Hong Leong Yamaha Motor Sdn Bhd KETUA PENGARAH JABATAN KASTAM DIRAJA MALAYSIA

BA-25-5-01/2020 Kand. 125 10/01/2023 12:39:12 DALAM MAHKAMAH TINGGI MALAYA DI SHAH ALAM DALAM NEGERI SELANGOR DARUL EHSAN, MALAYSIA SEMAKAN KEHAKIMAN NO.: BA-25-5-01/2020 Dalam perkara sesuatu keputusan responden seperti yang dinyatakan melalui bil-bil tuntutan yang kesemuanya bertarikh 27.11.2019, 28.11.2019, 03.12.2019, dan 04.12.2019 masing-masing di bawah seksyen 38 Akta Cukai Jualan 2018; Dan Dalam perkara seksyen 35 Akta Cukai Jualan 2018 mengenai kuasa untuk mengecualikan dan membayar balik cukai jualan; Dan Dalam perkara Jadual C, Perintah Cukai Jualan (Orang Yang Dikecualikan Daripada Pembayaran Cukai) 2018; Dan Dalam perkara suatu permohonan untuk antara lain suatu perintah certiorari; Dan Dalam Perkara Aturan 53 Kaedah-Kaedah Mahkamah 2012 ANTARA HONG LEONG YAMAHA MOTOR SDN BHD …PERAYU DAN KETUA PENGARAH KASTAM JABATAN KASTAM DIRAJA MALAYSIA …RESPONDEN 1 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal DI DENGAR BERSAMA DALAM MAHKAMAH TINGGI MALAYA DI SHAH ALAM DALAM NEGERI SELANGOR DARUL EHSAN, MALAYSIA SEMAKAN KEHAKIMAN NO.: BA-25-139-12/2019 Dalam perkara sesuatu keputusan responden seperti yang dinyatakan melalui bil-bil tuntutan yang kesemuanya bertarikh 27.11.2019, 28.11.2019, 03.12.2019, dan 04.12.2019 masing-masing di bawah seksyen 38 Akta Cukai Jualan 2018; Dan Dalam perkara seksyen 35 Akta Cukai Jualan 2018 mengenai kuasa untuk mengecualikan dan membayar balik cukai jualan; Dan Dalam perkara Jadual C, Perintah Cukai Jualan (Orang Yang Dikecualikan Daripada Pembayaran Cukai) 2018; Dan Dalam perkara suatu permohonan untuk antara lain suatu perintah certiorari; Dan Dalam Perkara Aturan 53 Kaedah-Kaedah Mahkamah 2012 ANTARA HONG LEONG YAMAHA MOTOR SDN BHD …PERAYU DAN KETUA PENGARAH KASTAM JABATAN KASTAM DIRAJA MALAYSIA …RESPONDEN 2 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal DI DENGAR BERSAMA DALAM MAHKAMAH TINGGI MALAYA DI SHAH ALAM DALAM NEGERI SELANGOR DARUL EHSAN, MALAYSIA SEMAKAN KEHAKIMAN NO.: BA-25-112-10/2019 Dalam perkara sesuatu keputusan responden seperti yang dinyatakan melalui bil-bil tuntutan yang kesemuanya bertarikh 30.09.2019 di bawah seksyen 38 Akta Cukai Jualan 2018; Dan Dalam perkara seksyen 35 Akta Cukai Jualan 2018 mengenai kuasa untuk mengecualikan dan membayar balik cukai jualan; Dan Dalam perkara Jadual C, Perintah Cukai Jualan (Orang Yang Dikecualikan Daripada Pembayaran Cukai) 2018; Dan Dalam perkara suatu permohonan untuk antara lain suatu perintah certiorari; Dan Dalam Perkara Aturan 53 Kaedah-Kaedah Mahkamah 2012 ANTARA HONG LEONG YAMAHA MOTOR SDN BHD …PERAYU DAN KETUA PENGARAH KASTAM JABATAN KASTAM DIRAJA MALAYSIA …RESPONDEN 3 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal JUDGEMENT [1] This judicial review application relates to the decision of the respondent in issuing a Bill of Demand for additional sales tax. [2] This court dismissed this judicial review application. This is the grounds for this court’s decision. Relief Sought [3] In this judicial review application, the applicant is seeking to quash the respondent’s decision in the form of the Bill of Demand for additional sales tax to a total of RM 55, 906,538.93. Factual Background [4] The facts as garnered from submission of parties and from which this judicial review arises are as follows. (i) These three cases are consolidated by order of the court with the last case, namely BA-25-05-01/2020, being considered as the principal case. (ii) The applicant is both a ‘registered manufacturer’ as well as a ‘franchise holder’ of locally assembled Yamaha Motorcycles. The applicant had generated and used Exemption Certificate dated 30.08.2018 to claim tax exemption under Item 1, Schedule C of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 (P.U.(A) 210) (‘Exemption Order’). (iii) The issue in this case is whether taxable raw materials and components imported or purchased to be used in the assembly of Yamaha motorcycles below 250cc are eligible to tax exemption under Item 1, Schedule C of the Exemption Order. The Exemption Order was made by the Minister under section 35(1)(b) of the Sales Tax Act 2018 (‘Act 806’). (iv) The respondent’s stand is that the said tax exemption applies only to 'finished goods' which are ‘taxable’. Since motorcycles below 250cc are finished goods that are non-taxable, the applicant was not entitled to tax exemption under Item 1 Schedule C of the Exemption Order for taxable raw materials 4 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal and components imported or purchased to be used in the assembly of the said motorcycles. (v) An audit exercise was conducted on the returns filed by the applicant for the relevant period, Three Bill of Demand were issued by the respondent and