On 12 October 2023, the Supreme Court delivered its judgment in Maldives Passions Pvt Ltd v MIRA – a significant case concerning the parameters of the powers of the Tax Appeal Tribunal’s (“TAT”) to decide cases and order for re-audits.
The Supreme Court deciding in favour of MIRA, held that it is within TAT’s discretion to decide cases as it deems appropriate, thus, it is within the TAT’s powers to order for a re-audit.
Notably, the Supreme Court acknowledged the absence of any procedures in the applicable laws when carrying out re-audits but maintained that the established general procedure of filing objections an appeals as outlines in the Tax Administration Act 1 (“TAA”) will persist even in instances where the TAT orders the MIRA to conduct a re-audit.
- On 15 May 2019, the TAT decided, by way of a majority decision, in favour of the Appellant, Maldives Passions Private Limited (“Maldives Passions”) and held that there are major discrepancies in the MIRA’s tax computation for the audited taxable periods and therefore the MIRA’s assessment is invalid. The TAT in its decision also ordered the MIRA to refund the assessed amount to Maldives Passions in accordance with the law and conduct a re-audit for the disputed taxable periods.
- Maldives Passions appealed at the High Court the TAT’s order for re-audit and contended that it was in violation of Section 27 and Section 30 of the Tax Administration Act and raised the concern that a re-audit, as ordered by TAT, would impose procedures on taxpayers that were not envisaged by the applicable tax laws, introducing a level of uncertainty in the tax administration process. It was also argued that the TAT’s decision was not consistent with the pleadings submitted by the parties during the case.
- The crux of the dispute at the High Court centered around the perceived expansion of powers granted to MIRA and TAT beyond what is legally mandated and intended by the lawmakers.
- In the High Court’s dismissal of Maldives Passions’ appeal, it was stated that the Tax Appeal Tribunal’s Regulation2 specifically Section 42(c)(1) and 42(c)(2), makes it clear that where the TAT decides that the MIRA’s assessment or determination is incorrect, it has the discretion to order for a re-audit. The High Court also held that there is no legal basis to determine that the TAT’s decision is not based on the pleadings made by the parties to the case. This conclusion, as per High Court, is underpinned by the explicit request made by Maldives Passions for the TAT to declare MIRA’s assessment as incorrect and as affirmed in this case, when the TAT determines the inaccuracy of MIRA’s determination, it retains the discretionary power to order a re-audit.
- In response, the Maldives Passions raised the following contentions at the Supreme Court:
- Applying the rule established in Ahmed Ismail v Latheefa Ali Hassan3, it was argued that the High Court did not adequately fulfil its obligation to provide clear and unambiguous reasoning for its conclusions in the case; and
- High Court’s interpretation of Section 42(c)(2) of the Tax Appeal Tribunal’s Regulation that it permits the TAT to order a re-audit, results in extending the powers granted to both MIRA and TAT beyond what is legally mandated and contravenes Section 5 of the Interpretation Act4 as it results in an absurd and unintended outcome.
The primary issue before the Supreme Court was the interpretational question of whether Section 42(c)(2) of the Tax Appeal Tribunal’s Regulation established the authority for the Tribunal to order MIRA to conduct a re-audit of the previously audited period.
- The Supreme Court unanimously dismissed Maldives Passions’ appeal, affirming that the TAA and the Tax Appeal Tribunal’s Regulation grants the TAT full discretionary power to decide on cases as it deems most appropriate, which includes the authority to order a re-audit.
- In arriving at the above decision, the Court emphasised the priority of maintaining the ordinary meaning of a word, phrase or sentence used in stating a particular matter in the Acts passed by the Parliament as per Section 3(a) of the Interpretation Act and observed that:
- Section 7(a) of the Tax Appeal Tribunal’s Regulation expressly authorises the TAT to decide cases as it deems appropriate; and
- The same discretionary power vested in the TAT to decide cases as it deems appropriate is reaffirmed in Section 42(a) of the Tax Appeal Tribunal’s Regulation; and
- It is clear that the source of the TAT’s authority to decide cases as it deems appropriate roots from Section 54(b) of the TAA, which expressly states that the ‘the Tribunal has the full power to review and deliberate, as it deems appropriate, on matters determined by this Act or any other law under which the Tribunal has jurisdiction’.
