Balingian Power Generation Sdn. Bhd. KEMENTERIAN KEWANGAN MALAYSIA

WA-25-449-10/2019 Kand. 38 13/05/2022 16:36:00 Pihak-pihak: Bagi Pihak Pemohon : Saravana Kumar & Yu Yun Lei Tetuan Rosli Dahlan Saravana Partnership Bagi Pihak Responden : Krishna Priya Venugopal Jabatan Peguam Negara DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR (BAHAGIAN RAYUAN DAN KUASA-KUASA KHAS) PERMOHONAN SEMAKAN KEHAKIMAN NO. WA-25-449-10/2019 Dalam perkara suatu Keputusan Responden seperti yang dinyatakan melalui surat Responden bertarikh 4.7.2019 yang telah diserahkan kepada Pemohon pada 4.7.2019; Dan Dalam perkara suatu permohonan untuk antara lain, suatu Perintah Certiorari; Dan Dalam perkara Aturan 53 Kaedah-Kaedah Mahkamah 2012: Dan Dalam perkara Seksyen 133A dan Jadual 7B Akta Cukai Pendapatan 1967. 1 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal ANTARA BALINGIAN POWER GENERATION SDN. BHD. PEMOHON DAN MENTERI KEWANGAN MALAYSIA RESPONDEN JUDGMENT [1] The applicant is a company that owns, operates and maintains the 600 MW coal-fired power plant located at Balingian. The estimated project cost was RM3.3 billion, with the project timeline from 2014 to 2019. [2] On 12.5.2015, the applicant applied to the Minister of Finance, the respondent, for the project (“Project Balingian”) to be approved as an Approved Service Project (“ASP”) for the tax incentives to be granted under Schedule 7B of the Income Tax Act 1967 (“ITA”). [3] Para 1 of Schedule 7B provides that: Where a company which is resident in Malaysia for the basis year for a year of assessment has incurred in the basis period for that year of assessment capital expenditure for the purpose of an approved service project, there shall be given to the company for that year of assessment an investment allowance of an amount approved by the Minister, such 2 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal allowance being not less than sixty per cent of that expenditure. The ASP is defined as a project in the service sector in relation to transportation, communications, utilities or any other sub-sector as approved by the Minister. [4] The applicant’s application was submitted to the Minister by its tax advisors, Messrs PricewaterhouseCoopers Taxation Services Sdn Bhd (“PWC”). In the said application, PWC indicated that in the absence of support by the Government in the form of tax incentives, the applicant is projected to be in a tax-paying position from the year 2027 onwards. [5] On 6.5.2016, the Minister approved, with some modifications, the applicant's 2015 tax incentive application. The letter inter alia says the Minister granted ASP status to Project Balingian and for investment allowance to be claimed at 80% of the qualifying capital expenditure incurred within 5 years from Year of Assessment (“YA”) 2016 to YA 2020 to be set off against the 85% of the applicant’s statutory income of each YA. It says: Elaun [pelaburan] boleh ditolak sehingga 80% daripada pendapatan statutori bagi setiap tahun taksiran. 3 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [6] Under the terms of the approval (“the 2016 Approval”), the applicant is entitled to carry forward any unutilised allowances for a particular YA to subsequent YAs until the entire amount of the allowance has been claimed. [7] Subsequent to the 2016 Approval, the applicant proceeded with its investment in Project Balingian. [8] On 2.11.2018, the Minister announced inter alia that a 7-year time limit would be imposed on the carrying forward of allowances in respect of incentives granted under Schedule 7B. The announcement was crystallised in the form of the proposed amendments to cll 29 and 30 of the Finance Bill 2018. [9] Cl 29 of the proposed amendment to the Bill deletes the words “until the company has received the whole of the allowance or allowances to which it is so entitled”. [10] The applicant then sought the Minister’s confirmation that it would not be subjected to the impending 7-year time limit imposed through the amendments introduced by the Finance Act 2018. In its letter dated 7.12.2018, the applicant, through PWC, intimated to the Minister that the applicant’s decision to carry out the Balingian Project and incur the expenditure had been based on and in reliance on the terms of the 2016 Approval. [11] In short, according to the said letter, the 7 years limitation and resultant additional tax costs had not been factored in the feasibility studies and determination of tariff rates previously. 