20150318 TZHC Mbeya

· IN THE HIGH COURT OF TANZANIA ATMBEYA. CIVIt CASE NO. 4 OF 2008 ~, . . . '.: ... ·, -. lWBEYA :t)ISTRICT COUNCIL .. ·.~ ........... PLAINTIFF

VERSUS . CO. LIMITED ......... DEFENDANT

MBEYA CEMENT

JUDGMENT Date of fast· o~der: 05/02/2015 Dote of Judgme:ft': 18/03/2015 · AF "~~WALA t J • • • ,;.. .• -:_w:, In this suit, Mbeya District. Council, a Local Government Authory sued Mbeya Cement Company, a manufacturer of cernent kj1.own as Tembo Cement, whose factory is situated at Songvve I:::-:::h.,-;,strial area. The plaintiff is seeking for declaratory orders and injunctive reliefs regarding service levy. Th~ cr1..1X 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. ·200~] whic_h reads:- «rhe revenues, funds and resources of a District ' ' 9o,uncil shall consist of all . monies desired from the service levy. payable by corporate entities at . \ -l. the rate not exceeding 3 per cent of the ium over net of the value added tax 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 0~ 3% of her tt;_·r~over-.o{ the defendant's products. This is so, for a simple :rea~pn _ that; the· defendant's factory is located ~t ·so~gwe Industrial area: Vvithin the jurisdiction of the plaintiff. The area where the pr<?duct originates. The defendant denied to be obliged under law to pay· the said proportion of· servic~ levy to the_ plaintiff. In return he • counter claimed an amount of

Tshs.145, I 70,258 / 62 :;.ai,q. to· · - · ,. the Plaintiff. The background of this suit is that; It v,as first. fU.ed.·h-1 ·fh.is ·· court way back 1n 2008 by the plair..tiff. His Lcrd~!-iip, ~) - Lukelelwa, Judge on 20/5/2010 deiivered. a J:u.clg:nent· . in,, '· favour of the plaintiff. The defendant appealed· to tn(:; Cbur:t.:of, ·-- Appeal of Tanzania. The Court ·of. ·Appeal of _Ta..'t"lzania , . quashed the proceedings, Judgment and,Decree -of the· High ._Co-µrt a.11.d . . . ordered trial denovo on .the gro-unds that, the - J.ea.rnet 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. . ', -2 . (_~ ,,_,. '.When 'this......matter was set'for hearing denovo, the plaintiff I was ··represented: by Mr. Prosper Msivala Senior Legal Officer and Dist:~·ict Solicitor, for the Plaintiff and Miss Kasheni learned . . advocate .. The defendant was repr,esen_ted by Mr. Sinare from . Rex Attorneys·.. The ·respective learned counsels for the parties . ' prayed~to ·adopt: the pleadings as •previo'4sly filed. The prayer· .~ras grai11.ted. . .• ' " '· . .:_; l. The.parties ·agreed triutually_on the fo11owing 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 en titled 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 1n with holding ·, ·. · service levy collected · from the defendant otherwise · ·pay~ble to other local authorities. 5.-To·" ;,--Jhat reliefs are the parties entitled to. . . . . . . Du.ring the· hearing of this case, PW1, one . Kharist s/ o ' . . Michaet•- :.,uanda, the Director for Loc~l · Government in Tanzania; testified ·that in 2007,- · -he was the Director for the . legal services in the office of the Prime Minister vested with the ,, 3 "--- duties of coordinating legal proce,edings . 1n -which .· ·local goverp.ments ~· . . were parti.~s. In that •same. year, . . 2007, he received a letter from" .the plaintiff seel<i:qg ' . : ; for . clarific,itior.. on '. the law relating to paym~nt •of service . levy. Two i:~~sµ:cs:: ~~1ere _ posed in the letter. 1 st , whetht:r the Defendant ' . ~ras· s~~;~~Jc.sed .,- . ..... . to . .- . . . . . . . . .· . pay service l~vy to the: plaintiff, •.and the 2:!c. issue ~.yas,_.whe.tJ:ier . . the defendant's branches were ~upposed. to pay service levy. PW1, gave · his clarification_ · in accordance \vi.th ',the provisions of Section 7(1) (2) o~ the Local Government ?-inane~ . Act. [CAP. 210] R. E.

