PAPERHOLE INVESTMENTS (PVT) LTD v ZIMBABWE REVENUE AUTHORITY and OTHERS (149 of 2024) [2024] ZWHHC 149 (27 March 2024)

1 HH 149-24 HC 3651/22 PAPERHOLE INVESTMENTS (PVT) LTD versus ZIMBABWE REVENUE AUTHORITY and PROFEEDS (PVT) LTD and SIMBISA BRANDS ZIMBABWE (PRIVATE) LIMITED HIGH COURT OF ZIMBABWE KATIYO J HARARE, 10 February 2023 & 27 March 2024 Opposed Matter Mr M Tshuma with T Makanga, for the applicant Mr AK Mapondera with Mr L Takawira, for the 1st respondent Mr Obatolu an official appearing in person for the 3rd respondent KATIYO J: The applicant petitioned this court for a prayer in the following terms: FINAL ORDER SOUGHT That you show cause why an order should not be made as follows; 1. The provisional order be and is hereby confirmed. 2. The assessments issued by the respondent under reference numbers 909,910,911 and 912 against the applicant be and are hereby set aside. Brief background The first respondent is an administrative authority established in terms of Revenue Authority Act [Chapter 23:11] and tasked inter alia with administration and collection of revenues due in terms of the Customs and Excise Act [Chapter 23:06] and the Value Added Tax Act [Chapter 23:12] among other tax legislation. In terms of the Income Tax Act [Chapter 23:06], the first respondent is empowered and permitted by law to institute the recovery measures in respect of tax obligations. The operations of the applicant were under investigation for the period from 1 January 2019 to 31 January 2021. A request for information was sent to the applicant on 21 January 2022 but failed to furnish the same. A letter that highlighted tax discrepancies was sent to the client on 15 February 2022. On 9 march 2022 the applicant was sent a letter with the assessment for HH 149-24 HC 3651/22 2019 and 2020 stating tax shortfalls amounting to USD$11 290.80 and acknowledged the receipt of the letter and advised the first respondent that it had engaged legal and tax advisors. The applicant is a registered company which carries out the business of sourcing, financing, logistical management and delivery of agricultural commodities and their inputs. The applicant realizes income from its business in the form of local and foreign currency. The applicant averred that it submitted its income tax to the first respondent in the local currency based on self-assessment and part of the income tax in excess of US$78 000 which was paid in error as the first respondent used the wrong method of calculation. According to the applicant, the first respondent’s calculations were based on gross income instead of taxable income. The applicant also maintained that its tax obligations were up to date contrary to the allegations of the first respondent. On 9 March 2022, applicant received, from the first respondent, tax assessments under reference numbers 909,910, 911 and 912 for 2019 and 2020. First respondent was advised by applicant on 31 March 2022 that its tax obligations were up to date and that the tax assessment had computational errors. Furthermore, the applicant advised the first respondent that the tax assessment was against the provisions of the Income Tax Act, [Chapter 23:06] and the Finance Act [Chapter 23:04]. On 8 April 2022, according to the applicant, objection to tax assessment was filed. It was affirmed by the applicant that it engaged the first respondent with a view to seek the suspension of the execution of tax assessment in terms of s69 of the Income Tax Act. The provision reads as follows; “69. Payment of tax pending decision on objection and appeal (1) The obligation to pay and the right to receive any tax chargeable under this Act shall not, unless the Commissioner otherwise directs and subject to such terms and conditions as he may impose, be suspended pending a decision on any objection or appeal which may be lodged in terms of this Act. (2) If any assessment or decision is altered on appeal, a due adjustment shall be made, for which purpose amounts paid in excess shall be refunded and amounts short paid shall be recoverable.” According to the application, the first respondent refused to entertain the request to stay the collection measures of the tax. The first respondent proceeded to garnish the applicant’s bank accounts and appointed the second and third respondent as agents for effecting collection measures of the tax, the applicant argued. The first respondent argued that the garnishee order was reasonable as it only chose to garnish two trading debtors of the applicant and it decided to leave a great number of debtors HH 149-24 HC 3651/22 for the applicant. According to the first respondent, this was done to ensure that the applicant’s business is not disturbed as the first respondent was alive to the harsh economic climate prevailing in the country. Points in limine The first respondent raised some points in limine that the relief sought by the applicant which has the effect of setting aside the tax assessments is incompetent since the applicant wants to avoid its tax obligations through the present application. In response, the applicant submitted that the present relief seeks to invalidate the tax assessment made by the first respondent hence, the present application may not qualify to be lodged by way of an objection. Another point in limine was raised by the first respondent to the effect that the applicant had not exhausted other available remedies. The first respondent averred that the applicant is entitled to appeal process provided for in terms of s65 of the Income Tax Act which it never pursued. The first respondent also claimed that the relief sought can competently be granted by the commissioner in terms of s 69 of the income tax act. in response, the applicant maintained that exhaustion of internal remedies only applies to valid assessment. According to the applicant, the tax assessments issue by the first respondent on 9 march 222 were invalid and as such the applicant ‘s only remedy was to seek the nullification of the assessment. The applicant argues that the assessments issued by the first respondent have no basis at law and are therefore unlawful and first respondent