[2024] UGCommC 332

# THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION] CIVIL APPEAL NO. 0047 OF 2022 (ARISING OUT OF TAT APPLICATION NO. 165 OF 2020 AND NO. 05 OF 2021)

# **UGANDA REVENUE AUTHORITY:::::::::::::::::::::::::::::::APPELLANT**

#### VERSUS

WIPRO TECHNOLOGIES PTY LTD::::::::::::::::::::::::::::::::::::

#### Before Hon. Lady Justice Patricia Kahigi Asiimwe

### Judgment

#### Introduction

- This is an appeal from the Ruling of the Tax Appeals Tribunal $1.$ in TAT Application No. 165 of 2020 and No. 05 of 2021. The background to the application is that The Respondent applied for a VAT refund of UGX 510,180,213 for October 2015 and UGX 634,359,115 for October 2019 based on credit notes issued to MTN Uganda. - 2. The Appellant conducted a refund audit from March 2014 to October 2019 and rejected the VAT refund application, the input tax credit of UGX 1.514.116.604 was disallowed on the ground that it could not be verified and raised an assessment of UGX 1,557,625,315. The Respondent objected to the said VAT assessment. - 3. On $10^{th}$ December 2020, the Appellant made its ruling partially allowing the objection and issued an amended additional VAT assessment of UGX 1,522,905,918. The Respondent filed an application for review before the Tax Appeals Tribunal.

$\mathcal{A}$

## Decision of the Tribunal

In its ruling delivered on 29^th September 2022, the Tax Appeals $4.$ Tribunal found that the credit notes issued to MTN Uganda were valid and that the Respondent was entitled to a VAT refund of USD 471,488,855.

## Grounds of Appeal

- 5. The Appellant being dissatisfied with the decision of the Tax Appeals Tribunal filed a Notice of Appeal and raised the following grounds: - The Honorable Members of the Tax Appeals Tribunal erred $\mathbf{I}$ . in law when they held that the credit notes issued by the applicant were bonafide. - The Honorable Members of the Tax Appeals Tribunal erred $\Pi$ . in law when they failed to properly evaluate the evidence thereby reaching an erroneous conclusion that there was a valid novation agreement. - The Honorable Members of the Tax Appeals Tribunal erred $\mathbb{H}$ . in law when they shifted the burden of proof to the Respondent to prove that the Applicant did not issue invoices to MTN Sea Shared Services Ltd for the supply. - The Honorable Members of the Tax Appeals Tribunal erred IV. in law when they failed to properly evaluate the evidence on record and reached an erroneous conclusion that the Applicant is entitled to a VAT amount of USD 471,488.855 and the refund thereof.

## Representation

The Appellant was represented by the Legal Services and 6. Board Affairs Department of the Applicant and the Respondent was represented by Birungi Barata Associates, legal and Tax Consultants. Both parties filed written submissions.

### Resolution

Ground I: The Honorable Members of the Tax Appeals Tribunal erred in law when they held that the credit notes issued by the applicant *were bonafide*

Ground IV: The Honorable Members of the Tax Appeals Tribunal erred in law when they failed to properly evaluate the evidence on record and reached an erroneous conclusion that the applicant is entitled to a VAT amount of USD 471,488,855 and the refund thereof.

- The Respondent issued invoices to MTN Uganda. MTN Uganda $7.$ rejected them on the ground that the contract in issue was signed with MTN Sea Shared Services Ltd. The Respondent then issued credit notes to MTN Uganda and applied to the Appellant for a VAT refund. The Appellant rejected the application. The Respondent applied for a review of the Tax decision before the Tax Appeals Tribunal. - 8. The Tribunal relied on the case *British United Shoe Machinery* CO. LTD (1977) 1 BVC 1 which was cited in DHL Supply Chain International Ltd v URA Application No.59 of 2019 and held that a credit note has to be issued bona fide and there must have been no taxable supply. The Tribunal noted that since MTN Uganda was not a party to the contract there could never be a supply. The Tribunal further held that since the Respondent had issued invoices to a company that was not party to the contract, then the issuance of a credit note cancelling those invoices was bonafide because the nature of the sale had fundamentally changed since parties had changed. - 9. The Appellants argued on Appeal that the credit notes issued did not meet the conditions set out in Section 30 of Value Added Tax Act Cap 344 the Appellant disregarded them and did not grant the refund. Counsel submitted that the Tribunal should have not only looked into the genuineness of the credit notes but also if the Credit Notes satisfied Section 30, Counsel for the Appellant further submitted that it is trite law that credit notes are issued to clear a genuine mistake, but since they were not valid in the first instance the Tribunal should

have rejected them because the law does not provide for bonafide test, rather stipulates the conditions a credit note should follow.