2092. P\IY,1 ·clarified the issues raised to· . the effect that the Defendcµit was liable tc pay se:rvic e levy to the plaintiff at the rate of 0.3°/o ·of the turn over. He tendered a -· letter which was admitted by this court· as. Exhibit-PI.· PW1 further testified. that, in that letter, Exb.ibit ·Pl it was· also indicated that, the defendan.t Viras paying se~ice levy to Mbeya City Council, Sumbawanga IVlunicipal ·• Coun~H-.. an_d Mtwara Municipal Council. When cross - examined.by-Mr; . . Sin'are, PW1 a.."1s11,rerec..·that, : h:~ _was not aware that other District.Councils· .ii"lc!~dir!.g Mb~ya _City demanded. for service levyJr.cm . the, de:en•¢a_~t.· · PW2, Hafidhu s/ o Ally Mgagi~ · the District.Treasurer qf"I'J:;oya· · District Council testified that _ibefore. 2006; the- def:e!idan·~- ·~1a.s paying service. levy.. . The defendant . t1sed ·to 1 pay ·:~e ,4. : : ', . ' service i~vy monthly at the tune -bf Tshs. 12,000,000/= per mont11.·1n the year 2006;'the:amourtt of payment was reduced to aJi·a:verage ''of Tshs.·1,000,000/=. per month. PW2 averred. that, wheri:":they inquired frorn the defendant on the difference ' \ I • in payrnent·~~they· were told that the. service levy was being paid 'to' the othef Ccfuncils. 'The defendant told the Plaintiff, that they-were paying service levy to Kigoma Ujiji District Council, .• and Teineke Municipal· Council.. Seeing that, the

plaintiff decided to s·eek clarification. from the Permanent Secretary for the Prime' l\Ai:nister's Office Local Government. Their letter to that resporisible office was replied vide Exhibit P1. Upon , receiving the said letter, Exhibit Pl the plaintiff wrote· to the defendant a letter with Ref. No. MDC/L/50/6VOL./V / dated 29 I l 1 / 2007 vvhich was received in :court as ID 1. In Defence, DW 1, Arina a/o Ka1~nga, an employee of the Defenda...."1. t, · -vVorking · 1n depot Section 1n • the Finance . · .. Department testified that payment·of·service levy started with the budget o'f 1999 /2000 .. Before· the· defendants 'were paying, . . . the ·so called Industrial Product Cess. Which was char·ged ·at 0.03% of the totai · 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: ' 20660,· 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. DW 1 te~dered the payment vouchers that. prove that they }:1.ad _stopped paying other local authorities by then, instead the whole sen.r~ce levy was paid to the plaintiff. The court admitted the payrr~ent vouchers collectively as Exhibits D1. From August, 2007 the other depots v,here

the defen_d.fu;.t sells cement claimed service levy. The Defend.att the:r.~_fore ' . started paying them. DW 1 finalized her testimony by st~tihg that, the DefeIJ.dant shall pay the .service levy to :he ~'J!e.::n.tiff,, with effect from the . dGtte of . . the . . order .. or decisic;::: o: .t~~e this ·• .. court. Upon being cross - examined by MiBE Kasheni;: .-:ea~ed· counsel for the Plaihtiff, DW 1, stressed that> t:ie n·efend.9..Ilt. cannot pay the whole levy ·to -the Plaintiff, because-'~'that· amounts to double taxation. On the first issue whether the defendant \J./a..s/is liable to . pay service levy to the plaintiff· for sales of its products n1ade. out_side the plaintiffs jurisdiction; in order to resolve this· i,ssue, it is pertinent' that we. examine the. provisions o: the ia,,r that . . ' ~ ' ,· form the core of the dispute. Section 7 ( 1) (2) of: the Local Government FinaLce Act;· · reads:- " 7 (1) Thf:! revenues, funds and resources of a 6 . . ·_i :, ; '' . i . ' .,_ . · District Council shall consist of:- .· ._ (2) All monies desired from Serzjice Levy payable ' }. . \ . · ·~- · by· co1porate entities at the rate not exceeding , · '.';' ·:- ~:·. · '· ··D.3 percent of the tum over net of the value ·., ." .·· ',: . · .- added Tax and the exercise duty". In my view,.there are two catch words'in the provi_sion that must. b~. properiy construed. One is "corporate