- Additionally, on the question of whether the discretionary power granted to TAT has been utilised within the purpose and boundaries of the applicable tax laws, the Court observed that the ordinary meaning of the phrase ‘‘as it deems appropriate” used in both TAA and the Tax Appeal Tribunal’s Regulation reflects that the Tribunal has more than one option in deciding upon a case and the TAT may choose the option which it deems most appropriate.
- On the same question, Justice Azmiralda Zahir highlighted the obligation imposed under the TAA for MIRA to ensure that the tax calculations are in accordance with laws and regulations and that all taxes and fees are paid in full. Accordingly, it was observed that limiting the TAT’s role to merely declaring an assessment as incorrect, while also ordering for a refund of the incorrectly assessed tax may create opportunities for tax avoidance or other similar offences.
- Additionally, the Court observed that if the TAT’s authority was solely limited to revising the assessment figure based on new documentation in cases where it believes MIRA’s assessment is incorrect without the option to request for a re-audit from MIRA, it would effectively remove one stage of the appeal process – an outcome that the Court considered was contrary to the original intent of the applicable laws.
- Expanding further on prioritising the ordinary meaning in the interpretation of Section 42(c)(2) of the Tax Appeal Tribunal’s Regulation, the Court also noted that while the Tax Appeal Tribunal’s Regulation specifies its authority to ‘change’ MIRA’s determinations, Maldives Passions has failed to make reference to any provision in the relevant laws that restricts or narrows this powers. Consequently, as the potential to apply special meanings to the provision hasn’t been demonstrated, it was opined that there was no scope to apply Section 5 of the Interpretation Act to interpret Section 42(c)(2) of the Tax Appeal Tribunal’s Regulation.
- Notably, while arriving at the aforementioned decision and permitting a re-audit, the Court also recognised the absence of a specified procedure in the TAA to follow subsequent to re-audits. Thus, based on the facts of the case, it was determined that an order for a re-audit is considered equivalent to conducting a new audit with additional documentation, following the TAT’s instructions. As a result, it was held that the general objection and appeal process would be reinitiated upon MIRA’s re-audit, aligning with the current procedures stipulated in the law.
- As for Maldives Passions contention on High Court’s failure to provide clear reasoning, the Court considered that the two appeal points raised by Maldives Passions in High Court were interlinked and that the ultimate question to be addressed at the High Court was whether the TAT holds the authority to order a re-audit. In that regard, with reference to the High Court’s judgment5, it was observed that the High Court directly referred to the relevant provisions of the Tax Appeal Tribunal’s Regulation in providing an answer. Consequently, the Court concluded that, in this instance, the principle of the obligation to offer clear and unambiguous reasoning, as established in Latheefa Ali Hassan, was followed through by the High Court.
The Supreme Court’s decision reinforced the TAT’s authority to make decisions on cases as it deems appropriate, including the TAT’s power to remit cases to MIRA for re-auditing previously audited taxable periods. However, it raises concerns about the procedural aspects, given the absence of specific procedures in the Tax Administration Act for such re-audits. Although the Court’s remedy directs to the initiation of the general objection and appeal procedures even in cases of re-audits, it still prompts considerations about a potential perpetuating loop of cases going back and forth between TAT and MIRA for re-audits leading to uncertainties regarding when cases can be finally decided upon.
A further observation is that parts of Justice Azmiralda Zahir’s opinion contradict other parts of it. In paragraph 28(b), Justice Azmiralda opined that Section 54(b) of TAA and Sections 7(a) and 42(a) of Tax Appeal Tribunal’s Regulation affords TAT the authority to determine cases as it deems appropriate, including the TAT’s power to decide the correct tax amount payable. However, in paragraph 28(d), Justice Azmiralda subsequently states that where TAT determines tax amount based on the new documents submitted by Maldives Passions, it eliminates one of the appeal processes of TAT reviewing disputes and determining cases.
