[2010] UKPC 31
Privy
Council Appeal No 0006 of 2010
JUDGMENT
National Transport Authority
v
Mauritius Secondary Industry Limited
v
Mauritius Secondary Industry Limited
From the Supreme Court of Mauritius
before
Lord Hope
Lord Walker
Lord Mance
Lord Collins
Lord Clarke
JUDGMENT DELIVERED BY
Lord Walker
on
Lord Walker
on
13 December 2010
Heard on 25 October 2010
Appellant
Philip Baker QC
Rajeshsharma Ramloll
Miss Hui-Ling McCarthy
(Instructed by Royds LLP)
Respondent
Sir Hamid Moollan QC
Nandkishore Ramburn
Anwar Moollan
(Instructed by
Simons Muirhead & Burton)
LORD WALKER :
1.
The appellant National Transport
Authority (“NTA”), the defendant at first instance, became the lessee of part
of an office building at Cassis, Port Louis, under a lease agreement dated 8
February 2000. The lease was granted
after a tender process overseen by the Central Tender Board (“CTB”) a statutory
body regulating public procurement established by the Central Tender Board Act
1994 (since repealed). The landlord who
made the successful tender was Mauritius Secondary Industry Ltd (“MSI”), the
respondent before the Board and the plaintiff at first instance. The relevant
tender notice (with full particulars of NTA’s requirement for office
accommodation of about 3,000 square metres) was issued by CTB on 12 November
1998; MSI’s tender (expressed in square feet, not square metres) was submitted
on 25 November 1998; and after an inspection and appraisal by a government
valuer MSI’s tender was accepted by a letter dated 29 July 1999 from the
officer in charge of NTA.
2.
These dates are of some significance
because in 1998 Mauritius introduced value added tax (“VAT”). The Value Added Tax Act 1998 (“the 1998 Act”)
came into force for preliminary purposes (such as registration of taxable
persons) on 1 July 1998, and it came fully into force on the appointed day, 7 September
1998. So VAT was very much a novelty in
Mauritius when the tender notice was issued.
MSI was registered under Part IV of the 1998 Act very promptly, on the
appointed day itself. But some of the
evidence given at first instance suggests that at the material time some
officials and businessmen had not yet fully understood the scheme and
implications of the new tax.
3.
The rent proposed in MSI’s tender was
“Rs15/- per [sq] ft per month, indexed at inflation rate every two years, not
to exceed 10%”. The acceptance letter
stated that the government valuer had assessed the net rental surface area at
31,707 sq ft. These were the figures
used in the lease to produce (clause 1.1) a monthly rental of Rs 475,605,
although for some unexplained reason the inflation limit was specified (clause
1.4) at 20%. Neither the lease, nor any
earlier document produced in evidence in the proceedings, made any reference to
VAT. There was some rather confused
evidence about oral exchanges before the lease was entered into; the judge’s
findings on these are considered below.
4.
That is, in brief summary, the
background to the single issue that arises on this appeal: given (as explained
below) that MSI was a taxable person and the letting was a taxable supply for
VAT purposes, was the monthly rent of Rs 475,605 inclusive, or exclusive, of
VAT? That issue depends ultimately on
the terms of the contract made between the parties. In the English case of Lancaster v Bird (1998) 73Con LR 22, 26,
Chadwick
LJ referred to two earlier first-instance cases as illustrating
“What might be thought to be
self-evident, that the question whether or not the price for a building
contract is inclusive or exclusive of value added tax must turn on the terms of
the particular contract.”
The same principle applies to a contract for letting
immovable property. But where the
written contract is completely silent, the court must examine the
characteristics of the VAT charge which is the subject matter of the
dispute. In terms of the Code Civil (Article 1158) it must look
for “le sens qui convient le plus à la matière du contrat.”
5.
It is common ground that the 1998 Act
is modelled on the Value Added Tax Act 1994 of the United Kingdom (“the 1994 UK
Act”). The 1994 UK Act consolidated legislation originally introduced as the
Finance Act 1972, after the United Kingdom first joined the European Economic
Community. Since then its VAT
legislation has had the effect of transposing into domestic law the provisions
of successive Community Directives, and in particular (since 2006) Directive
2006/112/EC. The 1998 Act does not
however reproduce every feature of the United Kingdom legislation. In particular, it provides for “the grant,
assignment or surrender of any interest in or right over land” to be a supply
of goods (section 4 and Third Schedule, para 2). This is in contrast to the
complicated provisions about land transactions introduced into the United
Kingdom legislation in 1989 (see Wynn
Realisations Ltd (in administration) v Vogue Holdings Inc [1999] STC 524,
526.