entity" and . - anotl1er'is "ti.irriover". "Corporate Entity" is defined by Law ,Dictionary·'. of Central Law Agency as "forming a body politic. It basically comes from the word in corporation, which is defined by' Lav:/bictiortary of Central. Agency as an intimate Union, the formatior.. of a corporate body, the action of forming a body !, corporate legally authorized to act as- a single person, the · merging cf ori~ · thing in e,nother so that th~ two form a sfngl~ whole,' . . I Bla~k's Law Dictionary, Eight Edition, at page 573 defines - ., ,.,._ - "corpor~te entity". as a corporation's status as an organ.ization existing independently of its shareholders. As a separate ent1ty, a corporation can in its own names sue and be sued, lend arid borrow money, and buy, sell, lease and mortgage property. In 'oxford Advanced, Learners Dictionary 7th Edition at Page 1652 'turnover' is defined as the t~tal amount of goods 7 . , or services sold by a company .during· a particular pe_rio'd of time. Going back. to Section 7(1.) (2) of.·'.c. the Act, it fcllovvs therefore that, the revenues, funds and resources of a Di-strict • • • ~~ • , \. • ~ .'!: • ... • Council shall ·consist of all monies d~sired fro,rp · .S•t=_!·vice l~vy payable by a body. corporate legally authorized to a2t as a single person at the rate not exceeding 0.3% of the total amount of goods or services .. sold. by a

company d~::ri.r..g a particular period of time of the value added,· 'Tax and' . the•·· exercise duty. · Applying. the first rule in _construing Tax Btatu'ie:~, which states that, one must have. regard to the exact wo:ds used in. a Taxing statute and not·. s1.1ppose·.. a.n.y .gene:ta.1-:~prin_ciple·· underlying them and . remai~:1:ing unexpresse;:~; ~.vhic~1. vvTas · emphasized in the· case of CAPE· BRANDY Sl'N!:/t~:::.:~;.'Z,~P···. vs~: ·: '. ·; ·, I.P.C. (1921) R.T.C, it means that; ser1ice l.;:;';1._y as -~!'IJ5 of the . . : sources of revenues that a District Cc,;..:'.~::cit·-~);:.s: ·;o ·i:1·;: .. :1::aid · . vy111c«:1 comes from -a .b o d y corpqtJ1:te l • h. 'L,. • • :!\ n:1 :Ul:: t .:.lS . case ~~s 1v.{oeya - ,, .· . . . of goods. or services, in _thi_s ,case .goc¢!.s ~old_ by ,lV!peya· Ce1'!!ent' . .r < • .. Company the defendant during a:pa.1'.'.tict.1lar pe;riod.: Going through the pl~ad.ings from both _the Plsuntiff ar.~d. ,.. the Defendant, it is not disputed that, the Defendant:scld . . . her . , cement to various local authorities. . This ,vas '. ·.. further ··. cemc1":.ted . - ' ' .... r! ... by DW 1 in. her tesfimony, when she told the court that, they sold ·cement to various local .authorities-. The defendant has mafr1t~iried throughout that--, .-the ~er:vice levy was paid to other ·locafau~ho~i::ies \:vher~. there· wer.e _depots of the coi:npany and hence.,·

