Re Gafsons Industries Ltd

• Jurisdiction: Guyana
• Judge: Chang, C.J.
• Judgment Date: 06 November 2015
• Neutral Citation: GY 2015 HC 35
• Docket Number: 2015 No. CM - 34
• Court: High Court (Guyana)
• Date: 06 November 2015

High Court

Chang, C.J. (Ag.)

2015 No. CM - 34

Gafsons Industries Ltd., Re

Appearances:

Mr. Rex H. Mc Kay, S.C with Mr. Neil Boston, Mrs. Bettina Glasford and Mr. Brenden Glasford for the applicant.

Mr. Devindra Kissoon for the respondent.

Administrative law - Whether the respondent's decision to disallow the applicant's claim for interest expense was ultra vires and unlawful — Whether the respondent acted unreasonable in converting the applicant's trading transaction with BAIL into a loan transaction — Whether the applicant could have benefitted from the non — disclosure — Whether the existence of the statutory appeal process bars the judicial review process — Whether the assessments of the Assistant Commissioner were ultra vires — Sections 3(2),18(i) and 70 of the Income Tax Act.

1 Chang, C.J. (AG.): On the 17th April 2015, the applicant, Gafsons Industries Limited, applied to the court for the following prerogative reliefs:

• (1) An Order or Rule nisi of Certiorari directed to the Commissioner General of the Revenue Authority, Mr. Khurshid Sattaur, and to the Revenue Authority bringing up to this Honourable Court and quashing the decision of the Commissioner General expressed in its letters of the 25th July 2014, disallowing the applicant, Gafsons Industries Limited's claim for interest expense in the amount of $581,583,952.00, $535,689,499,00, $481,611,601.00, $461,206,955.00 and $426,542,297.00 for the year of Income 2007 – 2011 respectively on the grounds of being interest accrued on loans received from BAIL in accordance with section 18 (i) of the Income Tax Act, Chapter 81:01, that the disallowance of the said interest expense was not done in accordance with provisions of the Income Tax Act, Cap. 81:01 erroneously computed, is procedurally improper, unlawful, arbitrary, unreasonable, without or in excess of jurisdiction, ultra vires, null, void and of no legal effect and out with the powers of the Commissioner General and Authority conferred on them by virtue of the provisions of the said Act unless cause is shown why the said Order or Rule nisi of Certiorari should not be made absolute.

• (2) An Order or Rule nisi of Prohibition directed to the Commissioner-General of the Revenue Authority, Mr. Khurshid Sattaur, and the Revenue Authority prohibiting them or either of them from taking any further step or proceeding with respect to the amount disallowed for the years 2007 to 2011 and the recovery thereof from the applicant Corporation Tax on the sum disallowed on the grounds set out above unless cause is shown why the said Order or Rule nisi should not be made absolute.

2 The grounds in support of the Notice of Motion were stated to be:

• (1) The Commissioner General and the Revenue Authority acted unreasonably and unlawfully by converting the applicant's trading transaction with BAIL into a loan transaction.

• (2) The Commissioner-General and the Authority drew unreasonable inferences to find that the applicant's debt to BAIL was not a trading debt but a creditor-debtor relationship.

• (3) As a result, the basis of the Commissioner-General's and the Authority calculation was seriously flawed, arbitrary, unreasonable, unlawful, procedurally improper, ultra vires, null and void.

• (4) The applicant is not indebted to the Revenue Authority in the sum claimed in the Commissioner General's letter of the 25th July 2014 totalling $927,041,357.00 (nine hundred and twenty seven million and forty-one thousand three hundred and fifty seven dollars) being Corporation Tax adjustment for the period under review inclusive of employment costs for the years 2008 and 2009.

3 In his Affidavit in support of Motion, Sattaur Gaffour, Executive Chairman of the applicant, Gafson Industries Limited, deposed on its behalf that the applicant company is a manufacturer of and dealer in building materials for the local and overseas market. In or about 1992, there was a dire shortage of foreign exchange in Guyana and the business was a standstill and about to close operations. Import licensing restrictions were removed in 1992 and, as the Chief Executive Officer and Executive Chairman of the applicant company, he sought to exploit the opportunity of rebuilding the business which, however, required financing. Having found it difficult to raise capital on the local market, he ventured to do so outside of Guyana.