6.
For present purposes the most
relevant provisions of the 1998 Act are those which set out the general scheme
of VAT, and define or explain its essential terms: “taxable person” in section
1, “supply” in section 4, the charging provisions in sections 9 and 10, and
“value” of taxable supplies in section 12.
The most crucial
of these provisions are as follows:
“9. Charge to value added tax
(1)
VAT shall be charged on any supply of
goods or services made in Mauritius, where it is a taxable supply made by a
taxable person in the course or furtherance of any business carried on by him.
(2)
VAT on any taxable supply is a liability
of the person making the supply and becomes due at the time of supply.
. . .
10. Rate of VAT
VAT shall be charged at the rate
specified in the Fourth Schedule [10% at the material time] and shall be
charged –
(a) on any
taxable supply by reference to the value of the supply as determined under
section 12 . . .
12. Value of taxable
supplies
(1)
For the purposes of this Act, the
value of any taxable supply made by a taxable person shall, subject to the
other provisions of this Act, be determined in accordance with the provisions
of this section.
(2)
If the supply is for a consideration
in money, its value shall be taken to be such amount as, with the addition of
the VAT chargeable, is equal to the consideration.”
The corresponding provisions in the 1994 UK Act are
section 4(1) (read with section 1(1)), section 1(2), section 2(1) and section
19(1) and (2) respectively.
7.
In considering these provisions there
are two interlocking points to be borne in mind. First, it is the person making the supply who
is liable for VAT on the value of the supply that he makes. The ultimate burden of the tax falls on the
consumer, but he is not personally liable for it to the Commissioner for Value
Added Tax. The ultimate burden falls on
the consumer simply because he is not acquiring it as a taxable person for use
in a business of his own, and so there is no question of his passing on the
burden by making supplies and obtaining a credit under section 21 of the 1998
Act. In this case MSI was a taxable
person making a taxable supply in the course of its business, and NTA was in
the position of the consumer. NTA was
not liable for VAT to the Commissioner. Nor was it liable for VAT to MSI,
except so far as the consideration which MSI was entitled to receive from NTA
expressly excluded, or simply had to be treated as including, that VAT. This point was explained by Chadwick LJ in Lancaster v Bird (1998) 73 Con LR 22,
26, in a passage immediately following that already quoted:
“Normally of course it will be made
clear expressly. It is in the interests
of the builder who will be receiving the price to make it clear because, as
between the builder and the Commissioners for Customs and Excise, the
provisions now found in section 19(1) and (2) of the Value Added Tax Act 1994
require the recipient to account for value added tax on the basis that the
consideration that he receives is such amount as equals the value of the goods
or services provided plus value added tax.
So if the builder fails to make it plain to the employer that he is
stipulating for payment of value added tax in addition to the contract price,
he will be left to account to the Revenue for the value added tax out of what
he receives.”
That applies, mutatis mutandis, to the present case.
8.
Secondly, the provisions of section
12(1) and (2) are important because they explain how to ascertain the value of
a supply, which is the amount on which VAT is to be charged at the appropriate
rate (10% at the material time). Its effect
can be stated by the formula S + 1/10S = C, where S is the value of the supply
and C is the consideration. That is the
case whether the supplier stipulates for an inclusive price (say Rs110,000) or
for a basic price (say Rs100,000) “plus VAT”.
In either case the total consideration that the customer pays is
Rs110,000, and so long as the rate of VAT remains at 10%, the formula embodied
in section 12(2) produces the correct result.
The function of section 12(2) is not to define “consideration”. The amount
of the consideration is to be found by ascertaining the total that the customer
actually pays for the supply. Then one must work back through the formula
(recasting it, for simplicity, as S = 10/11 C) to find the amount on which VAT
is payable at 10%.
9.
It is now appropriate to return to
the facts of MSI’s claim against NTA.
