Major take-away in the decisions of the Tax Appeal Tribunal Lagos Zone in APPEAL NO: TAT/LZ/VAT/029/2019 between ESS-AY HOLDINGS LIMITED vs. FEDERAL INLAND REVENUE SERVICE handed out on 10^th September, 2020. They are:

 1. INCOME FROM RENTS ARE NOT SUBJECT OF VALUE ADDED TAX;

2. A LEASE OF REAL PROPERTY IS A DISTINCT TRANSACTION ON ITS OWN. LEASE AND LETTING OF REAL PROPERTIES ARE DISTINCT FROM A TRANSACTION FOR SUPPLY OF GOODS OR SERVICES AND DOES NOT AMOUNT TO A SUPPLY OF GOODS OR SERVICES;

3. IT IS NOT ALL TRANSACTION OR ECONOMIC ACTIVITIES THAT ARE WITHIN THE SCOPE OF VAT;

4. REAL PROPERTIES BY THEIR NATURE ARE IMMOVEABLE AND INCAPABLE OF BEING SEVERED, THUS ARE NOT GOODS CAPABLE OF BEING SUBJECTED TO VAT ACT;

5. AN ADMINISTRATIVE CIRCULAR ISSUED BY AN AGENCY OF THE EXECUTIVE ARM OF GOVERNMENT IS INCAPABLE OF AMENDING A SUBSTANTIVE LEGISLATION OF THE LEGISLATIVE ARM OF THE GOVERNMENT;

6. FIRS CIRCULAR NO. 9701; “Detailed List of Items Exempted from Value Added Tax (VAT)” ISSUED ON THE 1ST OF JANUARY 1997 IS THE SUBJECTIVE OPINION OF ITS ISSUING AUTHORITY AND NOT A DELEGATED LEGISLATION;

7. FIRS CAN LEGALLY ISSUE INFORMATION CIRCULARS AS USEFUL TOOLS IN THE SMOOTH ADMINISTRATION OF TAX LAWS; THEY PROVIDE INSIGHTS INTO THE MIND OF THE TAX AUTHORITY; and

8. INFORMATION CIRCULARS HELP A TAX PAYER ARRANGE HIS TAX AFFAIRS IF HE AGREES WITH THE CIRCULARS, WHETHER THEY ARE BINDING ON THE SAID TAXPAYER IS ANOTHER ISSUE.

Recall that ESS-AY HOLDINGS LIMITED had appealed against the decision of FIRS in respect of the former’s alleged tax liability for the 2014-2016 accounting years as set out in the later’s VAT Re-Assessment Notice dated July 9, 2019 (the “VAT Re-Assessment”).

The ESS-AY HOLDINGS LIMITED (Appellant) invests and engages in the development of real properties which are rented or leased to tenants. The said properties are put to both commercial and residential purposes. On the other hand, the FIRS (Respondent) is an agency of the Federal Government. It is responsible for the assessment, collection and general administration of federal taxes on behalf of the Federal Government of Nigeria including the Value Added Tax Act (VAT Act) Cap V1, Laws of the Federation of Nigeria (LFN) 2004. Following a tax audit, the Respondent by a letter dated October 19, 2018, informed the Appellant of its intention to assess the Appellant to additional taxes particularly with respect to Value Added Tax (VAT) on incomes derived from letting out its properties for the 2014 – 2016 accounting years. As a result of this letter, a series of meetings was held between the parties to reconcile the issues and correspondences were exchanged. The bundle of documents evidencing the correspondences and meetings is before this Tribunal. Ostensibly, these meetings did not yield any positive outcome because by July 9, 2018, the Appellant was served amongst others, the Respondent’s VAT Assessment Notice in relation to VAT on incomes derived from its commercial tenants. The Appellant objected to the said VAT Assessment Notice via its objection letter dated July 15, 2019. On the 26th of July 2019, the Respondent served its Notice of Refusal to Amend (NORA) dated July 22, 2019 on the Appellant. Dissatisfied with the Respondent’s NORA, the Appellant filed an Appeal before the Tax Appeal Tribunal on August 22, 2019.

In deciding the Appeal, the Tribunal held: “Since the VAT Act does not define the terms “goods” and “services”, for our purpose, we have relied on other sources for guidance. The Blacks’ Law Dictionary defines goods as; “tangible or moveable property other than money, especially articles of trade or items of merchandise…….Service, on its part is defined by the same Black’s Law Dictionary as “an intangible commodity in the form of human effort, such as labour, skill or advice.” That being the case, it is doubtful, indeed it is impossible to regard real properties as an intangible commodity. Granted that human efforts may have been applied in developing property, the end result of the efforts which is the building cannot be regarded as intangible.

Arguing further on what constitutes goods, the Tribunal held that: “Section 62 of the Sale of Goods Act 1893 (a Statute of General Application enforced in England as at 1st January 1990 adopted into Nigeria) defines goods to include all chattels personal other than things and money; and including emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of Sale. The Sale of Goods Law of Lagos also defines “goods” as: all chattels personal, other than things in action and money… and includes emblements, industrial growing crops and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale.” It also made reference to section 61 of the United Kingdom’s Sale of Goods Act of 1979, wherein “goods” are defined as: “all personal chattels other than things in action and money … all corporeal moveables except money; and in particular includes emblements, industrial growing crops and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale.”

