A major characteristic of tax administration in developed climes is its scientific, systematic, and logically justifiable approach. In other words, before tax is treated as final and conclusive, it must have undergone thorough scrutiny among relevant stakeholders especially representatives of the tax authorities and those of the taxpayer.
Arbitrary administration of (tax) laws is a recurrent issue in the Nigerian polity. It occasions discontent and unnecessary financial exposures to taxpayers and ultimately depletes the country's positive international perception on ease of doing business. Evidently then, competent judicial institutions owe a duty to both taxpayers and the State to checkmate such arbitrary exercise of fiscal authority.
The Tax Appeal Tribunal (TAT) was invited to perform a similar checkmating role in the recent case involving Celebrities Restaurant Limited v. Federal Inland Revenue Service (FIRS).1
Highlight of Facts
The Federal Inland Revenue Service ("FIRS" or "the respondent") in exercise of its powers2 carried out a field tax audit on Celebrities Restaurant Limited ("the appellant") regarding Companies Income Tax (CIT), Value Added Tax (VAT) and Education Tax (ET) from 2013 to 2017. As a result, the FIRS issued a notice of additional assessment dated 30th July 2019 and a demand notice dated 29th January 2020 on the appellant for the recovery of the CIT, VAT and ET of the years under review to the tune of twenty-eight million, nine hundred and eighty-nine thousand, eight hundred and forty-two Naira (N28,989,842).
Dissatisfied with the outcome of the said audit exercise, Celebrities Restaurant filed an objection which was eventually overruled by the FIRS on the grounds that the 30-day time frame for raising objections to tax assessment had elapsed.3 Aggrieved, Celebrities Restaurant filed a notice of appeal before the South East Zone of the Tax Appeal Tribunal holden at Enugu on 7th July 2020 (later amended on 7th October 2020 and regularized on 8th December 2020). Upon filing by the FIRS of its opposition to the appeal, the case under review was birthed.4
Issues for Determination
The Tax Appeal Tribunal ("the Tribunal") couched the following questions for determination:
a. Whether the Assessment Notices dated 30th July 2019 and served on 8th August 2019 without an objection to the tax authority by the Appellant have become final and conclusive and whether this Tribunal can reopen an assessment that has by law become final and conclusive?
b. Whether the instant appeal is valid regardless of the validity or invalidity of the Respondent's additional assessments?
c. Whether the Respondent can validly assess the Appellant to VAT in view of the current position of the law in Nigeria?
d. Whether the Respondent's Additional Assessments and Demand Notices are liable to be set aside in all the circumstances of this appeal?
This article addresses the first and second issues for determination.
- Companies Income Tax Act.
- Tertiary Education Tax Act, 2011 (as amended by section 34 of the Finance Act (2020).
- Value Added Tax Act, Cap V1 LFN 2004 (as amended).
- Federal Inland Revenue Service (Establishment) Act 2007.
Arguments on Issues for Determination
The first issue borders on the position of the law on a final and conclusive assessment.
The appellant submitted as follows:
i. The tax assessment carried out by the FIRS was not in accordance with the law.
ii. The figures representing turnover, income profits, and vatable sales were arbitrarily drafted by the respondent, and that a legally invalid tax assessment cannot crystallize as to become final and conclusive, and that parties cannot by private agreement compromise a provision of the law.
iii. In proof of the faultiness of the FIRS' additional Companies' Income Tax (CIT) and Tertiary Education Tax (TET) assessment, the appellant referred to section 9(1) of the CIT Act5 and section 1 of the TET Act 2011,6 arguing that the bases for CIT and TET are taxable profit and assessable profit respectively, of a qualified company, and that the FIRS failed to comply with these important provisions.
iv. In further proof of the invalidity of the FIRS' additional VAT assessment, the appellant cited sections 2 & 3 of the VAT Act,7 arguing that the respondent admitted that it did not bother to ensure that the sales on the basis of which it purportedly applied VAT against the appellant were (actually) sales of vatable goods – such as bread, local food delicacies, water, vegetables, etc., - all of which are VAT-exempt.
In essence, the appellant argued that the FIRS based its additional assessment on the appellant's Management Accounts which, by law, is not the proper document for determining the actual income or profit of the appellant for CIT, TET, and VAR purposes.