are the subject matter of the three cases filed herein for which the applicant seeks to quash by an order of certiorari. [5] The chronology of events are as follows: (i) The applicant is a franchise holder of locally assembly manufacturer for Yamaha motorcycles which will import various components for the motorcycles and have them assembled at the factory. (ii) The applicant had received an exemption certificate issued by the respondent dated 30.08.2019 in respect of the sales tax on the components. (iii) The respondent vide a Bill of Demand imposed additional sales tax. (iv) The applicant had filed 3 separate judicial review applications to challenge the Bill of Demand issued by the respondent on the following dates respectively: Judicial review (“JR”) No. Date of Filing application No. First JR BA-25-112-10/2019 15.10.2019 Second JR BA-25-139-10/2019 17.02.2020 Third JR BA-25-5-01/2020 10.01.2020 (v) On 28.02.2020, the first judicial review application and the second judicial review application had been subsequently consolidated with the third judicial review application. (vi) On 24.09.2020, the learned High Court granted leave to the applicant to challenge the Bill of Demand. 5 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal Issues Raised by Applicant [6] The issues before this court are: (a) whether the respondent has any legal basis to impose additional condition by limiting the term “finished goods” under the sales tax (Person exemption from Payment of Tax) Order 2018 (“Exemption Order”) to only taxable finished goods; and (b) whether the respondent has any legal basis to impose additional condition based on the Guide issued by the Royal Malaysian Customs Department (“the Guide”). Legal Principles relating to Judicial Review [7] Prior to considering and analyzing this application, it would be prudent for this court to be reflect on the legal principles relating to judicial review. The law pertaining to an application for judicial review is governed by Order 53 of the Rules of Court 2012. [8] With regard to judicial review, the grounds to allow a judicial review are illegality, irrationality, procedural impropriety and proportionality. These grounds were laid down by Lord Diplock in the case of Council of Civil Service Unions & Ors v Minister of Civil Service [1985] AC 374 which was adopted by the Federal Court in the case of R Rama Chandran v The Industrial Court of Malaysia & Anor [1997] 1 MLJ 145 as follows: “In this context, it is useful to note how Lord Diplock (at pp 410– 411) defined the three grounds of review, to wit, (i) illegality, (ii) irrationality, and (iii) procedural impropriety. This is how he put it: By 'illegality' as a ground for Judicial Review I mean that the decision maker must understand directly the law that regulates his decision making power and must give effect to it. Whether he has or not is par excellence a justiciable question to be decided, in the event of a dispute, by those persons, the judges, by whom the judicial power of the state is exerciseable. By 'irrationality' I mean what can by now be succinctly referred to as 'Wednesbury unreasonableness' (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223). It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. Whether a decision falls within this category is a question that judges by their training and experience should be well equipped to answer, or else there would be something badly wrong with our judicial system. To justify the courts' exercise of 6 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal this role, resort I think is today no longer needed to Viscount Radcliffe's ingenious explanation in Edwards v Bairstow [1956] AC 14, of irrationality as a ground for a court's reversal of a decision by ascribing it to an inferred though undefinable mistake of law by the decision maker. 'Irrationality' by now can stand on its own feet as an accepted ground on which a decision may be attacked by Judicial Review. I have described the third head as 'procedural impropriety' rather than failure to observe basic rules of natural justice or failing to act with procedural fairness towards the person who will be affected by the decision. This is because susceptibility to Judicial Review under this head covers also failure by an administrative tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred, even where such failure does not involve any denial of natural justice. Lord Diplock also mentioned 'proportionality' as a possible fourth ground of review which called for development.” [9] Founded on these principles, this court will proceed to consider the application for judicial review before this court. Analysis and Findings (a) Whether the respondent has any legal basis to impose additional condition by limiting