1Rwanda Revenue Authority v Alpha Palace Hotel

# 1Rwanda Revenue Authority v Alpha Palace Hotel

- Source: Amategeko - Section: Decisions (Judgements) - Date: 2014-01-24 - Case/document no.: RCOMA 0011/11/CS - Collection: Supreme Court

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Rwanda Revenue Authority v. Alpha Palace Hotel [Rwanda SUPREME COURT – 2O14SC – RCOMA 0011/11/CS (Mutashya, P.J., Rugabirwa and Hitiyaremye, J.) January24, 2014] Tax Laws–Tax procedure – Right for an assessment procedure without notice –basis of Evidences obtained illegally– Recalculate the tax – Law n° 25/2005 of 04/12/2005 on tax procedures, articles 23, 25, 28. Tax Laws – Counsel Reward – Whether there is no determined fee allocated by the court in appeal since no damage occurred to the respondent. Facts: The appellant had been sued in the Commercial High Court by the Respondent (Tax payer) for having assessed him illegally 270.207.250 Rwf, and then was requesting the annulment of that assessment and damages for loss due to the follow up of the case. The Commercial High Court Held that the Assessment procedure without notice of 270.207.250 Rwf, for the Tax period of 2004,2005.2006 unlawfully made is quashed and requested the appellant to give one million (1.000.000 Rwf) to the Respondent as damages including Costs of proceedings and Counsel’s fee. The appellant was not satisfied with the ruling and appealed against in the Supreme Court alleging that the Commercial High Court confirmed that the search was illegally conducted, he finds that the assessment was legally made and does not understand the basis of the damages allocated by the Court Held: 1.The Tax Administration is entitled to start the estimated assessment procedure without notice when there are serious indications of tax fraud that have been legally obtained. 2.The assessment without notice which has been made to the Respondent must be removed since it is based on evidences obtained illegally; therefore, the tax for the period of 2004, 2005 and 2006 has to be recalculated following the law related to tax procedure. As demonstrated in rra v kamanzi, case nº RCOMA 0014/11/CS decided on 12/10/2012 3. Claiming Damages based on the appeal of the appellant is without merit since the claimant does not show what he has suffered for, because it is the appellant right recognized by the law, when the law does not provide otherwise. 4. When the appeal of the appellant have directed the Respondent to search for a counsel and provided fees for, the court reimburse these fees on its own discretion. Appeal allowed in part; Assessment procedure without notice is quashed; Decision of Commercial High Court set aside in part and varied; The court fees charged to the appellant. Statutory instruments referred to:

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law n° 25/2005 of 04/12/2005 on tax procedures,articles 23,25,28 Cases referred to: RRA v kamanzi nº RCOMA 0014/11/CS decided on 12/10/2012, Judgment I. BRIEF BACKGROUND OF THE CASE [1] Alpha Palace Hotel SARL was audited in its financial statements documents with the that amount through notification of assessment procedure without notice on the 01/03/2009. intention of checking whether there have been no tax evasion in the periods of 2004, 2005 and 2006 basing on the certified annual tax declarations submitted by Alpha Palace Hotel SARL. Audit was done by means of search which was conducted in the premises of Alpha Palace Hotel on the dates of 24/05/2007 and 06/06/2007. Financial statement documents were seized so as to be controlled and checked, RRA argues that in the tax auditing of those years, they found that there have been tax evasion of an amount equal to 1 687 206 577, and these lead to tax Alpha Palace Hotel [2] ALPHA PALACE HOTEL was not satisfied with that decision and it appealed to the Commissioner General saying that the way it was assessed was illegal and that it must be annulled. They further said that even if it can have been assessed legally, the way it was calculated is not accurate. After analyzing the appeal of Alpha Palace Hotel and examining its explanations, Commissioner General confirmed that the tax should be reduced to 305.210.010frw.ALPHA PALACE HOTEL was not also satisfied with this assessment and it appealed against it again contending that in addition to have been done illegally, it is not also fairly and accurately calculated because it includes the money of ISHIMWE who is a minor exempted to pay tax and that ALPHA PALACE HOTEL does not represent him. On the 25th /08/2010, Commissioner General has responded to this appeal reducing that tax to 270.207.250 Rwf. [3] ALPHA PALACE HOTEL lodged its claim in the Commercial High Court arguing that the tax amounting to 270.207.250frw was assessed illegally; it asked its annulment and being given damages for Loss due to the follow up of the case. Commercial High Court ruled the case on the 11th/02/2011 confirming that the action of assessment without notice conducted for ALPHA on the tax equal to 270.207.250frw for the periods of 2004, 2005 and 2006 is quashed because it was illegally assessed, the court further ordered Rwanda Revenue Authority (RRA) to give ALPHA Palace Hotel damages equal to a million (1.000.000) which includes Costs of proceedings and Attorney’s fee. [4] RRA was not satisfied with that decision and appealed in the Supreme Court alleging that the Commercial High Court confirmed that the search was illegally conducted while it finds it legal and the fact that court ordered damages which are not founded.