Moreover, the Justices’ concern that limiting the TAT’s role to rectifying an incorrect assessment and arriving at a revised tax amount without the option to order for re-audits will ultimately lead to the tribunal members and judges having to determine the correct tax amount payable also provokes questions. A parallel can be drawn with employment disputes, where the Employment Tribunal often determines the loss of remuneration to be awarded to employees in unfair dismissal claims, and other civil disputes where courts frequently handle matters of quantum of damages. If we are to apply the Court’s reasoning in this case to those disputes, for instance where it provides disputes must be first attempted to be resolved amicably, sitting judges and tribunal members must never decide on the amounts to be awarded. Instead, judges would always be required to remit cases back to the losing party to decide or reconsider the amount owed.
On the issue of whether interpreting the applicable provisions, namely Section 54(b) of TAA and Sections 7(a) and (42(a) of the Tax Appeal Tribunal’s Regulation, to allow TAT to remit cases to MIRA for re-audits contravenes the purpose and intention of Parliament in formulating the Act, Justice Azmiralda was of the view that it does not. In arriving at that conclusion, Justice Azmiralda observed that though Maldives Passions raised the concern that concluding the case as such will ultimately mean MIRA can conduct re-audits, both parties – MIRA and Maldives Passions did not elaborate on why allowing MIRA to carry out reaudits contravenes the purpose of the applicable laws. However, as part of the submissions made, Maldives Passions clearly directed the Justices to the below provisions:
- Section 30 of the TAA where the Act expressly prescribes certain periods within which MIRA is required to serve audit notices, which periods generally start to run from the date the tax return is required to be filed or from the date the tax return is actually filed.
- Section 39(c) of the TAA where it requires MIRA to conclude its tax assessment before the expiry of 2 years from the date of serving the audit notice, provided that the tax amount MIRA determines is greater than that declared by the taxpayer.
- Section 27(c) of the TAA, where it obliges taxpayers to retain documents required to be retained under tax laws only for a minimum of 5 years.
Hence, reading Section 54(b) of TAA and Sections 7(a) and (42(a) of the Tax Appeal Tribunal’s Regulation to allow TAT to order remit cases to MIRA for re-audits, and as a consequence of which MIRA being allowed to commence and conclude audits outside the time limits expressly prescribed under the TAA, is in direct conflict with the express provisions of the TAA. Not only that, considering that in reality it almost always takes at least 2 years for MIRA to conclude tax audits, and several years for TAT to decide cases, there is also the possibility of MIRA being allowed to re-audit periods that fall beyond the 5 year time period for which taxpayers are required to retain documents. Consequently, in carrying out re-audits, it is foreseeable that MIRA will demand documents that have already been eradicated and arbitrarily determine tax amounts for lack of documents provided by the taxpayer.
All in all, although the Justices were correct to conclude that TAT has the discretionary power to determine cases as it deems appropriate, the Justices’ decision to extend that power of TAT to permit TAT to order reaudits contradicts the procedures set by the Parliament in tax laws, more specifically the TAA. The concerns raised by the Justices relating to TAT members and judges being required to determine tax amounts, which according to the Justices could eliminate one of the appeal processes, are also unfounded. One of, if not the most, suitable forums to determine the correct tax amount payable is the TAT, given its status as a specialised tribunal with its members expected to possess specific ‘tax expertise’ formed to decide on tax disputes. Moreover, one of the most crucial aspects of decision-making – be it by judges and various types of adjudicators, concerns the quantum of amounts – be it the damages to be awarded or the correct tax amount payable. Ultimately, the Justices of the Supreme Court have by way of this judgment, authorised TAT to order MIRA to re-audit already audited periods – a non-existent procedure in tax laws prescribed by Parliament and regulations made thereunder.