The much-anticipated goods and services tax (“GST”) replaced Malaysia’s sales and service tax in April this year. Under the new regime, all goods and services supplied in the country (unless they are zero-rated, exempt supply or out of scope) are subject to GST at the rate of 6% at every stage of the supply chain. Although GST is conceptually a simple consumption tax, confusion and uncertainty arising from the existing legislation (especially the wide zero-rated and exempt supply list) have made it a fairly complex tax in Malaysia.1
This is coupled with technical issues that will arise due to differing standpoints adopted by the Royal Malaysian Customs Department (“Customs Department”) and GST practitioners. The Goods and Services Tax Act 20142 (“the GST Act”) also contains a comprehensive penalty regime which, from its drafting and intent, may be read to be punitive in nature. During its roadshows nationwide, the Customs Department appeared to have assured businesses and GST practitioners that it would adopt an educational approach, at least in the first year of GST implementation, and, as such, the penalty provisions under the GST Act would be applied sparingly. This assurance is not legally binding and, in any event, the Customs Department is not estopped from applying the full strength of the law if it wishes to impose a penalty.3
This article will cover two major avenues of appeal available to taxpayers: the GST Appeal Tribunal and the judicial review application.
GST Appeal Tribunal
If a taxpayer is aggrieved by a Customs decision in respect of GST matters, the ordinary route envisaged by Parliament is for him to appeal to the GST Appeal Tribunal (“the Tribunal”). The establishment of the Tribunal is provided under s 125 of the GST Act. The Tribunal has the jurisdiction to determine appeals in respect of GST matters except on the matters specified in the Fourth Schedule.4 Parliament has not provided a reason for making this exception and neither does the GST Act provide any alternative appeal remedy to taxpayers who may be aggrieved by a decision of the Customs Department (including the Director-General of Customs).
It is unfortunate that the GST Act is silent on this. The author submits that Parliament should have either provided an appeal process for such matters, or at least acknowledged that such matters could be appealed by way of judicial review application. It is the author’s opinion that taxpayers who are aggrieved by decisions in respect of matters specified in the Fourth Schedule may seek legal recourse by way of judicial review application, which is discussed below.
The salient features of the Tribunal are:
The membership of the Tribunal is rather wide and appointment is determined by the Minister of Finance.5 The chairman and deputy chairman of the Tribunal will be appointed from among the officers attached to the Judicial and Legal Service.6 The minister is required to appoint no fewer than five members whom in his opinion have wide knowledge or extensive experience in any field of activities relating to GST, customs or taxation.7
As at the time of writing, the author is unaware of any appointment being made by the Minister to the Tribunal. Tribunal members shall hold office for a term not exceeding three years and are eligible for reappointment up to three consecutive terms.8 The Minister shall also determine the remuneration and other terms and conditions of the members of the Tribunal, including the chairman.9 In the following circumstances, the appointment of a member of the Tribunal under s 128(1)(b) of the GST Act may be revoked by the Minister:10
his conduct, whether in connection with his duties as a member of the Tribunal or otherwise, has been such as to bring discredit to the Tribunal;
he has become incapable of properly carrying out his duties as a member of the Tribunal;
there has been proved against him, or he has been convicted of, a charge or charges in respect of:
an offence involving fraud, dishonesty or moral turpitude;
an offence under any law relating to corruption;
an offence under this Act, the Customs Act 1967 or the Excise Act 1976; or
any other offence punishable with imprisonment for more than two years;
he is adjudicated a bankrupt;
he has been found or declared to be of unsound mind or has otherwise become incapable of managing his affairs; or
he absents himself from three consecutive sittings of the Tribunal without leave of the chairman.