4 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [12] On the same day, the applicant, together with its parent company, Sarawak Energy Berhad (“Sarawak Energy”) and PWC, attended a meeting at the Ministry of Finance to discuss the matter raised in the said letter. [13] The Finance Act 2018 (“FA 2018”) was gazetted on 27.12.2018 and was to take effect from YA 2019 onwards. Para 5A was introduced to Schedule 7B of ITA, whereby the time restriction on the unabsorbed investment allowance can only be carried forward for up to 7 consecutive years of assessment effective from YA 2019. [14] In an attempt to resolve the issue, the applicant, Sarawak Energy, together with PWC, attended another meeting at the Ministry of Finance on 4.3.2019. The applicant’s position is that the 7-year period provided in the FA 2018 should only be imposed on new projects undertaken from January 2019 onwards and should not have affected the Balingian Project. [15] Unfortunately, on 4.7.2019, the Minister rejected the applicant’s position (“the impugned position”), which is now the subject matter of this judicial review. The Judicial Review [16] With the impugned decision, the applicant’s right to continue to enjoy the tax incentives pursuant to the 2016 approval, i.e., free from any time limitation on the carrying forward of unutilised allowances, is put to an abrupt stop. 5 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [17] In this application for judicial review, the applicant seeks an order of certiorari to quash the impugned decision. [18] The application is supported by the affidavit (“AIS”) of George Albert William Chapman (“Chapman”), the Senior Manager of the Contract and Procurement (Legal) Department of the applicant, which is in Encl 2. [19] The grounds of the application of the applicant can be summarised as follows: (a) The impugned decision by the Minister has breached the applicant’s vested rights under s 30 of the Interpretations Act 1948 & 1967 (“Interpretation Act”). The applicant’s case is that the impugned decision is tainted with illegality and ultra vires as s 29 of the FA 2018 is not intended to have a retrospective operation. Learned counsel for the applicant submitted that one should avoid constructing a statute that inflicts a detriment. A detriment occurs if it takes away or otherwise impairs a vested right acquired under the existing laws; National Land Finance Co-operative Society Ltd v Director General of Inland Revenue [1993] 4 CLJ 339 SC. (b) The Minister has failed to consider the legitimate expectation of the applicant that its vested rights under the 2016 Approval. In short, the applicant, according to learned counsel, had acquired a legitimate expectation that it would be entitled to carry forward any unutilised allowances indefinitely to subsequent YAs. My attention as the drawn to the case of 6 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal Ketua Pengarah Hasil Dalam Negeri v Latex Manufacturing Sdn Bhd [2016] 9 CLJ 86. The case carries the proposition that a party had a legitimate expectation that it is entitled to enjoy the tax relieve for its business for the entire term granted to it. The Minister’s refusal to honour the 2016 Approval is unfair in that it would amount to an abuse of power. (c) The Minister has failed to give reasons for his failure to maintain and honour the terms of the 2016 Approval. The silence in the ITA ought not to be taken to mean that there was no duty on the part of the Minister to give reasons. That in itself is a ground for the impugned decision to be quashed as being bad in law; Pembinaan Batu Jaya Sdn Bhd v Pengarah Tanah dan Galian, Selangor & Anor [2016] 2 MLJ 495 CA. [20] Having that as a background, it is the contention of learned counsel for the applicant that the impugned decision is tainted with Wednesbury’s unreasonableness in that the Minister had taken into consideration irrelevant matters or failed to consider relevant matters. [21] In the circumstances, learned counsel urged this Court to issue an order of certiorari to quash the impugned decision. The Minister’s response [22] The Minister has filed an affidavit in reply in Encl 9 (“AIR-9”) in response to the applicant’s application. 7 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [23] In essence, in particular, in para 23 of AIR-9, the Minister denied withdrawing the 2016 Approval. The Minister further affirmed as follows: Sebaliknya, pindaan kepada Jadual 7B Akta Cukai Pendapatan 1967 melalui Akta Kewangan 2018 hanya mengubah struktur layanan bagi elaun pelaburan yang boleh dibawa ke hadapan sahaja dan bukan penarikan balik kelulusan di bawah Jadual 7B Akta Cukai Pendapatan 1967 Pemohon. Sehubungan itu, semua kos pelaburan modal yang layak bagi tempoh yang telah diluluskan mulai tahun 2016 hingga tahun taksiran 2020 masih boleh dituntut untuk tempoh 7 tahun taksiran berturut-turut. Saya sesungguhnya menyatakan bahawa tempoh sekatan itu hanya bermula pada tahun taksiran 2021 dan seterusnya bagi tempoh 7 tahun taksiran berturut-turut. In short, what the Minister is saying is that the 2016 Approval was not withdrawn. But the whole purpose of the amendment was to impose a time period of 7 years for investment allowances and not perpetually as before. [24] The learned Federal Counsel (“FC”) submitted that s 30 of the FA 2018 is a saving provision in that whatever incentive is given that allows YAs from 2018 to be carried up to 2025 for 7 years. 