IN THE TAX APPEAL TRIBUNAL IN THE LAGOS ZONE HOLDEN AT LAGOS APPEAL NO: TAT/LZ/VAT/099/2022 BETWEEN: . APPELLANT NGX REAL ESTATE LIMITED... AND FEDERAL INLAND REVENUE SERVICE .. JUDGEMENT FACTS OF THE CASE The Appellant, a company registered under the relevant laws of Nigeria, is in the business of acquiring, leasing, hiring, or part-exchanging real property. On the other hand, the Respondent is an agency of the Federal Government of Nigeria (FGN) charged with powers of assessment, collection, and accounting of revenues accruable to the FGN. On 18" Day of February, 2022, the Respondent served on the Appellant a letter dated 9" February, 2022 where it alleged that the Appellant had not fully discharged its Value Added Tax (VAT) obligations for the 2020 Accounting Year. The Respondent gave an ultimatum of seven (7) days for the payment of an alleged Sum of #36,185,564.25 (Thirty-Six Million, One Hundred and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty-Five Kobo) Only. Consequent upon which, the Appellant and the Respondent not been able to resolve the dispute, the Appellant filed this appeal before this Honorable Tribunal. Page 1 of 13ISSUES FOR DETERMINATION The following issues have been formulated for determination: 1. Whether the Respondent erred in law when it imposed a VAT liability on the Appellant in the sum of #36,185,564.25 (Thirty-Six Million, One Hundred and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty-Five Kobo) Only or at all, for the Appellant’s 2020 Accounting Year. . Whether the Respondent erred in law when it charged interests and penalties v on the tax assessment or demand notice when same was neither final nor conclusive. FAX AP al IBUNAI LAGOS ZONE PARTIES SUBMISSION CERTIFIED TRUE COPY ston habeabou— Dates. THE APPELLANT On issue one above, the Appellant submitted that, the Respondent, acting in outright misconception of sound interpretation of key provisions of the VAT Act 2007 (as amended by the Finance Act, 2019), erred in law when it proceeded to impose VAT obligations in the sum of #36,185,564.25 (Thirty-Six Million, One Hundred and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty-Five Kobo) Only, (inclusive of interest and penalties) on rental incomes derived from real properties. The Appellant stated further that, the definition of “Goods” according to Section 46 of the VAT Act 2007 (as amended by the Finance Act, 2019), means “any intangible product, asset or property over which a person has ownership rights, or from which he derives benefits, and which can be transferred from one person to another excluding interest in land”. They stated further that, the above section made certain things clear i.e., (i)goods include tangible and intangible product, asset or Page 2 of 13property, and (ii) refer only to tangible and intangible product, asset or property which that, “Services” is defined under the same Section 46 of the VAT Act 2007 (as an” be transferred from one person to another. The Appellant maintained amended by the Finance Act, 2019), to mean “anything other than goods, money or securities which is supplied excluding services provided under a contract of employment”. That the foregoing serves no bearing on the issue, as “Services” clearly excludes “Goods”, and there is no performance of a service in letting out properties. The Appellant submitted that, Section 2(1) of the VAT Act (as amended by Section 33 of the Finance Act 2019) defines taxable goods and services as “the tax shall be charged and payable on the supply of all goods and services in Nigeria other than those listed in the First Schedule to this Act", and also, “taxable supplies” is defined by Section 46 of the VAT Act 2007 (as amended by the Finance Act, 2019), as “any transaction for sale of goods or the performance of a service, for a consideration in money or money's worth”. Cutting across these statutory provisions, the Appellant submitted that taxable goods refer to intangible and tangible products, assets or properties that “can be transferred from one person to another”, that land not being a transferrable item, cannot be classified as a taxable good. The Appellant submitted that, the key thing about taxable goods as defined by the VAT Actis, it clarifies that VAT is payable on “the supply” of all goods and services in Nigeria save the goods and services listed in the First Schedule to the VAT Act 2007. It is the position of the Appellant that, taxable supplies refer to transactions “for sale of goods” or the performances of a service, for consideration in money or money's worth. The Appellant maintained that, taxable supplies regarding goods, Soe Page 3 of 13envisage a sale of a taxable good, that with land not falling into the category of taxable