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[5] The hearing of this case was conducted in public on the 17th /12/2014; RRA represented by counsel KABIBI Speciose together with counsel GASANA Raoul while ALPHA PALACE HOTEL SARL was represented by counselTWIRINGIYEMUNGU Joseph. II. THE LEGAL ISSUE TO BE EXAMINED IN THE CASE AND ITS ANALYSIS whether the tax equal to 270.207.250frw imposed to ALPHA PALACE HOTEL SARL through assessment without notice (imposition d`office ) was legally conducted. [6] counsel GASANA Raoul representing RRA argues that Commercial High Court Committed a mistake in annulling the tax imposed to Alpha Palace Hotel on the motivation of confusing the law of criminal procedure and the law of the tax procedure while the two laws are different, the court looked into the procedure required in matters concerning search and seizure in criminal procedure while tax procedures are provided for by the law N° 25/2005 on the tax procedures. He added on that, in this law the search warrant is not required, that what is important is that the search is conducted in the premises of the institution to be searched and that the time for search was respected. [7] counsel GASANA Raoul further says that regarding the seizure, they are also different from those in criminal procedure because in RRA two persons go including a police who is tasked with the criminal investigation concerning the crime of tax evasion and RRA officers who are tasked with the audit and tax as provided for by article 22 of the law on the tax procedures, these officers of RRA are given access to books and records kept as well as all related documents. For that, if there is an error in a search warrants that should not concern the tax but they should be used in a criminal case. He concludes saying that with regard to damages to be born by RRA they should also be cancelled since it is ALPHA Palace Hotel which introduced this case while it best knew that it must pay tax. [8] counsel KABIBI Speciose who represents RRA also says that the Judge confirmed that documents which were based on to impose tax on ALPHA PALACE HOTEL were illegally obtained and this leads him to conclude that the tax imposed must be annulled but he did not show the legal procedure through which tax procedure should be done, neither did he say that the tax has been prescribed and years of its prescription. [9] counsel TWIRINGIYEMUNGU Joseph who represents ALPHA PALACE HOTEL replies that first of all the Judge should not have taken the decision on something which was not among the subject matter (which was not referred to the court), he says that what the judge was asked to rule on is that the tax was illegally imposed and that is all what he did, and that pursuant to the formulation of the law on tax procedures, they are composed of 72 provisions. Whenever a single procedure is violated, the law on tax procedures is therefore violated in whole, and that in accordance with article 26 and 27 together with article 25 and 29 when the assessment without notice procedure is illegally conducted it becomes null and void, for that the Judge committed no mistake. Furthermore ALPHA PALACE HOTEL has normally paid its tax ,the subject matter in the court is the additional tax because normally a person must have paid, then after RRA comes again to make its audit so as to examine whether there have been no lies in the tax declaration with the intention of its evasion .

