section 24 (3) and (4) of the 1998 is so clear that my dissent should stand.
46.      Like Lord Wilson I also consider that the appeal should have been allowed, for the reasons he gives.
47.      Like him I do not see this as involving any departure from ordinary principles of statutory construct ion. S ection 3 m ust be construed as a whole.  It is com   mon ground that the tax under sec tion 3(1) is payable only on actual receipts.  However that subsection says nothi ng about the rate of tax. Tha t is covered by section 3( 2), which provides that “the tax shall be calc  ulated at the rate specified in the Third Schedule”.  This gave rise to no difficulty in the Act in its original form because only one rate was specified in t he Third Schedule, namely 10%.  H owever the section has  to be read for present purposes in the light of the amendments ma de by the 1998 Act by which lower rates are insert ed in respect of receipts “arising” followi ng the dates  defined by section 24.
48.      It therefore becomes important to decide whether the “tax ... calculated” under section 3(2) in relation to the same tran    saction c an vary over the course of a transaction, or if not by referenc e to w hat date it is to be fixed.  As a matter of ordinary reading of section 3(2) it seems to be clear to me that what is envisaged is a single rate for a particular “taxable receipt”, which is valid for all purposes.  If that i s correct the rate should be valid not only at the tim e the tax becomes payable, but also (under section 3(4)) at the prior time when the Manager is seeking to recover the “tax payable” from customers. Since the latte r is the first occasion on which that calculation has to be carried out, then ass uming what is contemplated is a single calculation, that must be the rate applicable for the whole transaction.  I agree with Lord Wilson’s analysis of the other sections which support this view.
49.      Mr Baker submitted that his proposed construction was necessary to avoid “absurdity”. He referred us to familiar au thorities which allow a departure from the natural meaning of the statutory wor ds where that is necessary to avoid “inj ustice or absurdity” (see for example Mangin v Inland Revenue Comrs [1971] AC 739, 746).   Lord Reid in Luke v Inland Revenue Comrs [1963] AC 557, 577 r eferred to the nee d on occasion to do some violence to langua ge to avoid “a wholly unreasonable result” (p577). However, I do not think it is necessary to go so far in or der to resolve the present case. The language of the statute is not such that th e construction which I favour requires “viol ence” to t he w ords us ed.  It is more a matter of applying a purposive approach to achieve a result whic h accords with what appears to be the Parliamentary intenti on (see pe r Lor d Steyn Inland Revenue Comrs v McGuckian  [1997] 1 WLR 991, 999).