A member appointed by the Minister may also resign from his office by giving a three-month notice.11
Section 133 of the GST Act provides for the appointment of a secretary and an assistant secretary to the Tribunal to ensure the functions of the Tribunal are discharged accordingly.12 The officials will report to the chairman of the Tribunal.13 Like any other tribunal, no action or suit could be instituted or maintained in any court against the members of the Tribunal.14
Hearing of appeals
Any taxpayer aggrieved by the decision of the Director- General of Customs in respect of a GST matter, except for the matters specified in the Fourth Schedule, may appeal to the Tribunal within 30 days15 from the date when the disputed decision was made known to the taxpayer. The appeal is to be made using the prescribed form16 together with the prescribed fee.17 The taxpayer is required to provide his particulars and state the grounds of appeal, along with the remedy sought, in the notice of appeal.
If a taxpayer has missed the 30-day deadline, he may make an application in writing18 to the Tribunal for an extension,19 which will be granted if it is satisfied that it is reasonable in all circumstances to do so. The Tribunal is required to grant the Customs Department the right to be heard before making its decision.20
An appeal is heard by a panel of three members21 and each appeal is presided by the chairman or the deputy chairman.22 The taxpayer may conduct his case himself or be represented by any person whom he may appoint for that purpose, including a tax agent23 or an advocate or solicitor.24 Meanwhile, the Director-General of Customs may be represented by an authorised officer.25
Although it is stated that any proceedings before the Tribunal shall be conducted without regard to formality and technicality, the Tribunal may have the authority to exercise the following:26
procure and receive evidence on oath or affirmation, whether written or oral, and examine any person as a witness, as the Tribunal thinks necessary to procure, receive or examine;
require the production before it of books, papers, documents, records and things;
administer the oath, affirmation or statutory declaration, as the case may require;
seek and receive such other evidence and make such other inquiries as it thinks fit;
summon the parties to the proceedings or any other person to attend before it to give evidence or to produce any document, record or other thing in his possession or otherwise to assist the Tribunal in its deliberations;
receive expert evidence; and
generally direct and do all such things as may be necessary or expedient for the expeditious determination of the claims.
The author welcomes the insertion of s 150 of the GST Act, which states that no proceedings, award or other document of the Tribunal shall be set aside or quashed for want of form. The Tribunal is also empowered to award costs against the taxpayer and the Director-General of Customs in the circumstances prescribed under s 151 of the GST Act.
The Tribunal is required to pronounce its decision without delay and, where practicable, within 60 days from the first day the hearing before the Tribunal commences.27 The Tribunal has the power to affirm, vary or set aside the Director-General of Customs’ decision28 and is required to give reasons for its decision.29
A party aggrieved by the decision of the Tribunal has the right to appeal to the High Court on a question of law or of mixed fact and law.30 It must be noted that ordinarily in an appeal, no new or further evidence could be adduced on appeal. Further, the Tribunal members would be the judges of fact and upon examining all the evidence admitted to them, the Tribunal would form an opinion and draw conclusions from those facts. Although any error of law committed by the Tribunal could be set aside on appeal, it must be appreciated that an appellate court is usually reluctant to disturb the finding of facts unless it could be established that the facts found by the Tribunal are not supported by evidence or another reasonable Tribunal in the same circumstances would not have found the same.
The final court in respect of GST appeals originating from the Tribunal would be the Court of Appeal. A party dissatisfied with the decision of the High Court may lodge an appeal to the Court of Appeal within 30 days upon the pronouncement of the said decision. As GST appeals do not originate from the High Court, it is the author’s view that it may not satisfy s 96(a) of the Courts of Judicature
Act 1964 [Act 91] and thus, an appeal from the Court of Appeal to the Federal Court in respect of a GST matter determined by the Tribunal will not be possible.31
It is encouraging to observe that the mere fact that an appeal had been lodged before the Tribunal does not bar taxpayers and the Director-General of Customs from engaging in discussions and negotiations with the view of resolving the dispute amicably out of court.
