Popular Q Bar loses appeal in Sh334 million tax dispute

Dar es Salaam. A popular hangout joint in Dar es Salaam has lost a decade-long legal battle challenging a Sh334 million tax bill that was imposed by the Tanzania Revenue Authority (TRA) in 2012.

The Court of Appeal has declined to determine the appeal by Q Bar, saying their grounds of appeal only raised issues of facts contrary to the law that limits the court’s jurisdiction only to matters of law.

“We hold that the memorandum of appeal raises no question of law contrary to section 25 (2) of the TRAA (Tax Revenue Appeals Act). We find the appeal non meritorious,” said Justices Mwanaidi Kwariko, Rehema Kerefu and Dr Paul Kihwelo.

This is the third time the bar located along Haile Selassie/Ali Bin Said Road in Masaki loses legal challenge against the tax bill after setbacks in the Tax Revenue Appeal Board (Trab) and the Tax Revenue Appeals Authority (Trat).

Section 25 (2) of the TRAA limits parties intending to file appeal from Trat to the Court of Appeal to file appeals on matters involving questions of law only.

Origin

The two parties got embroiled in the tax dispute after the taxman acted on a tip off that the bar was allegedly not using Electronic Fiscal Device (EFD) machine to record sales and taxes.

TRA conducted tax audit on Q Bar’s business for the years of income 2009, 2010 and 2011, only to discover it was using both Electronic Cash Register (ECR) and EFD machine.

It was also discovered that the ECR machine was used to take the bills and issue receipt on different transactions by the appellant.

Since the ECR machine was not recognised by the tax authority, TRA took the ECR machine and sent it to the supplier, the Business Machine Tanzania Limited (BMTL) for purpose of retrieving data. Both parties were involved.

Court records show that BMTL‘s technical team managed to retrieve information which showed sales amounting to Sh334 million had not been declared from the years 2009 to 2011. It was also discovered that the receipt produced by the ECR machine had the name of the appellant. Having been armed with all the evidence, TRA on December 6, 2012 splashed the company with Sh416 million tax bill in initial assessment that was later revised to Sh334 million.

Legal dispute starts

Q Bar disputed the assessment and on December 18, 2012 lodged notices of objection against the assessments to TRA in which they also applied for waiver of the tax bill.

The parties exchanged several correspondences intended to settle the dispute amicably in vain.

Still aggrieved, Q Bar approached the Tax Revenue Appeals Board (Trab) and lodged three income tax appeals and a VAT appeal, which were later consolidated.

At the board, Q Bar challenged the assessment on the grounds that its financial statements showed each year had its own figures that covered nine years from 2003 to 2012 unlike TRA’s assessment.

They argued, for instance, that in 2009 their accounts showed total sales of Sh33.3 million while TRA’s computation showed Sh111 million. Likewise, they argued, for the year of income 2009, its accounts revealed total sales were Sh39.2 million while the one calculated by the taxman indicated Sh111.3 million.

The company explained further that they started using the ECR machine in 2003 until June 2012 and from 2011 to 2012, the kitchen where the machine was used was leased.

It argued it should not be held liable for the tax emanating from the sales from the kitchen from 2011 because it was being used and controlled by someone else.

Moreover, the firm argued that the rental payments to Afriscan Group for renting the business premises ought to have been deducted from expenses which were incurred during the year of income wholly and exclusively in the production of income of the appellant.

Trab, Trat rejects the appeal

After considering arguments from both parties, Trab concluded that the Sh334 million assessment made by the taxman was valid according to the law and that the agency was justified to do so.

The board further found that the appellant failed to prove that the assessments made by TRA were erroneous and invalid.

Q Bar never gave up, the preferred an appeal to the Tax Revenue Appeals Tribunal (Trat). The tribunal had nothing to fault the decision of Trab and dismissed the appeal.

Dispute lands in top court

The second defeat by the two quasi-judicial bodies did not mean the end of it for Q Bar. They lodged a four-ground appeal in the court of appeal.

They argued that the tribunal erred in law in holding that the rental amounts payable to Afriscan Group were not incurred wholly and exclusively in the production of income from the business.

It was their contention that the tribunal erred in holding that they did not discharge their burden of proof as require to prove correctness of the Sh334 million tax bill.

The bar further argued that Trat was wrong when it held that financial statements alone did not suffice to prove the fact that the assessment raised by the respondent were excessive, erroneous or invalid at law.

Lastly, the firm contended that Trat’s holding that the appellant was duty bound to produce her own ECR report or ECR sales receipts in order to prove the receipt produced by the respondent were erroneous.

Q Bar was represented by Mr Emmanuel Saghan while the taxman was represented by principal state attorney, Consolatha Andrew, senior state attorneys Hospis Maswanyia and Ms Hadija Senzia together with, state attorney, Maryam Ali.

Mr Saghan argued at the hearing of the appeal that financial statement provided were sufficient were sufficient to prove that TRA assessments were excessive because his client had correctly accounted for all her income for all years and the taxes were accordingly paid.

At this point, the Justices of appeal asked the lawyer to explain whether the appeal; has complied with section 25 (2) of the TRAA which says an appeal to the Court of Appeal from a decision of Trab lies on matters involving questions of law only.

Mr Saghan submitted in response that the appeal was both on matters of facts and law and asked the court to decide on the questions of law.

Mr Maswanyika who argued for TRA maintained that the basis of the disputed assessment was the ECR machine which Q Bar continued to use until the audit was established.

He further submitted that the appeal before the board was incompetent because the grounds of appeal have raised factual issues which the Court of Appeal has no jurisdiction to deal with. “The appellant has only raised issues of law in support of the appeal. Since issues of facts were properly considered and determined by the board and the tribunal, this court has no jurisdiction to reconsider it on the strength of section 25 (2) of the TRAA,” argued Mr Maswanyika.

Court dismisses appeal

The court focused on the issue of whether the grounds of appeal has complied with section 25 (2) of the TRAA.

“It is our considered view that the appellant’s complaints in all four grounds of appeal raise questions of facts which were sufficiently dealt with and settled by the board and the tribunal, thus they ought to end there.

“It follows therefore that; this Court has no jurisdiction to determine the grounds of appeal which have only raised issues of facts,” said the justices.