On 24th August 2021, the Tax Appeal Tribunal (the "Tribunal") delivered a ruling in Multichoice Nigeria Limited v Federal Inland Revenue Service (the "Multichoice case". In that ruling, the Tribunal held that Paragraph 15(7) of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act 2007 ("FIRS Act") constitutes a condition precedent to the hearing of appeals filed before the Tribunal.

The appellant ("Multichoice") filed this appeal to challenge a tax assessment of about N1.8 Trillion imposed by the Federal Inland Revenue Service ("FIRS"). The FIRS orally applied to the Tribunal that Multichoice be compelled to comply with Paragraph 15(7) of the Fifth Schedule to the FIRS Act because the Tribunal would lack the jurisdiction to hear the appeal if Multichoice did not comply. Paragraph 15(7) of the Fifth Schedule to the FIRS Act provides as follows:

"At the hearing of any appeal if the representative of the Service proves to the satisfaction of the Tribunal hearing the appeal in the first instance that:

  1. the appellant has for the year of assessment concerned, failed to prepare and deliver to the Service returns required to be furnished under the relevant provisions of the tax laws mentioned in paragraph 11;
  2. the appeal is frivolous or vexatious or is an abuse of the appeal process; or
  3. it is expedient to require the appellant to pay an amount as security for prosecuting the appeal; the Tribunal may adjourn the hearing of the appeal to any subsequent day and order the appellant to deposit with the Service, before the day of the adjourned hearing, an amount, on account of the tax charged by the assessment under appeal, equal to the tax charged upon the appellant for the preceding year of assessment or one half of the tax charged by the assessment under appeal, whichever is the lesser plus a sum equal to ten percent of the said deposit, and if the appellant fails to comply with the order, the assessment against which he has appealed shall be confirmed and the appellant shall have no further right of appeal with respect to that assessment."

Decision

After hearing oral arguments from counsel to Multichoice and FIRS, the Tribunal ruled in favour of the FIRS and ordered Multichoice to make a deposit with the FIRS as security for the assessed tax in line with Paragraph 15(7) of the Fifth Schedule to the FIRS Act. According to the Tribunal, it would not have jurisdiction to hear the appeal unless Multichoice made the required deposit.

Validity of Paragraph 15(7) of the Fifth Schedule to the FIRS Act

We are of the view that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is unconstitutional as it breaches the taxpayer's fundamental rights of access to the court and fair hearing enshrined in Section 36(1) and (2) of the Constitution.

Right of Access

Section 36(1) of the Constitution provides as follows:

"In the determination of his civil rights and obligations, including any question or determination by or against any government or authority, a person shall be entitled to a fair hearing within a reasonable time by a court or other tribunal established by law and constituted in such manner as to secure its independence and impartiality."

In Cotecna Int'l Ltd v Churchgate (Nig.) Ltd (2010) 18 NWLR (1225) 346 at 384, the Supreme Court held that "the Constitution guarantees citizen's right to vent their grievances in court". Section 36(1) of the Constitution is drafted in unequivocal and absolute terms and should not be unduly fettered or qualified by any other law in such a manner as to subvert or neutralise the right of access conferred by the Constitution. This was the decision of the Supreme Court in Amadi v NNPC where it held as follows:

"We are of the view that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is unconstitutional as it breaches the taxpayer's fundamental rights of access to the court and fair hearing enshrined in Section 36(1) and (2) of the Constitution."

"The provision of section 36(1) undoubtedly couched in wide absolute terms and is not unqualified. The purport of the provision is to enable right of access to the court absent legal obstacles in his path neutralising exercise of the right." Paragraph 15(7) of the Fifth Schedule to the FIRS Act purports to take away the right of access of the taxpayer to ventilate his grievances before the Tribunal. It states that a taxpayer who has paid the requisite filing fees and is already before the Tribunal may still be prevented from having its appeal heard on grounds that it has not paid a deposit on the same tax assessment whose validity it is challenging. Paragraph 15(7) of the Fifth Schedule to the FIRS Act creates an obstacle which subverts and neutralises the taxpayers fundamental right of access to the court.

It may be argued that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is no different from other provisions of law which require the payment of filing fees, service of pre-action notices, etc. While the courts have held that filing fees and pre-action notices do not become unconstitutional merely because they require the fulfilment of certain pre-conditions before a litigant can approach the courts, Paragraph 15(7) of the Fifth Schedule to the FIRS Act is a different specie entirely.

In the Multichoice case, Multichoice has already paid its filing fees and is already before the Tribunal challenging a tax assessment. However, it has been ordered to pay a deposit on the tax assessment whose validity it challenges before it can be heard. Clearly, this requirement renders nugatory the fundamental right which the taxpayer had exercised when it filed the appeal. It is based on this principle that the Supreme Court went ahead to hold as follows in Amadi v NNPC (2000) 10 NWLR (674) 76 at 109 – 110:

"It is however, not consistent with the exercise of the right of access to court to make regulations which subvert the exercise of the right or render the right nugatory. ... where an enactment regulates the right of access to the court in a manner to constitute an improper obstacle to access to court, such enactment could be appropriately regarded as an infringement of section 36(1) ... of the Constitution."

We are of the view that Paragraph 15(7) of the Fifth Schedule to the FIRS is one of the regulations contemplated by the above pronouncement and will not hold up to scrutiny upon a constitutional challenge.

