mbeya district council vs mbeya cement co ltd 2015 tzhc 2071 18 march 2015

IN THE HIGH COURT OF TANZANIA

AT MBEYA CIVIL CASE NO. 4 OF 2008 MBEYA DISTRICT COUNCIL ............. PLAINTIFF

VERSUS MBEYA CEMENT CO. LIMITED ........ DEFENDANT

JUDGMENT Date of last O'der: 05/02/2015 Dote of Judgment: 18/03/2015 A. F. N'SWALA, J. In this suit, Mbeya District Council, a Local Government Authorv sued Mbeya Cement Company, a manufacturer of cement known as Tembo Cement, whose factory is situated at Songwe Industrial area. The plaintiff is seeking for declaratoiy orders and injunctive reliefs regarding service levy. The crux of the matter lies on the interpretation of the provisions of Section 7 (1 ) (z) of the Local Government Finances Act [Cap.290 R. E. 2002] which reads:- "The revenues, funds and resources o f a District Council shall consist o f all monies desired from the service levy payable by corporate entities at i- the rate not exceeding 3 per cent o f the turn over net o f the value added tcoc and the exercise duty”. According to the plaintiff, the cited provision of the law imposes a legal duty to the defendant to pay the plaintiff, monthly service levy at a tune of O. 3% of her turnover of the defendant's products. This is so, for a simple reason that, the defendant’s factory is located at Songwe Industrial area within the jurisdiction of the plaintiff. The area where the product originates. The defendant denied to be obliged under law to pay the said proportion of service levy to the plaintiff. In return he counter claimed an amount of Tshs. 145,170,258/62 ^aid to the Plaintiff. The background of this suit

is that, It was first filed in :his court way back in 2008 b}^ the plaintiff. His Lordship, Lukelelwa, Judge on 20/5/2010 delivered a Judgment in favour of the plaintiff. The defendant appealed to the Court of Appeal of Tanzania. The Court of Appeal of Tanzania quashed 9 the proceedings, Judgment and Decree of the High Court and ordered trial denovo on the grounds that, the learned judge decided the case basing only on the written submissions by the parties without hearing the case as required under the provisions of Order XVIII of the Civil Procedure Code, Cap. 33 R.E. 2002. 1 When this matter was set for hearing denovo, the plaintiff was represented by Mr. Prosper Msivala Senior Legal Officer and District Solicitor, for the Plaintiff and Miss Kasheni learned advocate. The defendant was represented by Mr. Sinare from Rex Attorneys. The respective learned counsels for the parties prayed to adopt the pleadings as previously filed. The prayer was granted. The parties agreed mutually on the following issues 1. Whether the defendant was/is liable to pay services levy to the plaintiff for sales of its products made outside the plaintiffs jurisdiction.

2. Whether other Local Government are entitled to the service levy for sales made in their jurisdiction.

3. If the answer to issue No.2 is in the affirmative whether the plaintiff demand for payment of service levy was justified.

4. Whether the plaintiff was justified in with holding service levy collected from the defendant otherwise payable to other local authorities.

5. To what reliefs are the parties entitled to. During the hearing of this case, PWi, one Kharist s/o Michael Luanda, the Director for Local Government in Tanzania, testified that in 2007, he was the Director for the legal services in the office of the Prime Minister vested with die duties of coordinating legal proceedings in which local governments were parties. In that same year, 2007, he received a letter from the plaintiff seeking for clarification on the law relating to payment of service levy. Two issvxs were posed in the letter. 1st, whether the Defendant was supposed to pay service levy to the plaintiff, and the 2nd issue was whether the defendant’s branches were supposed to ipecy sen/ice levy. PWi, gave his clarification in accordance with the provisions of Section 7(1) (2) of the Local Government Finance Act. [CAP. 210] R. E.

2002. PWi clarified the issues raised to the effect that the Defendant was liable tc pay service levy to the plaintiff at the rate of 0.3% of the turn over. He tendered a letter which was admitted by this court as Exhibit Pi. PWi further testified that, in that letter, Exhibit P I it was also indicated that, the defendant was paying service levy to Mbeya City Council, Sumbawanga Municipal Council and Mtwara Municipal Council. When cross - examined by-Mr. Sinare, PWi answered that, he was not aware that other District Councils including Mbeya. City demanded for service levy from the defendant. PW2 , Hafidhu s/o Ally Mgagi, the District Treasurer qf Mbeya District Council testified that before 2006, the defendant was paying service levy. The defendant used t o ’pay the plaintiff 4 service levy monthly at the tune of Tshs. 12,000,000/= per month. In the year 2006, the amount of payment was reduced to an Average of Tshs. 1,000,000/= per month. PW2 averred that, when they inquired from the defendant on the difference in payment, they were told that the service levy was being paid to the other Councils. The defendant told the Plaintiff, that they were paying service levy to Kigoma Ujiji District Council, and Temeke Municipal Council. Seeing that, the plaintiff decided to seek clarification from the Permanent Secretary for the Prime Minister's Office Local Government. Their letter

