Shophold (Mauritius) Ltd v Assessment Review Committee and another (Mauritius)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hodge |
| Judgment Date | 16 May 2016 |
| Neutral Citation | [2016] UKPC 12 |
| Date | 16 May 2016 |
| Court | Privy Council |
[2016] UKPC 12
From the Supreme Court of Mauritius
Lord Kerr
Lord Sumption
Lord Hodge
Appellant
Sanjay Bhuckory SC Jason Harel Sandiram Poonisamy
(Instructed by Sheridans)
Respondents
Philip Baker QC Karuna Gunesh-Balaghee Imran Afzal
(Instructed by Royds LLP)
Heard on 19 April 2016
This appeal raises a question of the interpretation of the Value Added Tax Act 1998 ("the 1998 Act"). It is whether a taxable person, who has a contractual right to be paid for the services which it has provided, is obliged to pay Value Added Tax ("VAT") even where it has waived the enforcement of its contractual right and has neither issued an invoice nor received payment for those services.
Shophold (Mauritius) Ltd ("Shophold") owned 51% of the issued share capital of Shoprite (Mauritius) Ltd ("Shoprite"); the other 49% was owned by a separate entity, Ireland Blyth Ltd. Shoprite was and is the owner and operator of a hypermarket in Mauritius. On 19 March 2003 Shophold entered into a management services agreement ("the Agreement") with Shoprite, in which it undertook to provide management services to Shoprite in return for a management fee ("the Management Fee") equal to 1% of Shoprite's gross turnover. The Agreement provided that Shoprite would pay the Management Fee on a monthly basis with an adjustment after the end of a financial year once auditors had certified its annual turnover. Shophold has been registered for VAT since 1 October 2002 and so is a taxable person.
In May 2003 the board of directors of Shophold decided by written resolution to waive its right to the Management fee "until such time as [Shoprite] is in a profit making position and where sustainable profitability is foreseeable in the future". The Agreement was not varied to reflect this waiver. Shophold continued to provide management services to Shoprite but at a reduced level. By a further written resolution signed in December 2007 and January 2008 the board of directors of Shophold resolved:
"that the 1% management fee be re-instated with effect from 1 July 2006, because [Shoprite] is trading profitably and sustainable profitability is foreseeable in the future."
As a result of the two resolutions Shophold did not issue any invoice in respect of its management services or receive any payment for those services for the taxable periods from July 2003 until the end of June 2006.
Shophold submitted tax returns for the years of assessment 2004/2005 and 2005/2006, which the Mauritius Revenue Authority ("MRA") examined. The MRA determined that Shophold had failed to declare the management fees and issued a VAT assessment in the sum of Rs3,114,028 for the taxable periods July 2003 to June 2006 ("the relevant period").
Shophold appealed against the VAT assessment to the Assessment Review Committee ("ARC") which upheld the assessment. The ARC considered sections 5(1) and 9(1) and 12(2), 12(3) and 12(5) of the 1998 Act and held that Shophold had made taxable supplies to Shoprite by providing the services whether or not it had submitted invoices or had been paid for those services. It concluded that if Shophold had decided to forgo the payments, it was deemed for VAT purposes to have received payment at the end of every month.
At Shophold's request, the ARC stated a case for the opinion of the Supreme Court, which upheld its decision. In its reasoning the Supreme Court referred also to sections 2, 4 and 9(2) of the 1998 Act. In substance the Supreme Court held that because Shophold had only waived its entitlement to receive the Management Fee and had not agreed a variation of the Agreement with Shoprite, the latter's contractual obligation to pay the Management Fee remained. That contractual obligation to pay 1% of its turnover was the consideration that Shoprite gave for the management services, and as a result the services were taxable supplies subject to VAT under section 9(1) of the 1998 Act. Accordingly, it held that Shophold ought to have received payment for the service at the end of each month during the relevant period and was liable to VAT as if it had.
Shophold appeals to the Board with the leave of the Supreme Court of Mauritius. While the ARC made no finding as to whether Shophold had invoiced Shoprite and had received payment of the Management Fee in the relevant period, counsel for both parties have sensibly proceeded on the basis that there had been no invoices and no payments. The Board also proceeds on that basis.
The questions raised by the appeal are questions of statutory interpretation and may be summarised as (i) whether Shophold made taxable supplies to Shoprite at any time in the relevant period and, if so, (ii) whether Shophold is liable to pay VAT in respect of such supplies. In addressing those questions the Board must also consider the meaning of "consideration" in section 4(1)(b) of the 1998 Act as it was the central argument of the MRA that Shophold was liable to VAT as consideration had moved from Shoprite to it during the relevant period.
Section 9 of the 1998 Act is the charging provision and it provides (so far as relevant):
"(1) VAT shall be charged on any supply of goods or services made in Mauritius, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.
(2) VAT on any taxable supply is a liability of the person making the supply and becomes due at the time of supply." (emphasis added)
"Supply" is a central concept in the VAT regime and section 4(1) provides:
"Subject to the other provisions of this Act, 'supply' means -
…
(b) in the case of services, the performance of services for a consideration."
"Taxable supply" is defined in section 2 as "… a supply of services performed or utilised in Mauritius; and … made by a taxable person in the course or furtherance of his business". It is not disputed that Shophold was a taxable person as it was registered for VAT and that the services were provided in the furtherance of its business. What is contested is whether Shophold "supplied" services within the meaning of the 1998 Act in the relevant period.
Section 5 defines the time of supply. It is an important provision because, as emphasised in para 10 above, section 9(2) provides that VAT becomes due at the time of the supply. So far as relevant section 5 provides:
"(1) Subject to the other provisions of this Act, a supply of goods or services shall be deemed to take place —
(a) at the time an invoice or a VAT invoice in respect of that supply is issued by the supplier; or
(b) at the time payment for that supply is received by the supplier, whichever is the earlier.
(2) Where services are supplied for a continuous period under any …...
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