4 He deposed that, in or about 1992, he was introduced to a representative of British Agencies Investment Limited (BAIL) and, after several meetings in London, BAIL agreed to provide financing for the applicant company's purchase of goods. From 1993, BAIL financed the applicant company's purchases with its overseas suppliers, initially at a rate of 18% per annum which was later reduced to 10% per annum in 1997. As at 1st January 1999, the applicant company owed BAIL US $12,251,730 for purchase made by the applicant company through its suppliers. Those purchases consisted mainly of raw materials for manufacturing – such as steel, other related steel products and retail hardware. In order to comply with the applicant company's external auditor balances owed to BAIL, confirmation of the indebtedness was sent directly to Barcellors, Narine and Co. with copies submitted to the Revenue Authority.

5 He deposed that, in its letter of the 25th July 2014, the Revenue Authority disallowed the applicant company's claim for “interest expense” for years of income 2007 to 2011 on the ground that expense was “interest accrued on loans from BAIL in accordance with section 18 (h) of the Income Tax Act, Cap. 81:01, and claimed Corporation Tax adjustment in the sum of $927,041,357 for the said period 2007 to 2011 inclusive of employment costs for the years 2008 and 2009 (Exhibit A). The said amount was not calculated according to law but were calculated on the basis that the applicant company's “trading transaction” with BAIL was a “loan transaction”. He claimed that the applicant company never entered into a loan transaction with BAIL or any other company.

6 He disclosed that, on the 4th August 2014, the applicant company filed Action No. 328 W of 2014 and therein obtained a conservatory order against the Revenue Authority on the 5th August 2014. On the 14th April 2015, those proceedings were struck out by the Chief Justice. His Attorneys-at-Law has advised him that the decision of the Commissioner-General and/or the Revenue Authority was made arbitrarily, unreasonably, unlawfully, and was procedurally improper, ultra vires, null, void and of no legal effect.

7 In his Affidavit in Answer, Khurshid Sattaur, the Commissioner General of the Revenue Authority, deposed that he was advised that Order or Rule nisi of Certiorari granted to the applicant company in these proceedings must be discharged because:

• (a) the applicant company's claims are pre-mature and have not yet crystallised and are not ripe for judicial action since the Revenue Authority has not yet made a determination that it will assess the applicant company's tax and the hearing process has not yet been completed as to the basis of any assessment.

• (b) the issue of the Revenue Authority characterization of Gafsons' account with BAIL as a trade account or loan account is irrelevant to the real matters in controversy between the parties, since the Revenue Authority is entitled to lawfully exercise its discretion to disallow the interest expense claimed by Gafsons after the completion of the hearing process – it making no difference to the decision – making process whether the account between BAIL and Gafsons is characterized as a trade account or loan account.

• (c) Gafsons has failed to exhaust the available statutory appeal procedures and, barring the reliefs sought herein as a matter of law, Gafsons has already submitted itself to the Statutory appeal procedure in these proceedings, and is now estopped from denying the applicability of the same;

• (d) Gafsons is guilty of material non-disclosure, warranting instant dismissal of these proceedings;

• (e) Gafsons' action constitutes an abuse of the court's process;

• (f) there is no serious issue to be tried;

• (g) the Court has no jurisdiction to hear this matter and ought not to exercise its discretion to hear the matter, especially since the determination of this matter, in fact and law, hinges on extensive fact-finding – which fact finding is improper in the current form and cannot be undertaken by the court; and

• (h) the court has no jurisdiction to issue a blanket prohibition on the assessment of taxes and ought to immediately discharge the order of Prohibition issue.

8 He further deposed that the balance of convenience favours the Revenue Authority and warrants vacation of the Order nisi since, if left unmodified, the Revenue Authority will be time – barred from completing the hearing process and filing a Notice of Assessment for the 2008 tax year if so determined – which time for filing expires on the 31st December 2015. He contends that if the Revenue Authority continues to be prevented from completing the hearing process and filing a Notice of Assessment, it could stand to permanently lose at least $231,992,490 in 2015, $168,564,060 in 2016, $162,472,434 in 2017 and $127,962,689 in 2018, all of which are taxes owed by Gafsons to the Revenue Authority. He stated that a cursory view of the relevant facts reveals that the claim is for money only and contends that Gafsons has no arguable claim as a matter of fact and law and therefore there is no issue to be tried. He further alleged that Gafsons has failed to comply with the statutory appeal procedure provided for in the Income Tax Act, cap. 81:01, and that failure warrants a summary dismissal of the matter.

9 He requested that should the Court not be minded to discharge or modify the Order nisi so as to allow the hearing, the court should toll the applicable limitation period from August 2014...