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[10] counsel TWIRINGIYEMUNGU keeps on saying that the lawyers of RRA contradicts themselves because in the Commercial High Court they used , in their pleadings, the law on criminal procedure but now in the court they change and say that there must be used article 25 of the law on tax procedures. The Judge has said that being allowed to enter into one`s premises does not mean to search and seize the document found therein, that if RRA was in need of the books and documents they would have requested it in a written form as it is provided for by article 23 of that law, that arguments of the case on behalf of RRA that RRA officers who accompanied a Police officer who went there to search were their normal employer doesn’t constitute the truth because they signed on the statement of the seizure which means that they are the one who seized those documents and took them to RRA`s Office. III. THE VIEW OF THE COURT [11] Article 28 of the law N°25/2005 of 04/12/2005 on Tax procedures provides for the assessment procedure without notice. one of those means is tha the Tax Administration is entitled to the right of starting assessment procedure without notice when there are serious indications of tax fraud.1 While article 25 paragraph one of the same law provides about the entrance to premises of a taxpayer.2 [12] Analysis of those provisions shows that Rwanda Revenue Authority (RRA) can use the assessment procedure without notice when there are serious indications of tax fraud. For this assessment to be possible, is that RRA is given the power of entrance to premises of a tax payer so that evidences for that tax fraud appear, and these are what are provided in article 25 paragraph one of that law. That provision allow RRA to enter where there are serious indications of Tax fraud without giving any notice either written or not. However, as it was explained by the Commercial High Court, this right of entrance to premises granted to RRA does not also grant them the right to take or seize the books or documents related to financial statements which are found therein. If it finds it complicated to do its audit, it can request in the written form a given document or financial statement books as provided for in the article 23 of this law.3 1 Article 28 of the law nº 25/2005 of the 04th/12/2005 on the tax procedures; concerning the Assessment procedure without notice, it providdes that; The Tax Administration is entitled to the right of starting assessment procedure without notice when: 1°no tax declaration has been made; 2°a tax declaration was filed after the day mentioned in the Law on Taxes and there was no proof given of “force majeure” justifying the delay in filing; 3°the tax declaration was not signed by a competent person; 4°the tax declaration was not accompanied by all necessary documents; 5°the taxpayer was unwilling to cooperate with a tax audit officers or did not provide the information requested; 6°books and records were not kept as provided by law; or 7° there are serious indications of tax fraud. 2 An authorized officer may visit and enter into public premises of the taxpayer or of any other person between 7:00 am to 6:00 pm, without issuing any written notification. He or she may also request to enter private buildings which are assumed to be business related. 3 Article 28 of the law nº 25/2005 of the 04th/12/2005 on the tax procedures provides that upon written request by the Tax Administration, a copy of or any part of the books of accounts kept or any other related document, including lists of clients and lists of suppliers has to be provided to the Tax Administration within seven (7) days, unless the taxpayer gives sufficient proof of difficulties in writing faced in preparing and delivering the requested information.

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[13] Concerning this case, the court finds that RRA imposed ALPHA Palace Hotel SARL the tax equal to 270.207.250 RWF through the assessment procedure without notice basing on the mistakes found in the financial statement books which were illegally seized when a Police Officer named MBANZABUGABO Michel together with RRA officers charged to fight against tax evasion (RPD) entered the premises of ALPHA Palace Hotel SARL and searched the place because RRA suspected the tax fraud there and they took and seized their financial statement books to the office of RRA. Mistakes/errors found in those books are those which lead them to assess and impose tax to ALPHA Palace Hotel SARL the above said tax. [14] Basing on what comes to be said in the paragaraph 13 and 14, the court finds that the requirements of the law was not fulfilled when RRA imposed ALPHA Palace Hotel SARL the said tax through assessment procedure without notice (la procédure d’imposition d’office), it was not fulfilled when RRA officers went in the premises of Alpha Palace Hotel and seize financial statements books and other documents disregarding what is provided for in the article 23 the law N°25/2005 of 04/12/2005 on Tax procedures. For that, the assessment without notice conducted to ALPHA Palace Hotel must be quashed because it was done on the basis of evidences obtained illegally, the tax of the periods of 2004, 2005 and 2006 will be recalculated in accordance with the law on tax procedures and this is the same position/opinion in the case nº RCOMA 0014/11/CS rendered on the 12th /10/2012 by the Supreme Court between RRA and KAMANZI Charles. [15] The court remarks that the amount of 2 000 000 Rwf requested by ALPHA Palace Hotel SARL on the basis of being brought before the court ( of appeal) are not justified because it is not showing the harm got from the appeal of RRA as it is its right when the laws do not provide, However because RRA appealed which lead ALPHA Palace Hotel SARL to hire a paid lawyer it must be given three thousands Rwandan Franc (300 000 rwf) determined in the sovereign discretion of the court in adition to what was determined in the Commercial High Court IV. DECISION OF THE COURT [16] Rules that the appeal of RRA is founded in part; [17] Rules that the assessment without notice which has given rise to a tax equal to 270 207 250 Rwf imposed to Alpha Palace Hotel SARL is annuled; [18] Declare that the tax of the periods of 2004,2005 and 2006 has to be recalculated in accordance with the laws; [19] Rules that the judgement Nº RCOM 0271/10/HCC/KIG decided by Commercial High Court is modified with regard to the recalculation of the tax of the periods of 2004,2005 and 2006 in accordance with the laws; [20] Orders RRA to give Alpha Palace Hotel SARL the amount of 300.000 rwf in addition to one million (1 000 000 Rwf) ordered by CHC, the sum of which is one million and three thousands (1 300 000 Rwf);

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[21] Orders RRA to pay the court fees equal to 52.550 Rwf.