8 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [25] In the circumstances, according to the learned FC, the Minister was acting in accordance with the law, in particular para 5A of Schedule 7B and by virtue of ss 29(b) and 30 of FA 2018. [26] In any event, the learned FC submitted that the impugned decision does not prejudice the applicant in any way. Under s 30 of the FA 2018, the applicant could now plan to claim all allowances under Schedule 7B within the 12-year period. The period is calculated in reference to 5 years from the 2016 Approval and a further 7 years for the term of restriction pursuant to s 29 of the FA 2018. [27] On the issue of legitimate expectation, the learned FC contended that the 2016 Approval and the impugned decision are two separate issues. According to the learned FC, the applicant’s application on 7.12.2018 was for exemption and extension from the restriction on the time limit to carry for up to 7 years on the unabsorbed investment allowance. The question of legitimate expectation, therefore, does not arise. [28] In any event, the learned FC submitted that the applicant has not shown to this Court that the purported representation made by the Minister was a clear and unambiguous promise, an established practice or a public announcement; Ambiga a/p Sreenevasan v Director of Immigration, Sabah & Ors [2018] 1 MLJ 633 CA. [29] On the reason for the decision, the learned Federal Counsel submitted that the Minister is not required by law to give any reason for his decision. My attention was drawn to the judgment of the 9 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal Federal Court in Ketua Pengarah Hasil Dalam Negeri v Alcatel- Lucent Malaysia Sdn Bhd & Anor [2017] 1 MLJ 563 FC. [30] According to the learned FC, the Court cannot compel the Minister to give reasons for his decision where there is no duty to do so. In Minister of Labour, Malaysia v Chan Meng Yuen [1992] 1 CLJ Rep 216 SC, there was only a bare allegation that the Minister had acted unreasonably because he had not given reasons for his decision. The Supreme Court held that it was not enough. According to the Federal Court, it must be shown that the Minister acted unreasonably. [31] For the aforesaid reasons, the learned FC then urged this Court to dismiss the application. Analysis [32] Lest we miss the wood for the trees, let me put things into perspective first. What is the content of the letter that granted the 2016 Approval? Is it a representation? If it is, is it unequivocal? Is it made within the powers of the Minister? [33] In Latex Manufacturing, the respondent was issued a pioneer certificate by the Minister of International Trade and Industry (“MITI”) under s 7(3) of the Promotion of Investments Act 1986. The effect of the issuance of the pioneer certificate was that the respondent was exempted from tax payment. Pursuant to an audit conducted by the DG of the Inland Revenue Board (“IRB”), it was found that the respondent had failed to comply with condition (j) of the pioneer 10 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal certificate, which required the respondent to export its product directly. Consequently, the appellant had computed the tax for the respondent for the year of assessment 2000 without any pioneer status incentive and imposed penalties under s 113(2) of the ITA at the rate of 45%. The respondent then filed an appeal to the Special Commissioners of Income Tax (“SCIT”) which found in favour of the respondent and held that the respondent had not contravened condition (j) of the pioneer certificate at all material times. [34] Aggrieved with SCIT’s decision, the DG of IRB filed an appeal via a ‘case stated’ pursuant to para 34 of Schedule 5 of the ITA. [35] Asmabi J held that: In the case at hand, there is no doubt that the respondent had been prejudiced by the conduct of the appellant as well as MITI. The respondent has a legitimate expectation that it is entitled to enjoy the tax relieve for its business for the entire term granted to it. [36] In the letter in the 2016 Approval, the Minister made specific reference to Schedule 7B of ITA. It says: Adalah dimaklumkan bahawa YB Menteri Kewangan selaras dengan peruntukan di bawah Jadual 7B Akta Cukai Pendapatan 1967 bersetuju meluluskan Taraf Projek Perkhidmatan Yang Diluluskan bagi projek Loji Janakuasa Arang Batu Balingian yang 11 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal dibina oleh Balingian Power Generation Sdn Bhd. I have gone through this letter with the proverbial fine-tooth comb and I do not find anything therein that states that the ASP was subject to other terms and conditions or a possible review in the future. In short, it was a blanket approval. To my mind, such a blanket approval means that even if an intervening amendment were to be made to Schedule 7B in the future, it should not have the effect of depriving the applicant of the benefit that the Minister had allowed it to enjoy. [37] In any event, the 2016 Approval did not indicate any time limitation on the carrying forward of unutilised allowances. [38] In short, any