violated its own constitutional and statutory obligations to act lawfully as administrative authority. The applicant has not exhausted its domestic remedies A reading of the applicant’s founding affidavit will show that the gist of applicant’s case is that it wishes to have its liability to pay tax suspended pending determination of the validity or correctness of the assessment. Additionally, the applicant challenges the correctness and validity of the assessments. The first respondent invited the applicant to present a 20% payment and a reasonable payment plan on or before 16 march 2022 and this was further extended to 8 April 2022 for the payment of the outstanding tax due. The applicant’s argument is valid as indeed one cannot lodge an appeal when the issue beforehand is the validity of the assessment itself. For where there is no valid assessment, HH 149-24 HC 3651/22 there can be no valid objection or appeal, hence no exhaustion of internal remedies to speak of. In terms of the s 65(1) of the Income Tax Act, a taxpayer is entitled to file an appeal after his objection has been filed, determined and turned down by the Commissioner, and the provision stipulates as follows: “65 Appeals from decision of Commissioner to High Court or Special Court (1) Any taxpayer entitled to object and who is dissatisfied with the decision or deemed decision of the Commissioner in terms of subsection (4) of section sixty-two, may, in accordance with the rules set out in the Twelfth Schedule, appeal therefrom either— (a) to the High Court; or (b) to the Special Court.” Regarding the exhaustion of domestic remedies by a litigant the court in, Girjac Services Pvt Ltd v Mudzingwa 1999 (1) ZLR 88(H), remarked thus: “In Tutani v Minister of Labour and Ors 1987 (2) ZLR 88 (H) MTAMBANENGWE J at 95D observed that where domestic remedies are capable of providing effective redress in respect of the complaint and, secondly, where the unlawfulness alleged has not been undermined by the domestic remedies themselves, a litigant should exhaust his domestic remedies before approaching the courts unless there are good reasons for not doing so. The same approach was applied by SMITH J in Musandu v Chairperson Cresta Lodge Disciplinary and Grievance Committee HH-115-94 (not reported); and was referred to with approval by MALABA J in Moyo v Forestry Commission 1996 (1) ZLR 173 (H) at 191D-192B. I respectfully endorse it.” Further reference is made to the case of Qingsham Investments (Pvt) Ltd v ZIMRA HH 207 /17, where the court said the following of the duty to exhaust domestic remedies in tax cases: “The applicant is obliged to exhaust domestic remedies by seeing the appeal process through, the Commissioner General is currently seized with the matter and has not given a substantive decision as to the misclassification of the goods, their alleged miscalculation of duty, and the propriety of the embargo and seizure. The need to exhaust domestic remedies was set out in the case of Girjac Services Private Limited v Mudzingwa.” The Supreme Court settles the issue in, Nestle Zimbabwe v ZIMRA SC 148-21 where the Court states that an appeal can only be lodged where there is a valid assessment. There is an exception to the general rule that there is a duty to exhaust domestic remedies when challenging the conduct of an administrative body. The exception to the rule is stated in the case of JK Motors (Private Limited) v Zimbabwe Revenue Authority HH762- 22, where the Honourable Judge President Dube, states the following: HH 149-24 HC 3651/22 “The duty to exhaust domestic remedies compels a person challenging the conduct of an administrative body to pursue first the available judicial or administrative procedures available to him to their final conclusion before he resorts to other mechanisms of resolving the dispute. This general requirement has exceptions. There must be good reason why a litigant cannot exhaust the domestic remedies available to him. A litigant is not expected or required to pursue domestic remedies where the domestic remedies available are incapable of affording effective redress, are unfair, cause undue delay. He cannot be expected to exhaust domestic remedies where no remedy exists in terms of the legal framework available. The duty to exhaust domestic remedies applies equally to tax cases. It is only in cases where a dispute is capable of resolution by way of an objection and appeal that the taxpayer is required to exhaust the domestic remedies prescribed in the Act. Where a court is not satisfied that a litigant has exhausted internal remedies available to him, it may decline to adjudicate the matter.” Incompetent relief The first respondent averred that the relief sought by the applicant is incompetent, the perusal of the applicant’s provisional order will show that the final relief sought by the applicant, on confirmation is for the disputed assessments to be set aside. He also averred that the law, including the Income Tax Act, already provides for what a taxpayer must do when they are unhappy with assessments issued to them. Accordingly, in seeking the setting aside of the 1st respondent’s assessments on the return date, the respondent alleges that the applicant, in fact, seeks is to craftily circumvent the statutory procedure for the resolution of tax disputes and that the applicant should not be permitted to do so. The respondent in his averments is misguided regarding the proper procedure to be adopted where an assessment is impugned on the basis that there is no valid assessment. The Income Section 62 and 65 of the Income Tax Act provides a statutory framework and remedies for taxpayers aggrieved by tax assessments but does not extend to invalid assessments. The position is settled in the case of JK Motors (Private Limited) v Zimbabwe Revenue Authority (supra) where the Honourable J. P DUBE sated the following; “The Act does not make provision for an interlocutory application relating to an objection or appeal or make specific provision for a challenge to validity of an assessment. In the case of a challenge to the validity of an assessment, it is legally accepted that the remedy of