The lease agreement dated 28 February 2000 was for a term of three years
from 16 January 2000, with an option to renew for further periods of two
years. The lease was renewed for two
years from 16 January 2003 “on the same terms and conditions as the existing
agreement” and there is therefore a total of five years’ monthly instalments of
VAT at stake. On 6 March 2000 MSI put in
a rent invoice claiming Rs 713,407.50 for half of January and the whole of
February 2000, together with VAT of Rs 71,340.75, making a total of Rs
784,748.25. This was not paid and
correspondence ensued. NTA referred the
matter to CTB, which in June 2000 took the view that the rent must be treated
as inclusive of VAT. MSI commenced
proceedings against NTA on 23 February 2001 and the case was heard by Peeroo J
on 7 October 2004.
10.
MSI called two witnesses, Mr
Ramtoola, a director of the plaintiff company, and Mr Kinoo, the government
valuer who had inspected and appraised the premises. NTA called Mr Jhummun, one of its
administrative officers. Mr Ramtoola
gave the following evidence in chief (Record p32, ll 17-27),
“A: Now, the
Valuation Office gave its clearance to the Central Tender Board that the [rent]
which was determined was a fair one.
Q: Was that Rs15 per sq ft, inclusive or
exclusive of VAT?
A: In our mind, it was exclusive of VAT, My
Lady.
Q: In the mind of the Valuation Office, was it
inclusive or exclusive of VAT as far as you know, when you talked to them?
A: It
was exclusive of VAT.
Q: That
was at all times for entering into this agreement the view that Rs15 per sq ft
were exclusive of VAT?
A: That’s correct, My Lady.”
But in re-examination his evidence was that VAT had
not been discussed either with NTA (p45, l.30 – p46 l.3) or with the valuer
(p47 ll.6-17). So it is hard to see how
Mr Ramtoola could possibly have known what was in the mind of the Valuation
Office.
11.
The evidence of Mr Kinoo, the valuer,
took a rather similar course. In chief,
he agreed with a blatantly leading question that any VAT was to be “paid
thereon” – that is, apparently, paid on top of the rent (p48, ll 20-22). But he had already agreed (p48, ll 6-9) that
he did not address himself to the question of VAT at all, and in
crossexamination (p49, ll 11-16) he agreed that VAT was not something as to
which his department enquired, and that there had been no enquiry in this case.
12.
The judge handed down a reserved
judgment on 3 March 2005, dismissing MSI’s claim with costs. She carefully considered the oral and
documentary evidence and concluded, in relation to the valuer’s visit, that
“VAT was not an issue that was brought up and considered, and that the question
whether the plaintiff company was VAT registered or not was not canvassed
either.” As to a suggestion that MSI had
been misinformed that NTA was exempt from VAT, she observed “that it has not
been established by the plaintiff company by way of cogent evidence that there
was such an exchange of information before the bid was made or at least before
the contract was signed.” (There may have been some confusion about what was
meant by ‘exempt’; as already mentioned, NTA was not a taxable person but the
practical consequence was that it did not make taxable supplies and so could
not pass on VAT which it paid). The
judge’s general and most important conclusion on the facts was that “the
evidence on record shows clearly that there was no mention of VAT at all
throughout the negotiation of the contract.”
13.
The judge referred to two English
authorities, Lancaster v Bird already
mentioned and Hostgilt Ltd v Megahart Ltd
[1999] STC 141. In the latter case
(concerning a “VAT excluded” clause in a contract) the deputy judge said, at
p145,
“This construction is, of course,
only possible because there is express reference, albeit rather badly drafted,
as to how VAT is proposed to be dealt with.
If there were no mention at all of VAT then the sums quoted would simply
be the consideration for the purchase and it would be a matter for the vendor
to sort out the VAT liability on his own.”
She also (at p143) went through the exercise described
in para 8 above, but with more complicated fractions because in that case the
VAT rate was 17.5 per cent.
14.
Following that guidance, Peeroo J
concluded that under both lease agreements MSI had no claim on NTA for any
further payment in respect of VAT. In
the Board’s opinion Peeroo J’s judgment was considered, thorough, and clearly
right. The only criticism that could be
made of her conduct of the case was that she allowed counsel to get away with
too many leading questions in examination in chief and reexamination. However the Court of Appeal (Yeung Sik Yuen
CJ and Angoh J) reversed her decision in a reserved judgment handed down on 5
June 2009.
15.