The Tribunal rejected the decision in FEDERAL BOARD OF INLAND REVENUE vs. IBILE HOLDINGS (6 All NTC 1.) or (2010) 2TLRN 151;, decided by the Former VAT Tribunal, wherein the tribunal held that business of building, selling, and leasing properties for commercial purpose were transactions taxable under the VAT Act because such transaction constituted supply of goods under the Act, since the provisions of section 42 (now s. 46), defined “supply of goods” as “any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing, and any disposal of taxable goods.”

The tribunal relied on MOMOTATO NIGERIA LIMITED vs. UACN PROPERTY DEVELOPMENT COMPANY PLC (Unreported) FHC/L/CS/1016/05 a case decided by the Federal High Court, wherein it was held that sale of land, in itself, does not constitute a supply of goods, and therefore, is not liable to VAT. However, the court stated that services rendered in developing the land, such as sand filling, tarred road network, electricity supply and so on, should qualify as supply of services, and therefore liable to VAT. It is very important to point out what happed briefly in that case. The Defendant had sold a parcel of land to the Plaintiff within its estate and sought to charge VAT. The Plaintiff refused to pay the VAT on grounds that the sale of the property does not constitute goods or services under the VAT Act.

The tribunal also made a landmark decision regarding the FIRS CIRCULAR NO. 9701 “Detailed List of Items Exempted from Value Added Tax (VAT)” ISSUED ON THE 1ST OF JANUARY 1997. It adopted the binding opinion of the Court of Appeal in OMATSEYE vs. FEDERAL REPUBLIC OF NIGERIA (2017) LPELR – 42719 CA at p. 15 – 16., where NINPAR, JCA when considering whether administrative circulars (like information circular) could create an offence (liability in the present case) held that “Administrative circulars or notices have its place in government but cannot create an offence. The apex Court in the case of MAIDERIBE v. FRN (2013) LPELR-21861(SC) on circulars held thus: “In Administrative Law Book, Eight Edition Co Authored by Prof. W. Wade and C. Forsyth page 851 throws light on the status of departmental circulars generally. Such circulars are- “a common form of administrative document by which instructions are disseminated; Many such circulars are identified by serial numbers and published and many of them contain general statements of policy… they are therefore of great importance to the public giving much guidance about Governmental organization and the exercise of discretionary powers. In themselves they have no legal effect whatsoever, having no statutory authority, Exhibit “PD16z” is not known to law and therefore cannot create an offence because it was not shown to have been issued under an order, Act, Law or statute. In the absence of statutory authority in the said Exhibit “PD16z” or legal notice it cannot be said to have any legal effect. See MAIDERIBE V. FRN (supra).”

It finally concluded on the FIRS CIRCULAR NO. 9701 by relying on its earlier judgment in HALLIBURTON (WA) LIMITED vs. FBIR (2013) 11 TLRN 84, which was decided by the Tribunal on Friday, September 14, 2012, it was stated emphatically that the FIRS Information Circular is neither law nor regulation but merely information to the general public and in particular all taxpayers’ representatives or advisers and the staff of Revenue Services. They contained what the FIRS considers to be its interpretation of the various Nigerian Tax Acts and thus constitute its opinion on a point of law with no legally binding effect. It must also be noted that this position was affirmed on appeal by the Court of Appeal in FBIR VS. HALLIBURTON (WA) LTD (2014) LPELR -24230 (CA) or [2016] 4 NWLR (Part 1501) 53, wherein Per IKYEGH JCA held: “I do not agree with the cross-appellant that Exhibit S, the Public Notice, issued by the cross-respondent, (pages 524 – 538 of the record) qualifies as a piece of delegated or subsidiary legislation deriving its efficacy from Sections 2 (1) and (4) and 3 (1) and (3) of CITA, the parent law. Because both sections subject the cross-respondent’s powers to the Minister of Finance which powers are to be exercised in the manner prescribed by the minister. The power to amend the First Schedule to CITA is also given to the minister under Section 4 of CITA, showing the minister is the appropriate person to make bylaws under CITA.”

Our views are, there is an established and acceptable way of construing taxing legislation. The literal rule is the established and preferred choice in the interpretation of Tax Legislation. A classic statement of this rule is to be found in the judgment of ROWLAT J in the case of CAPE BRANDY SYNDICATE vs. IRC (1921) 1 KB 64. According to him, “In a taxing Act one has to look merely 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. Nothing is to be read in, nothing is to be implied’ and ‘subsequent legislation, if it proceeded on an erroneous construction of previous legislation, cannot alter the previous legislation” This rule has been replicated in the Nigerian Courts in ADERAWOS TIMBER TRADING COMPANY LTD vs. FBIR (1966) NCLR 416, wherein IKPEZU J at page 422 said, “It is the law that the language of statute imposing a tax, duty, or charge must receive a strict construction in the sense that there is no room for any intendment and regard must be had to the clear meaning of the words. If the state claims a tax under statute, it must show that the tax is imposed by clear and unambiguous words, and where the statute is in doubt it must be construed in favour of the subject, however much within the spirit of the law the case might otherwise be….” By all indication, this decision serves a major progress in the interpretation of the Tax Laws especially as regards to taxes on rents and issuing of circulars by FIRS in place of the necessary regulations in deserving circumstances. It has also checked on the excesses of tax authorities in using circulars to amend, add and or review taxable transactions at their whims and caprices without recourse to the appropriate authorities.

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