to that responsible office was replied vide Exhibit Pi. Upon receiving the said letter, Exhibit PI the plaintiff wrote to the defendant a letter with Ref. No. MDC/L/50/6VOL./V/ dated 29/11 /2007 which was received in court as IDi. In Defence, DWi, Anna d/o Kalinga, an employee of the Defendant, working in depot Section in the Finance Department testified that payment of service levy started with the budget of 1999/2000. Before the defendants were paying, the so called Industrial Product Cess. Which was charged at 0.03% of the total turn over. However when the Defendant started receiving demands from the other areas where the Defendant sells cement they stopped paying the plaintiff. In the year 2006, the plaintiff sent demand letter to the Defendant, demanding payments of the whole levy from May 5 2006. Following that letter, the Defendant paid the whole service levy from May 2006 to July 2007. DWi tendered the payment vouchers that prove that they had stopped paying other local authorities by then, instead the whole service levy was paid to the plaintiff. The court admitted th£ payment vouchers collectively as Exhibits Di. From August, 2007 the other depots where the defendant sells cement claimed service levy. The Defendant therefore started paying them. DWi finalized her testimony by stating that, the Defendant shall pay the service levy to the plaintiff with effect from the

date of the order or decisicp of \i;e this court. Upon being cross - examined by Miss Kasheni, learned counsel for the Plaintiff, DWi, stressed that, the Defendant cannot pay the whole levy to the Plaintiff, because that amounts to double taxation. On the first issue whether the defendant was/is liable to pay service levy to the plaintiff for sales of its products made outside the plaintiffs jurisdiction; in order to resolve this issue, it is pertinent that we examine the provisions of the law that form the core of the dispute. Section 7 (1) (2) of the Local Government Finance Act; reads:- “ 7 (1) The revenues, funds and resources o f a 6 District Council shall consist o f - (2) All monies desired from Service Levy payable by corporate entities at the rate not exceeding 0.3 percent o f the turn over net o f the value added Tax and the exercise duty”. In my view, there are two catch words'in the provision that must be properly construed. One is “corporate entity” and another is “turnover”. “Corporate Entity” is defined by Law Dictionary o f Central Law Agency as “forming a body politic. It basically comes from the word in corporation, which is defined by Law Dictionary of Central Agency as an intimate Union, the formation of a corporate body, the action of forming a body corporate legally authorized to act as a single person, the merging of one'thing in another so that the two

form a single whole”. Black's Law Dictionary, Eight Edition, at page 573 defines “corp ora te e n t i t y as a corporation's status as an organization existing independently of its shareholders. As a separate entity, a corporation can in its own names sue and be sued, lend and borrow money, and buy, sell, lease and mortgage property. In Oxford Advanced, Learners Dictionary 7th Edition at Page 1652 turnover' is defined as the total amount of goods 7 or services sold by a compare during a particular period of time. Going back to Section 7(1) (2) of the Act, it follows therefore that, the revenues, funds and resources of a District Council shall consist of all monies desired from sen/ice levy payable by a body corporate legally authorized to azt. as a single person at the rate not exceeding 0.3% of the total amount of goods or services sold by a company during a particular period of time of the value added. Tax and the exercise duty. Applying the first rule in construing Tax statuses, which states that, one must have regard to the exact words used in a Taxing statute and not suppose any .general principle underlying them and remaining unexpressed, which was emphasized in the case of CAPE BRANDY S Y VS. I.P.C. (1921) R.T.C, it means that, sen/ice levy as one of the sources of revenues that a District C,>:j.ncil‘ has ';.o paid comes from a body corporate which in this case is