The Court of Appeal noted that there
were eight grounds of appeal. It
considered that the first four raised issues of law, and the next four raised
issues of fact. It appears to the Board
that only two could really be described as issues of fact: the valuer’s alleged
acceptance that he recommended a rent exclusive of VAT, and NTA’s alleged
awareness (at some unspecified time) that the rent was exclusive of VAT. On these points the Court of Appeal did not
clearly depart from any of the judge’s findings of fact. It did refer to a letter dated 6 March 2000
(five weeks after the signing of the lease agreement) from a director of MSI
referring to a conversation between MSI’s accountant and NTA’s financial
officer. The date of the conversation is
not specified but it seems likely that it occurred quite shortly before (or
even on) 6 March 2000. It seems inherently
improbable that it took place before the lease agreement was signed. It is no ground for disturbing the judge’s
finding that it had not been established by cogent evidence that there was any
relevant exchange of information before the lease agreement was signed. There is therefore no reason to disturb her
findings of fact.
16.
As to the law, the Court of Appeal
discussed the 1998 Act and saw it as an essential part of the structure of VAT
that
“It is the
end user who usually meets the final payment of that tax.”
The Court returned to the same point later in the
judgment:
“We are of the view that the facts
highlighted above predominantly point towards the existence of an underlying
agreement whereby VAT is ultimately borne by the end-user, namely [NTA].”
The facts to which the Court referred were (1) that
the transaction was agreed to have been liable to VAT, (2) that MSI claimed VAT
at the first opportunity, (3) that NTA’s response was that NTA was not liable
for VAT, (4) that NTA did not at once advance its case that the payment of rent
must be inclusive of VAT and (5) that Mr Kinoo, the valuer, agreed that he did
not address himself to VAT. The Board respectfully consider that these five
points are no basis for the Court of Appeal’s conclusion. Point (1) is neutral; point (2) shows no more
than that MSI’s accountant was aware of VAT, even if those of its staff
involved in the negotiations were not; points (3) and (4) are neutral – VAT was
a very new tax, and NTA (not being a taxable person) was naturally not as
familiar with it as MSI; point (5) is consistent with the judge’s most
important finding of fact, that VAT was simply not thought about before the
lease agreement was entered into.
17.
The Board also respectfully considers
that the Court of Appeal may have misunderstood the point about the ultimate
burden of VAT falling on the consumer as end user. That is an important point about the
structure of VAT as “fiscally neutral” as between different ways in which the
manufacture, distribution and retail sale of products (or the supply of
services) can be organised. But it
results from the consumer’s inability to obtain a credit and so to pass on the
burden of VAT that he bears as part of the consideration paid by him to the
supplier; not from his personal liability for the supplier’s VAT as such,
because there is no such liability.
18.
In the Board’s view the principle to
be applied in Mauritius is the same as that clearly spelled out in the English
authorities already referred to, which the Board accepts as correct. Moreover, VAT is a tax imposed throughout the
European Union, and the same principle has been stated more than once by the
Conseil d’Etat, for instance in SA
Mitsouki France 28 July 1993, No. 62865:
“Considérant
que la taxe sur la valeur ajoutée dont est redevable un vendeur ou un
prestataire de services est, comme les prélèvements de toute nature assis en
addition à cette taxe, un élément qui grève le prix convenu avec le client et
non un accessoire du prix; qu’en vertu des dispositions précitées, l’assiette
de la taxe sur la valeur ajoutée est égale au prix convenu entre les parties,
diminué notamment de la taxe exigible sur cette opération; que, par suite
lorsqu’un assujetti réalise une affaire moyennant un prix convenu dans des
conditions qui ne font pas apparaître que les parties seraient convenues
d’ajouter au prix stipulé un supplément de prix égal à la taxe sur la valeur
ajoutée applicable a l’opération, la taxe due au titre de cette affaire doit
être assise sur une somme égale au prix stipulé diminué notamment du montant de
ladite taxe.”
19.
For these reasons the Board allows
the appeal, sets aside the order of the Court of Appeal, and restores the order
of Peeroo J. The respondent must pay the
costs in the Court of Appeal and before the Board. If MSI has paid VAT to the Commissioner for
Value Added Tax on the basis that the total monthly consideration initially
payable by NTA under the lease agreement was Rs523, 165.50 (that is, 110% of
the rent stated in the lease) it may (subject to time limits) be able to
recover the excess from the Commissioner (compare Wynn Realisations at p527
c-d). But that is not an issue for the
Board, since the Commissioner is not a party to these proceedings, and the
Board has heard no argument on the point.