intervening amendment to Schedule 7B, in the instant case, para 5A, must not have the effect of the applicant having to suffer grave economic loss as indicated in para 14(b) of the AIS: The Applicant’s decision to carry out Project Balingian and to incur the expenditure under it had been based on and on reliance of the terms in the 2016 Tax Incentive Approval under which the 7-year time limit had not been imposed at the material time. [39] Applying the proposition in Latex Manufacturing to the instant case, I am in agreement with learned counsel for the applicant that the applicant can legitimately expect to be permitted to continue to do until there has been communicated to him some rational grounds 12 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal for withdrawing it on which he has been given an opportunity to comment; Law Pang Ching & Ors v Tawau Municipal Council [2010] 2 CLJ 821 CA. [40] In the instant case, when the impugned decision was made, the Minister did not assign any reason. The learned FC contended that there is no legal requirement for the Minister to give any reason. With respect, I find the argument to be against the spirit of the proposition stated by the Court of Appeal in Law Pan Ching. Abu Samah JCA (later FCJ) quoted the judgment of the Privy Council in Attorney General of Hong Kong v Ng Yuen Shiu [1983] 2 AC 629 PC, where Lord Fraser of Tullybelton, in delivering the judgment of the Board remarked that: The expectations may be based upon some statement or undertaking by, or on behalf of the public authority which has the duty of making the decision, if the authority has, through its officers, acted in a way that would make it unfair or inconsistent with good administration for him to be denied such an enquiry. [41] The expectation may not be based on any legal right, vested or otherwise. A reasonable expectation is sufficient. Thus, as can be seen in an example quoted by Lord Fraser, a prisoner is entitled to challenge, by judicial review, a decision by the prison board of visitors, awarding him a loss of remission of sentence, although he has no legal right to remission, but only a reasonable expectation of receiving it. 13 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [42] Applying the said proposition to the instant case, by not indicating any timeline for the 2016 Approval, the Minister has created a legitimate expectation on the part of the applicant that it would not be withdrawn. [43] However, I am not saying, even for one moment, that the Minister cannot revisit the decision. He can. But to do that he must give reasons behind his decision. Unfortunately, the letter in the impugned decision did not state any reason. It only says as follows: Adalah dimaklumkan bahawa YB Menteri Kewangan telah memberikan pertimbangan yang teliti dan mendalam ke atas permohonan Sarawak Energy Berhad seperti perkara di atas dan memutuskan bahawa permohonan tersebut tidak diluluskan. [44] Failure to assign any reason in the face of legitimate expectation would mean that the impugned decision is tainted with procedural impropriety, and I so hold. Findings [45] For the aforesaid reasons, my findings are as follows: (a) The 2016 Approval did not state that the applicant was subjected to any time limitation on the carrying forward of the unutilised allowances in the tax incentives. 14 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal (b) In the absence of such express condition, the 2016 Approval has created a legitimate expectation on the part of the applicant that it is entitled to enjoy the tax incentives indefinitely. The legitimate expectation need not necessarily be anchored on any legal right. A reasonable expectation is sufficient. (c) But this does not mean that the Minister cannot revisit the 2016 Approval and impose new terms and conditions. (d) The Minister can do so, provided that he must have some “rational grounds” in imposing the new conditions to the 2016 Approval, as can be seen in Latex Manufacturing. (e) Unfortunately, the impugned decision did not state any reason. It was a bare rejection under the guise of pertimbangan yang teliti dan mendalam. [46] In the circumstances of the case, the impugned decision is tainted with Wednesbury's unreasonableness and procedural impropriety that makes it amenable to judicial review. [47] An order of certiorari is hereby issued to quash the impugned decision. As a consequential order, a mandamus is issued to compel the Minister to give effect to the 2016 Approval. The applicant is at liberty to carry forward any unutilised investment allowances for a particular YA to subsequent YAs indefinitely until the entire amount of the allowance has been claimed. 15 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal [48] There shall be no order as to costs. Tarikh: 12 Mei 2022 (WAN AHMAD FARID BIN WAN SALLEH) Hakim Mahkamah Tinggi Kuala Lumpur. 16 S/N h1f9QG7OfUibn2syj6Vk1g **Note : Serial number will be used to verify the originality of this document via eFILING portal