the term “finished goods” under the sales tax (Person exemption from Payment of Tax) Order 2018 (“Exemption Order”) to only taxable finished goods. [10] The ground raised by the applicant is whether the respondent had a legal basis in raising the Bill of Demand pursuant to Column 4 Item 1 Schedule C of the Exemption Order which would constitute “taxable finished goods”. [11] In this respect, Item 1, Schedule C of the Exemption Order provides that exemption is available for any registered manufacturer on the components with the following conditions: (a) That the goods are approved by the Director General; (b) That the goods are imported or purchased from another registered manufacturer or a warehouse licensed under section 7 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal 65 or licensed manufacturing warehouse under 65A of the Customs Act 1967; (c) That the goods shall be used solely in the manufacturing of finished goods of the person in column (2); and (d) That the person mentioned in column (2) shall pay the sales tax on any goods that cannot be accounted for; (e) Any other conditions the Director General deem fit to impose. [Emphasis added] [12] The Certificate Under The Sales Tax (Persons Exempted From Payment of Tax) Order 2018 (“the Exemption Certificate”) provided by the respondent to the applicant can be sighted at Enclosure 54 exhibit NNY - 2. The Exemption Certificate states that the raw materials, components, packaging materials and manufacturing aids as described in the Appendix are imported/purchased with exemption from sales tax under Item 1 Schedule C Sales Tax (Persons Exempted From Payment of Tax) Order 2018 for use in the manufacture of goods, subject to the conditions specified by the Director General. [13] There were several conditions imposed by the respondent in the Exemption Certificate. This court’s attention was drawn to condition 3 which states: “The raw materials, components and packaging materials shall be used solely in the manufacturing of the finished taxable goods of the registered manufacturer”. [Emphasis added] [14] Condition 3 of the Exemption Certificate clearly states the “finished taxable goods” which would, in its plain meaning, mean the finished goods which are taxable. [15] Nonetheless, the applicant has raised the issued of whether the respondent has any legal basis to impose additional condition by limiting the term “finished goods” under the sales tax (Person exemption from Payment of Tax) Order 2018 (“Exemption Order”) to only taxable finished goods. [16] In this regard, this court made reference to Item 1 Schedule C Sales Tax (Persons Exempted From Payment of Tax) Order 2018 which provides that the goods shall be used solely in the manufacturing of 8 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal finished goods of the person in column (2). It was argued by learned counsel for the applicant that reference was made to finished goods. There was no reference to taxable finished goods. Hence, it was submitted by learned counsel for the applicant that the respondent could not arbitrarily impose a condition that the finished goods were taxable. Reference was made to the case of Ketua Pengarah Hasil Dalam Negeri v OKA Concrete Industries Sdn Bhd [2014] 1 LNS 1675 which stated: “I further agree with the respondent that the law only requires mixer trucks and batching plant to be used for the purpose of the respondent’s business. The law does not require the respondent to physically operate the mixer trucks and batching plant. … There is no room for the appellant to read in the additional requirement that the mixer trucks and batching plant cannot be operate by a contract labourer on behalf of the respondent.” [Emphasis added] [17] It was further submitted that it is arbitrary for the respondent to deliberately apply a narrow interpretation to the term “finished goods” to include only taxable goods to penalise the applicant with tax. [18] Learned Senior Federal Counsel for the respondent argued that by definition under section 2 of the Sales Tax Act 2018 Act 806 (“the Act”) read together with section 12 of the Act, a ‘registered manufacturer’ is one who manufactures ‘taxable goods’ who is liable to be registered under section 13 of the same Act. [19] It was further submitted by the learned Senior Federal Counsel that Section 35(1)(b) of the Act specifically empowered the Minister to make the Exemption Order to exempt tax charged and levied on “any taxable goods manufactured or imported’ (read together with section 8(1)(a) of the Act). It follows that a manufacturer who manufactures ‘non-taxable goods’ is not required to register under the Act, as there are no sales tax is payable by such manufacturer for the end products. [20] Consequentially, since the manufacturer of ‘non-taxable’ goods is not required to register and pay any sales tax on the finished goods, there is no exemption given under the Exemption Order. It was submitted that the applicant is a ‘registered manufacturer’ manufacturing motorcycles above 250cc, which are ‘taxable finished goods'. The applicant is also manufacturer of motorcycles below 250cc, which are ‘non-taxable finished goods’. 