an objection and appeal may not be the appropriate course to follow, entitling the taxpayer an election to challenge the assessment by way of a declaratur. The courts have already pronounced that where a taxpayer cites that there is no valid assessment or that an assessment is unlawful and invalid, a tax payer’s recourse lies with the High Court for a declaration of the law. In Nestle Zimbabwe (Pvt) Ltd v ZIMRA (supra), the court laid out the requirements of a valid assessment and endorsed remarks made by Mr Bhebhe representing the respondent in that matter raising similar considerations as this case as follows: HH 149-24 HC 3651/22 “Mr Bhebhe started by pointing out that the issues being raised by Mr Mpofu were being raised for the first time in this court. They were not raised in the objection to the commissioner neither were they raised in the court a quo. He however submitted that for a taxpayer to object in terms of s 62 and to appeal in terms of s 65 of the Act there would have to be an assessment. Where there is no assessment, there can be no valid objection or appeal. If the appellant felt that there were no valid assessments, it should have approached the High Court seeking a declaratur to that effect’’ Where there is no valid assessment, there can be no valid objection or appeal. In the case of a challenge to the validity of an assessment, it is legally accepted that the remedy of an objection and appeal is not the appropriate course to follow entitling the taxpayer to elect to challenge the assessment by way of a declaratur.” The Honourable J. P DUBE went on to say; “The court’s inherent power to make a declaratory order derives from s14 of the High Court Act [Chapter 7:06] which confers on the court discretionary power to grant a declaratur. Declaratory relief is a statement of a legal position made by the court at the request of a party to litigation. It is trite that a declaratory order is an order by which a dispute over the existence of some legal right or obligation is resolved. It is used where there is a clear legal dispute or legal uncertainty regarding administrative, executive action or constitutional rights. Declaratory relief is not specifically provided for in the Income Tax Act. This legal position needed not be provided for in the tax legislation as any litigant who desires to have his rights and obligations determined generally has an entitlement to approach the High Court for a declaratur in any area of the law. In terms of s14, an applicant for a declaratur has an entitlement to seek consequential relief.” Furthermore, the Court stated that; “It is trite that a point of law may be raised at any stage of proceedings. The fact that a taxpayer has objected to an assessment resulting in it being turned down by the Commissioner does not imply the existence of a valid assessment nor is a taxpayer bound to that course. The taxpayer is not barred from seeking a declaratur at the High Court for a determination of the validity of an assessment which is a point of law. In Nestle a taxpayer whose objection had been disallowed lodged an appeal with the Special Court. In a further appeal to the Supreme Court, it took a preliminary point challenging the validity of an assessment. The court remarked as follows: “It is trite and requires no authority that a point of law can be raised at any time provided that there is no prejudice to the other party. Mr Bhebhe did not seriously contest the point. He also did not argue that the respondent would be prejudiced in any way’’ It is a settled point of law that the applicant in this case has a right to seek recourse before the Honourable Court nevertheless the remedy of an objection and appeal is not the appropriate procedure for the relief sought. The courts have already pronounced that where a taxpayer cites that there is no valid assessment or that an assessment is unlawful and invalid, a tax payer’s recourse lies with the High Court for a declaration of the law. The respondent’s HH 149-24 HC 3651/22 point in limine therefore, falls away as the proper procedure is not provided for in the income Tax Act, albeit the applicant can approach the court for declaratory order and consequential relief. I am not convinced that granting of such relief would prejudice the respondent in any manner. The applicant is seeking a final order under the guise of an interim order It is averred that the applicant is seeking in the interim relief for the first respondent to be precluded from enforcing collection of assessed income tax. The respondent avers that the effect of this interim relief sought however is to obtain the substantive relief sought because in this case the Applicant is interested in nothing else but to have collection measures to be stopped. It is averred that after getting that relief, the applicant will not be having any more interest in the case. It is averred that by so doing the applicant would want to only establish prima facie and yet obtain the substantive final relief. In other words, the applicant would want to get the final relief without establishing its case. I am not convinced that the application ought to be defeated on the premise of this point of law. The applicant is as entitled as any litigant who desires to have his rights and obligations determined generally, to approach the High Court for a declaratur in any area of the law and the court will duly exercise discretion when determining the application, having considered all facts of the case. The points in limine are dismissed and it is on this basis that I view this matter to be properly before this court, however in the event that the court invalidates the assessments, the need to set aside the assessments is dispensed with, as there will be no assessments to refer to any more. WHEREUPON AFTER reading the documents filed of record and hearing counsel; IT IS ORDERED THAT: - 1. The application is properly before the court 2. Costs shall be in the cause HH 149-24 HC 3651/22 Dube, Manikai and Hwacha legal practitioners, applicant’s legal practitioners. Zimbabwe Revenue Authority Legal Services Division, first respondent’s legal practitioners.