- 10. Counsel for the Appellant submitted that for credit notes to be valid there had to be a supply. Counsel argued that the Respondent did not adduce any evidence to show that the tax charged in the initial invoices exceeded the properly chargeable tax. Counsel further submitted that credit notes should correspond to the cancelled invoices and that the company issued with the credit notes had to be the recipients of the supply which was not so in the present case. - 11. Counsel for the Respondent argued that the Tribunal was right in its holding and that the test for validity of a credit note is whether it was issued bonafide that there is a genuine mistake or overcharge to be corrected and whether there was no taxable supply. Counsel further argued that credit notes need not be made after a supply. Counsel argued that the change of name of a party to an agreement goes to the root of the contract which alters the nature of supply and that since MTN Uganda wasn't party to the contract then the Respondent could not supply them and the only way to correct the error was to issue a credit note. - 12. Section 22 of the VAT Act provides for situations where adjustments may be made to chargeable output tax. It provides as follows:

## **Adjustments**

(1) This Section applies where, in relation to a taxable supply by a taxable person –

(a) the supply is cancelled;

(b) the nature of the supply has been fundamentally varied or altered:

(c) the previously agreed consideration for the supply has been altered by agreement with the recipient of the supply, whether due to an offer of a discount or for any other reason: or

(d) the goods or services or part of the goods or services have been returned to the supplier, and the taxable person making the supply has –

(e) provided a tax invoice in relation to the supply and the amount shown in the invoice as the tax charged on the supply is incorrect as a result of the occurrence of any one or more of the above-mentioned events: or

(f) filed a return for the tax period in which the supply occurred and has accounted for an incorrect amount of output tax on that supply as a result of the occurrence of any one or more of the above-mentioned events.

$(2)$ Where subsection (1) applies, the taxable person making the supply shall make an

adjustment as specified in subsection (3) or (4).

(3) Where the output tax properly chargeable in respect of the supply exceeds the output tax actually accounted for by the taxable person making the supply, the amount of the excess shall be regarded as tax charged by the person in relation to a taxable supply made in the tax period in which the event *referred to in subsection (1) occurred.*

(4) Subject to subsection (6), where the output tax actually *accounted for exceeds the output tax properly chargeable in* relation to that supply, the taxable person making the supply shall be allowed a credit for the amount of the excess in the tax period in which the event referred to in subsection (1) occurred.

(5) The credit allowed under subsection (4) shall, for the purposes of this Act, be treated as a reduction of output tax.

- 13. The provision applies where there is a taxable supply by a taxable person (See the opening sentence of the provision). it is not in dispute that the Respondent is a taxable person. A taxable supply is defined under section 18 of the VAT Act, as ... a supply of goods or services, other than an exempt supply, made in Uganda by a taxable person for consideration as part of his or her business activities." - 14. My understanding of section 18 of the VAT Act is that a supply does not become taxable until it has been made. Therefore, section 22 applies in situations where a supply has already been made by the taxpayer to the recipient of the supply.

- 15. Under section 22 $(1)(e)$ the taxpayer wishing to make an adjustment has to have issued a tax invoice. The Black's Law **Dictionary** 8^th Edition page 2426 defines an invoice as an itemized list of goods or services furnished by a seller to a buyer, usually specifying the price and terms of sale; a bill of costs. Therefore, from this definition, a supply has to have been made before an invoice is issued. - 16. Under section 30 (1) of the VAT Act, "Where a tax invoice has been issued in the circumstances specified in Section $22(1)(e)$ and the amount shown as tax charged in that tax invoice exceeds the tax properly chargeable in respect of the supply, the taxable person making the supply shall provide the recipient of the supply with a credit note containing the particulars specified in Section 3 of the Fourth Schedule." - 17. This provision refers to a recipient of a supply in other words, the supply has to have been made. I agree with counsel for the Appellant that the above provision which provides for credit notes being issued in situations arising from scenarios listed under section 22 $(1)$ apply in cases where a supply has been made. - 18. In the case of Cape Brandy Syndicate V IRC 12 TC 358 Rowlatt, J held as follows:

... in taxation, you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax: there is no presumption as to a tax: you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax.

19. In the case of **URA V Siraje Hassan Civil Appeal No. 9 of 2015,** the Supreme Court relying on the above case held that when words of a statute are clear and unambiguous, they should be given their plain meaning and that Courts should not read into the sections of a taxing statute words that are not there so as to meet the minds of the legislators.

- 20. I find that sections 22 and 30 of the VAT Act are very clear, they apply in situations where there has been a supply. - 21. In the present case, it is not in dispute that the supply had not been made to MTN Uganda. The Respondent therefore issued the credit note in error and thus cannot claim a refund based on credit notes that do not meet the requirements of sections 22 and 30 of the VAT Act. - 22. The Tribunal therefore erred in law when it held that the credit notes issued by the Respondent were bonafide and that therefore they were entitled to a refund. Grounds I and IV are therefore upheld. - 23. Having upheld grounds, I and IV, I have not deemed it necessary to resolve issues II and III as doing so would be moot. - 24. In conclusion, the appeal is upheld, the decision of the Tribunal set aside and the Appellant is awarded costs.

## Dated this 25^th day of October 2024

Patricia Kahigi Asiimwe Judge Delivered on ECCMIS