Mbeya Cement Company. It is actually from the tota.1 amount of sales of goods or services, in this case goods sold by Mbeya Cement Company the defendant during a particular period. Going through the pleadings from both the Plaintiff and the Defendant, it is not disputed that, the Defendant sold her cement to various local authorities. This was further cemented 8 by DWI in her testimony, when she told the court that, they sold cement to various local authorities. The defendant has maintained throughout that, the service levy was paid to other local authorities where there were depots of the company and hence, the Plaintiff was not justified to be pay the whole i amount. « " The question 'that arises here, is whether a ‘depot’ is a bod}r corporate under the Act, (Cap 291 R:E. 2002 the Local Government Authorities Finance Act). The answer is obvious, No. That being the case then, should we call what was paid to other Councils through the depots supply of Cement, Service Levy?. The answer is definitely. Not in the affirmative. It is No. Service levy is paid from the total amount of goods sold by the company .during a particular period of time. When Cement was transported from the Plaintiffs jurisdiction, to other areas where the djefendant had depots and later sold; It is my j interpretation of the law that, the sales are deemed to have been done from the corporate entity which is

Mbeya Cement Company and hence the sales made outside the plaintiffs jurisdiction are part, of the 'turnover' of the defendant's products. This is Farther qualified by Section 16 (6) of the Local Government Finance Act (Cap. 290 R.E. 2002 Section 16 (6) of the Local Government Finance Act (Cap. 290 R.E. 2002) which states " The rate imposed in relation with service levy shall be payable in lieu o f the-Industry cess and the corporate entities paying service levy shall nai be liable to pay the produce cess”, (emphasis supplied} The import of this Section is that, service levy replaced Industry ce&s, and the Industry cess was bein^ paid by corporate entities, which in our case is by Mbeya Cement Company, the defendant. According to DWi, Industry cess had been paid to the plaintiff till September 2007, when, the defendant stopped, as per annexture “MCC7” and testimony of DWi. It is not known under what justification s did the defendant decide to split the service levy to other Local Authorities instead cf payi-ig the Plaintiff the full amount as she used to do wit% Industry cess. With the foregoing, the answer to the 1st issue is in the affirmative. The reason as afore stated being that service lew ♦ must comprise of total sales of the product made. In the second issue, on whether other Local Governments Authorities are entitled to service levy** for, sales ir^ade in

their jurisdiction, the answer, is in the affirmative. :. District Councils are vested with power te .make by - laws pursuant to the provisions of Sections 13 and I 5 (1> of the Act 10 for administration of service levy. However it is clear from Section 7 (1) (2- of the Act, that service levy is charged from a corporate entity and from the total turnover. Now, since, the defendant's depots are part and parcel of Mbeya Cement Company that, they do not have a separate body personality, within the strict meaning of Section 7 (1) (2) of the Act, could pay service levy apart from that paid to the plaintiff which was to be calculated from the produced total turn over of the sales of the cement. The depots outside the Plaintiffs jurisdiction are for distribution and sale of the defendant’s products. It follows therefore that, the Defendant was carrying on business as a corporate entity. This cannot entitle the defendant to pay ■ -• ■v 1 ••' service levy to those other areas. On the authority of Section 7 (1) (2) of the Act, other District/Local authorities were and are not entitled to charge service levy. The answer tc the third issue' is again in the affirmative, in the sense that all the sales of Cement done by the company which enjoys services from the Plaintiffs jurisdiction form part •* *• 1* of the turnover for which the plaintiff is entitled to charge under Section 7 (1) (2) of the Local Government Authorities Finance Act, Cap. 290 R. E.

2002. As regards issue No.4, I am of the firm view that, the Plaintiff wa& justified in withholding service levy collected from li the defendant otherwise payable to other local authorities. This is simply justified by the fact that, the amount withheld is part of the total sales of the company which forms a turnover to be charged at a rate not exceeding 0.03% as per Section 7 (1) (2) of the Act. As for the 5th issue, the court do hereby drsrciss the Defendant’s counter claim and order the Defer^is^J: to pay the plaintiff the service levy. The .Defendant cwe& £'f.e plaintiff a debt of unpaid service levy as claimed basing on ,&11 t&e sales, of cement made ex-factory produced from the DefeR^&r^’s cement factory. In the upshot Judgment and Decree is Entered in favour of the plaintiff. The costs of the suit tc be born by the Defendant, That is the Plaintiff is also awarded the costs of this suit. A.FJ tLA

JUDGE 18/03/2015 12 18/03/2015 Coram: A.F. N gw ala- J. Plaintiff: Mr. Msivala (Solicitor) For Defendant: Absent Mr. Msivalla: I hold the brief of Mr. Sinare Advocate. Court: Right of Appeal to Court of Appeal of Tanzania explained. A.F.NGWALA

JUDGE 18/03/2015