9 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal [21] The applicant relied on Item 1 Schedule C of the Exemption Order. Motorcycles below 250cc are ‘non-taxable goods’ under sales tax (Goods Exemption from Tax) Order 2018 purchased ‘taxable’ components for the assembly of motorcycles below 250cc from a third party using an Exemption Certificate. [22] The applicant had, through its director declared in the Exemption Certificate that it ‘certified’ that the exemption sought under ‘Item 1 Schedule C’ for the components purchased ‘for use in the manufacture of goods subject to the conditions therein. [23] In this regard, the question before this court is whether the condition “3rd condition” posed by the Director General of Customs is beyond the provision of the Exemption Order. [24] In this application for judicial review, the Exemption Order was issued with a condition number 3 which states that: “the raw materials, components and packaging materials shall be used solely in the manufacturing of the finished taxable goods of the registered manufacturer”. [25] The question therefore is whether the conditions imposed by the respondent were done arbitrarily. Item 1 Schedule C Sales Tax (Persons Exempted From Payment of Tax) Order 2018 at column 4 states that the following: “(a) That the goods are approved by the Director General; (b) That the goods are imported or purchased from another registered manufacturer or a warehouse licensed under section 65 or licensed manufacturing warehouse under 65A of the Customs Act 1967; (c) That the goods shall be used solely in the manufacturing of finished goods of the person in column (2); and (d) That the person mentioned in column (2) shall pay the sales tax on any goods that cannot be accounted for; (e) Any other conditions the Director General deem fit to impose.” [26] A perusal of the conditions in column 4 (c) do not state taxable finished goods. Does this mean that the finished goods are not taxable. A perusal of the Exemption Order will demonstrate that the word “taxable” is only utilised in column 3 which relates to goods exempted. In column 4 of the Exemption Order the words “taxable” only appears once in item 66 10 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal for Schedule A. This relates to duty free shop operator. This is not the case here as the applicant is a registered manufacturer. [27] The argument put forth by the applicant is that the word “taxable” before the words “finished goods” does not appear in the Exemption Order (item 1 Schedule C). It was therefore argued that the finished goods were not taxable. [28] Respectfully, this court cannot agree with this contention. In the considered view of this court, the Exemption Order must be read as a whole, including together with the Act from which it derived its powers from. Section 35 of the Act is the enabling provision of the Exemption Order, allowing the Minister to legislate the Exemption Order. [29] In this regard, this court agrees with the argument by the learned Senior Federal Counsel who made reference to sections 2, 12 and 13 of the Act. Section 2 of the Act read together with section 12 of the Act, a ‘registered manufacturer’ is one who manufactures ‘taxable goods’ who is liable to be registered under section 13 of the same Act. [30] In the considered view of this court, the applicant was well aware that the Exemption Order stated finished taxable goods. In the even the goods were not taxable, there was no necessity for the applicant to register for tax exemption under the Act. [31] Moreover, item 1 Schedule C allows the Director General to impose other conditions as the Director General deem fit. Therefore this court is satisfied this ground is without merit. (b) Whether the respondent has any legal basis to impose additional condition based on the Guide issued by the Royal Malaysian Customs Department (“the Guide”). [32] The applicant contends that the Guide does not have a force of law and hence the respondent cannot reply on the Guide to impose the taxes. In this regard, the applicant referred to paragraph 6 of the Guide. For ease of reference, paragraph 6 is reproduced below: “Condition for exemption under Item 1 and 2, Schedule C, Sales Tax (Person Exemption from Payment of Tax) 2018 are: (a) The goods are approved by the Director General; (b) The goods are imported or purchase from a