The respondent countered the appellant's arguments as follows:
i. The additional assessment addressed to the appellant was final and conclusive on the ground that the appellant failed to respond within the 30-day statutory timeframe.8
ii. The TAT cannot reopen an assessment that was not validly objected to in accordance with the law; such taxpayer loses the right to question or challenge the amount of tax imposed.
iii. The failure of the appellant to exercise its right of objection or appeal against the notice of assessment within the stipulated time is grave and fatal to its case.
Court decision on first issue
Whilst the court concurred that section 77 of CITA makes provisions for when a notice of assessment may be deemed final and conclusive, the court raised the question: "whether every assessment made by the tax authority under the earth (sic) automatically enjoys the statutory condiments under this section; once such an assessment is not objected to within the limited period stipulated by law?"9
The court referred to the leading case of FBIR v. Joseph Rezcallah10 where it was held that an assessment must comply with the law to become final and conclusive. The court found that the respondent's additional assessments had faulty bases, bearing in mind that some bank statements and other documents were not produced to the respondent. Gleaning from the respondent's admission to having placed reliance on the appellant's monthly management accounts due to "lack of adequate and sufficient documents to determine the actual turnover of the appellant for the purpose of tax," the court found that the respondent turned its tax administration responsibility into a "guesstimate work". This is frowned at by the tax laws.
Faced with a situation where a taxpayer or its agent is not cooperative in providing the tax authority with relevant documents, the court relied on the case of GTB v. Ekiti SBIR11 in pointing out that the correct course of action was for the relevant tax authority to apply to a court/tribunal of competent jurisdiction to compel the production of such documents.
The second issue borders on whether, regardless of the validity or otherwise of the respondent's additional tax assessments, an appeal is invalidated by the appellant's failure to exercise its right of objection within the time prescribed by law.
The appellant submitted as follows:
i. Apart from the fact that the respondent's additional assessment cannot be final and conclusive,12 the appellant's objection to the respondent's demand notice suffices as a valid basis for the appeal.
ii. The Federal Inland Revenue Service (Establishment) Act 2007 (FIRSEA) contemplates a valid appeal emanating from not only a tax assessment but also a demand notice, an action and/or decision of the respondent.
iii. The word "or" between "an assessment" and "demand notice" as contained in paragraph 13(1) of the 5th Schedule of the FIRSEA is used disjunctively, and gives the appellant an alternative or choice to either object to a tax assessment, or a demand notice,
iv. The word "may" in section 69(1) of CITA imposes no obligation on the taxpayer to file an objection to the FIRS before approaching the court or tribunal by way of an appeal.
In essence, the appellant argued that the appeal is valid, having been commenced by a valid and duly regularized notice of appeal.
The respondent answered the appellant's arguments on the second issue as follows:
i. This appeal is invalid by reason of its being based on an assessment that has become final and conclusive.13
ii. Section 69 (1) & (2) of CITA, and paragraph 13(1) & (2) of the 5th Schedule to the FIRSEA both provide a 30-day time frame within which a taxpayer may object to an assessment, after which any appeal may suffer fatality.
iii. The appellant failed to exercise its right of objection within the time prescribed by law. Building on this, the respondent cited the fact that the appellant was subjected to a field tax audit from 6th May – 15th July 2019 (with an exit meeting) after which the respondent issued on the appellant, two documents to wit: letter of intent dated 25th July 2019, and a notice of additional assessment dated 30th July 2019 (received by the appellant on 8th August 2019 – the beginning of the 30-day time frame within which the appellant's legal right to either object in writing or appeal against the additional assessment is exercisable).
iv. The issuances of a notice of (additional) assessment and a demand notice are both statutory and serve two distinct purposes. Whilst an assessment is served on a taxpayer whenever an assessment is made or revised either through the consideration of an objection or an appeal (according to sections 65, 66, 68 and 69 of CITA), a demand notice is served to demand for definite settlement of tax liabilities and calculation of penalties and interest (according to sections 85(1)(c) of CITA and section 32(1)(d) of FIRSEA).
v. The mere fact that paragraph 13(1) & (2) of the 5th Schedule to FIRSEA gives the appellant the option of filing an appeal against an assessment or demand notice does not foreclose the right of taxpayers to raise objection in writing against an assessment within 30 days. Thus, the appellant's objection to the respondent's demand notices is invalid in law because the appellant never objected to the notices of assessment that gave rise to the demand notices.