Fair Hearing

Paragraph 15(7) of the Fifth Schedule to the FIRS Act provides that where a taxpayer is required to make a deposit against the tax assessed and that taxpayer fails to pay the deposit before the next adjourned date, the assessed tax will be confirmed and the taxpayer will have no right to appeal against the tax assessed. Under the circumstances contemplated by Paragraph 15(7) of the Fifth Schedule to the FIRS Act, the tax authority is not required to establish the validity or legality of its tax assessment. The taxpayer's failure to pay the deposit establishes the validity of the disputed tax and also deprives the taxpayer of the right to challenge the assessment through an appeal.

It is our view that this provision deprives the taxpayer of its right to a fair hearing as enshrined in Section 36(2) of the Constitution which provides as follows:

"Without prejudice to the foregoing provisions of this section, a law shall not be invalidated by reason only that it confers on any government or authority power to determine questions arising in the administration of a law that affects or may affect the civil rights and obligations of any person if such law –

  1. provides for an opportunity for the persons whose rights and obligations may be affected to make representations to the administering authority before that authority makes the decision affecting that person; and
  2. contains no provision making the determination of the administering authority final and conclusive."

By purporting to deprive the taxpayer of the opportunity to present its case even after an appeal has been filed before the Tribunal, Paragraph 15(7) of the Fifth Schedule to the FIRS Act has breached the taxpayer's fundamental right to a fair hearing.

Paragraph 15(7) of the Fifth Schedule to the FIRS Act further provides that the taxpayer will have no right of appeal against a tax assessment which is established pursuant to the provisions of Paragraph 15(7) of the Fifth Schedule to the FIRS Act. This is clearly in breach of Section 36(2)(b) of the Constitution which provides that no law shall purport to make the decision of an administering authority final and conclusive.

"It is our position that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is unconstitutional as it places an unjustifiable obstacle in the way of the exercise of the right to access the courts. Furthermore, by providing that a taxpayer who fails to pay the deposit required will forfeit its right to challenge the disputed assessment, Paragraph 15(7) of the Fifth Schedule to the FIRS Act has breached the taxpayer's right to a fair hearing."

Furthermore, courts and tribunals are discouraged from making interim orders which have the effect of granting the reliefs which a litigant has sought in its substantive suit. An order made pursuant to Paragraph 15(7) of the Fifth Schedule to the FIRS Act is a direct breach of this rule in view of the fact that the decision of the Tribunal can result in a crystallisation of the assessed tax which is being challenged in the appeal. In Altine v Afribank Plc. (2000) 15 NWLR (689) 181 at Page 194 paragraphs F – H, the Court of Appeal stated as follows:

"In applications for the grant of interlocutory injunction pending the determination of the substantive claim, the judge has a duty to ensure that he does not in the determination of the application determine the same issues that would arise for determination in the substantive suit as it is not proper for the court at that stage to express any opinion as to such rights as such an opinion might give the impression that the court has made up its mind on the substantive issue for trial before it. See A.C.B Ltd v. Awogboro (1996) 3 NWLR (pt 437) 383; Orji v. Zaria Ind. Ltd (1992) 6 NWLR (pt. 216) 124. The court should also desist from making orders touching on substantive issue at interlocutory stage. See Ojukwu v. Military Governor of Lagos State (1986) 3 NWLR (pt.26) 39 Nnaemeka Agu JCA (as he then was) said at page 25:-

"I cannot over emphasise the need of trial Judges in interlocutory rulings desisting from making any findings which may prejudice the substantive case. It is true that if the above findings were rightly made and allowed to stand, they have completely knocked the bottom out of substantive suit"

Does Paragraph 15(7) of the Fifth Schedule to the FIRS Act apply to all appeals before the Tribunal

Assuming without conceding that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is valid and constitutional, we are of the view that contrary to the impression created by the Tribunal's ruling in the Multichoice case, Paragraph 15(7) of the Fifth Schedule to the FIRS Act does not apply to all appeals filed at the Tribunal.

For the Tribunal to make an order under Paragraph 15(7) of the Fifth Schedule to the FIRS Act, at least one of the following conditions must be proved by the FIRS:

  1. the taxpayer has failed to prepare and deliver the tax returns for the relevant year;
  2. the tax appeal is frivolous or vexatious or is an abuse of the appeal process; or
  3. it is expedient to require the appellant to pay an amount as security for prosecuting the appeal.

The first condition is fairly easy to determine as it is a matter of fact and records. In respect of the second condition, where the taxpayer is able to establish a prima facie case, Paragraph 15(7) of the Fifth Schedule to the FIRS Act cannot be invoked. The third condition requires the tax authority to demonstrate that there is a danger that the taxpayer will move its assets out of the jurisdiction of the Tribunal by the time the Tribunal makes a decision. Where there is no prospect of such an event occurring, there is no basis for the Tribunal to make the order contemplated by Paragraph 15(7) of the Fifth Schedule to the FIRS Act.

Considering that the FIRS is required to prove at least one of the conditions set out in Paragraph 15(7) (a)-(c), we are of the view that such a burden cannot be discharged by a mere oral application.

Conclusion

It is our position that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is unconstitutional as it places an unjustifiable obstacle in the way of the exercise of the right to access the courts. Furthermore, by providing that a taxpayer who fails to pay the deposit required will forfeit its right to challenge the disputed assessment, Paragraph 15(7) of the Fifth Schedule to the FIRS Act has breached the taxpayer's right to a fair hearing. These outcomes indicate that Paragraph 15(7) of the Fifth Schedule to the FIRS Act is an unfair and onerous provision which does not align with the intent and spirit of the Constitution.

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