In fact, s 140(1) of the GST Act expressly provides that in appropriate circumstances, the Tribunal may assist parties to the proceedings in negotiating an agreed settlement in relation to the appeal. Where the parties reach an agreed settlement, the Tribunal shall approve and record the settlement and the settlement shall take effect as if it were a decision of the Tribunal.32 However, in circumstances where it appears to the Tribunal that it would not be appropriate for it to assist the parties to negotiate an agreed settlement in relation to the appeal, or the parties are unable to reach an agreed settlement in relation to the appeal, the Tribunal shall proceed to determine the appeal.33
The Federal Court has recognised that judicial review provides a means by which judicial control of administrative actions is exercised.34 The Malaysian Civil Procedure 2013, among others, succinctly explains that judicial review refers to the process of supervisory jurisdiction exercised by the High Court over decisions of persons who carry out quasi-judicial functions or who are charged with the performance of public acts and duties.
In respect of GST matters, the author foresees judicial review applications taking place when a taxpayer intends
to bypass the Tribunal or is aggrieved by a matter which falls under the Fourth Schedule of the GST Act. A decision susceptible to judicial review is not only open to challenge on the ground of procedural impropriety, but also on the grounds of illegality, irrationality and proportionality.35
Unlike the Tribunal where no leave is required to lodge an appeal, in order to commence judicial review proceedings, the taxpayer must first obtain leave from the High Court. As held by the Federal Court,36 the sole question at the leave stage in a judicial review application is whether the application is frivolous. If leave is granted, the taxpayer may then commence his judicial review application and, if successful, the taxpayer may pray for the High Court to exercise its jurisdiction to grant various remedies including an order of certiorari to quash the impugned decision, grant declaratory relief and award damages including interest.
As explained earlier, the Tribunal is precluded from hearing matters specified in the Fourth Schedule and the GST Act does not provide any appeal remedy in respect of such matters. It is worth noting that the following matters are specified in the Fourth Schedule:
any matter which is inherent of a statutory restriction under the GST Act;
any direction to treat persons as a single taxable person under s 23 of the Act;
any refusal of voluntary registration under s 24 of the Act;
any refusal of group registration under s 27 of the Act;
any matter relating to reassignment of the taxable period under s 40(4) of the Act;
offsetting tax against refund under s 45 of the Act;
any seizure and selling of any goods for recovery of any amount under s 47(2) of the Act;
any refusal of payment by instalment under s 51 of the Act;
any decision to reduce or disallow any refund under s 57(2) of the Act;
any refusal to refund an amount paid by any person under s 57(5) of the Act;
any refusal to remit any penalty or surcharge under s 62(2) of the Act;
any refusal to approve any application for any scheme under Part VIII of the Act;
any advance ruling made under s 77 of the Act;
the exercising of powers under Part X of the Act;
the compounding of offences under s 121 of the Act;
any matter relating to approval of reward by the Director-General of Customs under s 171 of the Act; and
any matter relating to special refund under ss 190, 191 and 192 of the Act.
In such circumstances, a taxpayer aggrieved by the decision of the Customs Department in respect of any one or more of the matters specified in the Fourth Schedule may seek legal recourse by applying for judicial review. In Goh Eng Hwa,37 the taxpayer was issued a travel restriction notice under s 104 of the Income Tax Act 1967 [Act 53] by the Director-General of Inland Revenue. Such notice was not appealable to the Special Commissioners of Income Tax as it was not an assessment; neither was there a remedy provided under the Income Tax Act 1967. The taxpayer sought a declaratory relief from the High Court, inter alia, to declare that he did not owe any outstanding tax and thus, the travel restriction notice was not sustainable.
He commenced proceedings by way of an originating summons, and not by way of judicial review. The taxpayer’s case was dismissed on the premise that his approach in commencing the action by way of an originating summons was an abuse of process.
There are two points to note from Goh Eng Hwa:
If a taxpayer intends to challenge a public authority like the Director-General of Inland Revenue, the appropriate legal recourse is to apply for judicial review; and
In instances where the domestic remedy provided under the governing legislation has no jurisdiction to hear a decision made by a public authority under the same legislation and the said governing legislation does not provide for an alternative legal remedy or is silent, then a taxpayer aggrieved by such a decision may seek legal recourse by way of judicial review.