Court decision on second issue
The court cited section 68 of the FIRSEA which confers superiority on the FIRSEA over enactments such as CITA. Consequently, the court held that the appeal is valid. The appellant's failure/neglect to object to the respondent's additional assessments within 30 days but opting instead to object to the respondent's demand notice within 30 days of receipt amounts to compliance by the appellant with the FIRSEA regarding the filing of objections.
The Tribunal in this case was faced with both tax moral and legal issues. On the moral aspect, the Tribunal was faced with the challenge of deciding what fiscal revenue generation actions should be anchored on the law or the urgent need to boost revenue at all costs. This challenge must have assumed a more critical dimension in the presence of evidence showing that the appellant had failed/refused to produce such documents as statements of account which are usually critical in arriving at an accurate tax assessment. On the legal side, the challenge was of deciding to follow strict, technical, and iron-fisted law or to thoroughly analyse the peculiar facts of the case vis-à-vis the intent of the draftsman. It is the humble view of the authors that the Tribunal was remarkably successful in resolving these two challenges.
Regarding the first issue, the popular saying on the impracticability of putting something on nothing and expecting it to stand is apposite. The tax authorities cannot apply selective diligence, choosing to be thorough only with respect to preparation and delivery of assessments and demand notices to taxpayers. The tax authorities must bring its diligence and fiscal responsibility to bear in its audit processes to arrive at an accurate tax assessment. It is the failure of the FIRS on this crucial aspect that ultimately led to the downfall of its arguments on the first issue. The tribunal perceptively observed as follows:
"In our view, it will be inappropriate for the tax authority, after admitting that it had incomplete documents to carry out the audit satisfactorily, to proceed to concoct figures arbitrarily and foist it on the taxpayer or tax agent. Tax administration should be scientific, systematic, and methodological."14
Furthermore, the respondent held strongly to its argument that the appellant ought to have objected to its tax assessment, rather than its demand notice. The respondent sought the Tribunal's order to dismiss the appeal on this ground. Remarkably however, the Tribunal emphasized the superiority of the FIRSEA over other taxing statutes (such as CITA) regarding tax administration and dispute resolution and held that the appellant's objection to the respondent's demand notice suffices as complete compliance with the provisions of the law.
Particularly remarkable is the fact that the Tribunal did not in any way water down the need for taxpayers to comply with the provisions of the tax laws regarding timeframes for objections but held that objections should not be limited to assessments alone but also extend to demand notices and other actions of the revenue authority.
It is also noteworthy that the appeal had a lifespan of two (2) years at the Tribunal. Whilst this is commendable and exemplary in comparison with the lifespan of matters at the High Courts, it can only get better especially with the advent and improved understanding of the workings of digital technology and teleconferencing. Hopefully, practice directions and laws compelling the use of teleconferencing in certain aspects (if not the entire process) of a tax dispute will be released in 2023; and of course, with specific timeframes and stiff penalties for non-compliance.
1. Appeal No. TAT/SEZ/004/2020, judgment delivered on 14th April 2022 by a four-member panel led by the Chairman of the South-East Zone of the TAT, Mr. Chukwuemeka Eze.
2. Federal Inland Revenue Service (Establishment) Act, 2007.
3. Section 69 (2)(a) of the Companies Income Tax Act cap C21 LFN, as amended.
4. Appeal No. TAT/SEZ/004/2020: Celebrities Restaurant Limited v. Federal Inland Revenue Service (FIRS), delivered on 14th April 2022, available here: https://tat.gov.ng/judgement/details.php?id=194 accessed on 9th September 2022.
5. Cap. C21 LFN 2004.
6. As amended by section 34 of the Finance Act 2020.
7. Cap. V1 LFN 2004.
8. Section 69(1) & (2) and section 77 of CITA, Cap. C21 LFN 2004.
9. Per Chukwuemeka Eze, last paragraph at page 49 of the judgment.
10. (2000) 2 TLRN.
11. (2018) LPELR-46307.
12. (Refer to the court's holding on issue one above).
13. Considering the court's holding on issue one, this argument loses relevance.
14. Per Chukwuemeka Eze, paragraph 1 on page 51 of the judgment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.