·'the· Pleisri tiff was ·not justified to be pay the whole amount . . ;,- ;,_. . . .: : . . .... ~-. ;';-~ ,·: :·. The qt.le~tion'."tthat ari~e··~:~ ·he~:e; 'is whether a 'depot' is a C• • . . '. . body ·corpcrate·· unde!" the Act~ ·(Cap 29_1 R:E. 2002 the Local· Govern~.ent ·Authoritie·s Finance Act). The. ansvver 'is obvious, No. That being the case then,·. should iYe cell- .what was paid to -other Councils through the depots supply of · Cement, Service Levy?. The answer is definitely. Not in the affirmative. ·rt . . is No. Service l_e,vy is paid from the total amou·n t of goods sold .by j I s, . • the co~1pru;y d~r1ng a particular- period of tinie. When ·cement was transported ~r-om ·the Plaintiffs jurisdiction, to other areas .· \Vher~~- ~he d~fenci"ant had. de'pots and later· sold; . It is my . int.e11>retation ·of t11e law that, the' sales·· are deemed· to have ·been· done·· from· the corporate· ·entity"· which· is Mbeya Cement Company and. hence the sales· rirad.e·· outside· the plaintiffs. jurisdiction· are.· part of·. the 'turnover'. of the· ··defendant's products._·. . . . . Thi_s "is J1-:rther qu~ified :by- Section· 16 (6) of the Local Govei"~~enf F(nance Act-{Cap .. 290 R.E. 2002 Section 16 9 (6) of the Local Government Fb1a~ce Act (Cap. 290 R.E. 2002) which states : - :, : , . . " The rate imposed in r.elq,tiqn. iuith. serYice levy shr.k!l • •. ' • ' • . .,. • I •

•~: _, • , •• . • :• • , • I be payable in lieu: ofthe·1ndt::.$try ceiiJS C{nc~ the corporate en~ities paying service levy sf.J:ig iuzt J?e liable to .pay the produce . .. . . . cess". . {emphasis . supplieq) '•. . ' ' ~ ·, The import of this Secti()n is. that, service levy rei:>laced Industry cess, and the Industry cess. \Vas corporat e en t 1·t·1es,· w h"1ch · 1n. · our- case · 1s .......·hv 11.r,~ . ~j 1·.1oeya· .r•-::.~e-ri+ - .... .a. ..... ~--'-· Company, the defendant. According •to bw 1, Industry cess had bee:rt :9s.id to the plaintiff till September 2007, v.rhen the defendant sto~pcd.: as per annexture "MCC7" and testimony of DW1. It· is not kho""n under what justifications did the defendant d~c:.dc ·to splh:· the··-· . service .levy ,tq other Local Authorities· i:1.ste2.d cf pa~.t.ig _the Plaintiff the full amount as she used·to clo v;,ritl-.::·I~z-6:.tt!tltrv;,:::e.s::-: ~- ..;- . With the foregoing; . affirmative. The reason. . ~s. ~o~':,. ~tated. b.ei~g_1 ~ks:~. s;:-:·vJce.· . J:,~v~, · must comprise of total sales· of the p.toduct m.ade. ;, In the· sec.on_d . ~ issu_e,. . o'n whether, . . . other. ...Locai·a·Dver.:.~~~·~·.ents ' . .. ... ~ Authorities are en ti.tied to: setvi'ce. .Jevy.. .£or >sal~s ·c:atl~~ ::n. ~h.eir ••,, jurisdiction, the-answer.is ili ..the,_affirmative~ .. ·,.·;. · . District Councils are· yested _=t.:vith· power._ t(~; .Jmak.e ·by -:-_-