In this regard, the author is of the opinion that a taxpayer aggrieved by the decision of the Customs Department in respect of matters precluded from being heard by the Tribunal may seek legal recourse by way of judicial review.
Meanwhile, in exceptional circumstances, matters which are appealable to the Tribunal could be pursued at the High Court by way of judicial review. The exceptional circumstances are clear lack of jurisdiction, failure to perform a statutory duty and breach of natural justice. The existence of the Tribunal does not prevent taxpayers from commencing judicial review proceedings in exceptional circumstances as held by a number of decisions such as Sungai Gelugor38 and Metacorp Development.39 It is notable that the decision of the High Court in Metacorp was unanimously affirmed by the Court of Appeal and the Director-General of Inland Revenue’s leave application was dismissed unanimously by the Federal Court.
In Sungai Gelugor, the Federal Court examined the alternative remedy argument in detail after studying various local and English authorities on this point. It concluded that where genuine grounds for judicial review are alleged, it is the refusal rather than the grant of relief that is the exceptional course. It further stated that:40
“The reason for this is that whilst in theory the courts there frequently recite the incantation that alternative remedies must be exhausted before recourse may
be had to judicial review, in practice, the courts are often much kinder to the applicant with a good case on the merits, who is faced with this hurdle to clear and will most probably entertain his application as an exception.”
The above clearly establishes that if taxpayers choose not to exercise the statutory appeal remedy, namely the Tribunal, the courts’ jurisdiction to hear such applications is not excluded. In fact, as a matter of practice, the courts are often inclined to grant judicial review to applications that have merit.
This approach is also consistent with the position observed in R v Chief Immigration Officer Gatwick Airport, ex parte Kharrazi,41 where it was stated that “on countless occasions that the availability of appeal does not debar the court from quashing an order by certiorari and that everything depends upon the facts of the case”.
This observation was unanimously endorsed in Sungai Gelugor. The judicial pronouncements cited above illustrate that it is the refusal to grant judicial review which is an exception rather than the granting of judicial review in cases where there is an alternative remedy.
The author submits that if an appeal is necessitated on the premise that the Director-General of Customs had abused his authority by applying the law erroneously and acted beyond the powers conferred to him, then
judicial review appears to be a better legal remedy to the taxpayers. This is because unlike the Tribunal, the High Court has the jurisdiction to stay the enforcement of the decision. Further, the authority of the Director-General of Customs is not absolute and is open to judicial review.
In Kim Thye Co,42 despite the existence of the Special Commissioners of Income Tax, the Director-General of Inland Revenue accepted as “a matter of law that he is not immune from the process of judicial review and made no procedural objection” to the taxpayer’s application in that case.
It is essential that taxpayers and GST practitioners are aware of their legal rights and the legal recourses available to them. Once they have determined the suitable legal recourse that they wish to pursue, that is, appeal before the Tribunal or judicial review application, then they must ensure that they comply with the necessary procedural requirements. Meanwhile, the Customs Department as the public authority entrusted with the implementation of the GST Act must ensure that it exercises its powers and discretion equitably and judiciously. Decisions should neither be made arbitrarily nor influenced by a publicly declared target.43
The author respectfully concludes this article by highlighting the reminder issued in Jasanusa;44 that is, the
courts need to balance the government’s need to realise taxes with that of the taxpayer to be protected against arbitrary or incorrect assessments. The courts are ever vigilant against taxpayers who may use procedures like applying for a stay of execution to defer or postpone payment of just dues or to abscond by migration or to dissipate the assets to defeat the judgment. The courts should also bear in mind the possibility of arbitrary or incorrect assessments, brought about by fallible officers who have to fulfil the collection of a certain publicly declared targeted amount of taxes and whose assessments, as a result, may be influenced by the target to be achieved rather than the correctness of the assessment. LH-AG