registered manufacturer or a licensed warehouse under section 65 or licensed 11 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal manufacturing warehouse under section 54A of the Customs Act 1967; (c) The goods shall be used solely in the manufacturing of taxable finished goods; and (e) The approved person shall pay sales tax on any goods that cannot be accounted for.” [Emphasis added] [33] The applicant submits that the respondent has no legal basis to impose such restriction through the Guide. Gopal Sri Ram JCA (as His Lordship then was) in Multi-Purpose Holdings Berhad v Ketua Pengarah Hasil Dalam Negeri [2006] 2 MLJ 498 ruled that the guideline issued by the authority cannot be considered as the law. The following judgment is instructive: “But, as my learned brother Arifin Zakaria JCA pointed out in response, the FIC Guideline are not law. See Ho Kok Cheong Sdn Bhd v Lim Kay Tiong & Ors [1979] 2 MLJ 224 where Wan Hamzah J said: ‘The guidelines were issued not pursuant to any power given by law, and in my opinion they have no force of law…’” [Emphasis added] [34] It is the applicant’s contention that the Guide has no force of law and hence the Respondent had acted without legal authority and without jurisdiction. It was therefore submitted such an act by the respondent is in contravention of Article 96 of the Federal Constitution which provides that no tax or rate shall be levied by or for the purposes of the Federation except by or under the authority of federal law. [35] It was further submitted by the applicant that the guide dated 24.4.2019 cannot be applied as it has no force of law, particularly as the Exemption Order was gazetted on 28.8.2018. [36] It is the considered view of this court that the Guide is that: A Guide. The function of a Guide is to assist one in carrying out a task. It is not law, and in the considered view of this court, does not have the enforceability of a piece of legislation or regulation. In this regard, this court agrees to the argument by the applicant. [37] Nonetheless, this court observes that Exemption Order and the Exemption Certificate is sufficient for the respondents to impose the tax 12 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal vide the bill of demand issued. To reiterate, the Exemption Certificate issued clearly stated at paragraph 3 “finished taxable goods of the registered manufacturer”. [38] The Exemption Order specifically provides in paragraph 2(1) that subject to paragraph 3, the persons specified in column [2] of Schedule A, Schedule B and Schedule C are exempted from the payment of sales tax on the goods specified in column [3] of Schedule A, Schedule B and Schedule C subject to the conditions specified in column [4] of Schedule A, Schedule B and Schedule C. [39] What this translates into is the exemption is for goods in column [3] of Schedule C. Column [3] of Item 1 of Schedule C states “raw materials, components and packaging materials excluding petroleum”. In other words, only these items are exempted. Column [4] provides the conditions of the exemption. [40] One of these conditions in column [4] is (c) that the goods shall be used in the manufacturing of finished goods of the person mentioned in column [2]. This requires the goods which were exempted under the Exemption Order to be used in the manufacturing of the finished goods. In the considered view of this court, this does not mean that the finished goods is not taxable. This is evident from the Exemption Certificate at paragraph 3 which states the raw materials, components and packaging materials shall be used solely in the manufacturing of finished taxable goods of the registered manufacturer. [41] Therefore this court is satisfied that the current legal framework clearly allows the respondent to issue the Bill of Demand for taxable finished goods. Conclusion [42] For the aforesaid reasons, this court is satisfied this application to be without merit. This application for judicial review is therefore dismissed with no order as to costs. Date: 10 January 2023 (SHAHNAZ BINTI SULAIMAN) Judge High Court of Malaya Shah Alam 13 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal Counsels: - For the Applicant Saravara Kumar a/l Segaran, Yap Wen Hui TETUAN ROSLI DAHLAN SARAVANA PARTNERSHIP Advocates & Solicitors Level 16, Menara 1 Dutamas, Solaris Dutamas, No. 1 Jalan Dutamas 1, 50480 Kuala Lumpur. +6 03 6209 5400 wenhui@rdslawpartners.com For the Respondent Liew Horng Bin, JABATAN PEGUAM NEGARA MALAYSIA Bahagian Guaman, No. 45, Persiaran Perdana, Presint 4, 62100 Putrajaya. +6 03 8872 2000 liewhorngbin@agc.gov.my 14 BA-25-5-01/2020 BA-25-139-12/2019 S/NBA-25-112-10/2019 qTKsUr/TmUqJjB0FnhgngQ **Note : Serial number will be used to verify the originality of this document via eFILING portal