-!~~vs _pursuant to the provisions· of Sections· ,13 and-.].5 . . (.1} of t]'.le ,Act· . ~ :10. l for administratio·rt of service levy. -·However it is clear from . ·Section 7 •{ l) {2;· of t~e Act;. that service levy is charged from a corp"dr~te e~tity·-~n:a "r1·0.in, the- totai-:turri~ver. - Now, :~i~~~, th~ ,defeiiciant's ·:depots are part arid parcel of · ·. Mbeya::· c~~~2i,.· Company: that, they .do not h~ve a·· separate. • - ' t.-' .:. ~--■ • ~ .' • ' • • body i:>e·rson!ality,· within· the strict ~eaning_of Section 7 (1) (2) . . of .the-'Act, could pay service.. levy .apart .from . that paid. to the . plaintiff·-·wnich :~as t~ be. calculated_ from the produced total turn. o~er ·o(ifie. ~ales .of the cement.· . The depots outside the Plaintiffs· jurisdiction are for dist1~ibution· ·arid .sale of the d~~endant's products. . It follows_ therefor~ that, the Def~nd_ant wa,s carrying on business as_ a_ corporate. entity. This cannot . ' entitle •. the defendant to pay • I"· . •. I ~ .. I . . • : • • ' • • . • 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 entitied. t6· chzrrge service letnj. · ·: · · -· - . .. . . . The :k:ieiVet tc ·t:~~- ·third .. is.sue' i's:· again in the affirmative, . .. • ~ "\ ,o ! :~ • ~ • •T• -: O '• O i : • " • • O in the se1"ls,-e~that al!-the sales ·of

9ement done by the company lNhich enjoys services· :·f:rorn ·the, Plaint_iffs jurisdiction form part of t.1te:. -~tlrno...,iei ··.lor '":i-V:t.ith. the.. plaintiff i~ entitled to charge un.der ;Sect1cn "·7 (1) -(2) of. the· Local Government Authorities Finance Act, Cap . .290 R. E. 2002~ ·I . • · •"As fegarcis.- is•sue ·No.4,, I am of-the firm· view_ that, the .Plaintiff ~as jcstified .in ~ithholding ..serv1ce levy collected 'from 11- l. · .th~ def~ndant otherwise. payabie. to other Iocal authorities. This is simply justified by _the fact that, the_ amount withheld. is part qf the total sales of th~- ·.company ,vhic~h -if0rrns .·a tq.rn.over to be ~harged at a rate not exceeding-0..O3% as r-,·i!-_Section? (1) (2) of t~e Act. -· As for the SUi. issue,. the cou:rt do he~t~t0,. ·d;~s~J.,ss the . Defendant's counter ·claim ,arid: . : order the Defcr::.::::$,;.:--.i . to :j~y t!le r ·.. plaintiff the service }evy... Th~ .Defen~~~:t ··c·vv~t:.-':j~;"_e· :~:~11'.::i,i1:.r.f a debt of unpaid service levy as claime~ ba,sir.:.g on ~l ~:1~.€ ss:J.e~ o~_ cement mad e ex--'1ac "- t ory .pro'duc,,. . =d· fro-'-., ' ~.., +h.P ";!"' ,,;•·;:;.n .-1:,;,,_.i.,~ .... ·::w·v-, ""v t:· ---~ .., .,Jcl~.----... -1..-- .... ..., •.., •. ~~.c •. 1 factory. In the -upshot. Ju,<;ign"!e·nt· •and Dec1 ~e is· ~nte:.red in 4 favour of the. plaintiff. The costs,_ of the. si..:dt tc ;-;e horn by the ·

Defendant, That is the Plaintiff "is also ~~\varded-- ·J1.e ·~vsts,-of · this suit. - dA~ A~ F.. 'G1\,.1.L...!t · JUDGE,- . . . . -18/()3/20i5 : . '• ... . . : " ' •• • • I•••.· • '• ... : . ~ . ... ....· ' :.., ·.' ,. . (_ 18/03/2015 __ . . . Corai:.n:· A.F> Ngwala - J. 1 ••••. • • ' Plaintiff:" Mr: Msival:a (Solicitor) For Defendant?<Ahsent Mr. ?dsiva~'la:>: I-hold the brief of Mr. Sinare Advocate. Court: - '.° ,:rught ·of Appeal to Court of Appeal of Tanzania - . -,explained~- A~~- - A~F~NGWALA - -. , --JUD.GE ,. ·· "-18/03/2015" .. 13