goods, it does not fall under taxable supplies as well on the same logic. The Appellant stated further that, since VAT is payable only in respect of supply of goods or services, an important pass-mark is that for VAT to be chargeable on a ction for supply of goods and transaction, the transaction must qualify as a trans: services. The Appellant submitted that, lease transactions, which border on delivering up possessory rights to a tenant, cannot be said to mean taxable supplies within the meaning of taxable supplies. The Appellant supplied the definitions of “Land” as stated by the Courts in various cases amongst which are NEWCOMER V. COULSON (1877) 5 Ch D 133 at 142, 143, FEARN V. TATE GALLERY (2023) UKSC 4at 5, Para 9, ONAGORUWA V. STATE (1993) 7 NWLR (Pt 303) 49 at 100 Para D-E. On issue two, as to whether the Respondent erred in law when it charged interests and penalties on the tax assessment or demand notice when same was neither final nor conclusive, it is the submission of the Appellant that, the Respondent erred in law when it charged interests and penalties on the demand or re-assessment notice dated 22 day of June, 2022 when same was not final and conclusive: The Appellant maintained that, by the provisions of Paragraph 13(2) and (3) of the 5" Schedule to the FIRS Act, the procedure in place where the objector fails to appeal against an assessment or demand notice, makes the assessment or demand notices final and conclusive. The Appellant stated further that, the FIRS Act states that the Federal Inland Revenue Service may subsequently charge interests and penalties in addition to recovering the outstanding tax liabilities which remain unpaid, that, the imposition of penalty and interests are additional sums that can only be charged when the assessment or demand notices become final and conclusive.STATE INTERNAL REVENUE SERVICE (2022) 69 TLRN 1 at 32 was relied upon in this regard. The Appellant submitted that, haven filed a Notice of Appeal within 30days from the re-assessment notice, the demand or assessments notices were not final and conclusive. That the Appellant’s grounds of Appeal raise valid objections and the said re-assessment notice cannot be final and conclusive until and unless the grounds of the objection are fully resolved as was the case in SHELL NIG EXPLORATION AND PRODUCTION COMPANY LTD V. LAGOS STATE BOARD OF INTERNL REVENUE (2019) 41 TLRN 30 at 37 ‘The Appellant therefor e urged this Honorable Tribunal to hold that the Appellant cannot be liable for Interest and penalties. © THE RESPONDENT The Respondent on his own part submitted that, the tax law which was appiteable to the Appellant's income in 2020 is the Finance Act, 2019. They maintained that, the provisions of the VAT Act as amended by Section 46 of the Finance Act, introduced an amendment to Seetion 46 of the VAT Act, for interest in land to be excluded from VAT. The Respondent stated further that, this provision does not extend to buildings and buildings cannot be imported into the definition of land when there is an express provision accommodating it in the amendment introduced to the definition of goods and services in the 2020 Finance Act. The Respondent submitted that, if land and building are one and the same and both terms can be used interchangeably, there would not have been any need to include the term “interest inland and building” in the Finance Act 2020. The Respondent stated further that, both land and building are not assets of the same class, hence while provision was Page 5 of 13made for exclusion of interest in land from VAT in Finance Act 2019, the same was extended to building in Finance Act 2020. That, while interest in building is liable to VAT in the 2020 financial year (commencement year of the passage of the 2019 Finance Act), it is not liable to VAT in 2021 financial year (commencement year of the passage of the 2020 Finance Act). ‘The Respondent submitted that, the confusion of the Appellant in oscillating from one Finance Act to the other and using them interchangeably. That whereas their tax representatives Pedabo Professional Services relied on Finance Act 2019 to argue their case that, VAT is not chargeable on the rental income earned in 2020 accounting year, the Company used both Finance Acts 2019 and 2020 to argue its case as if the provisions are one and the same. With regards issue two as to Whether the Respondent erred in law when it charged interests and penalties on the tax assessment or demand notice when same was neither final nor conclusive, the Respondent submitted that, there was no error in charging of penalty and interest to the VAT assessment. That, penalty and interest are a statutory levy for failure to pay tax. The Respondent maintained that, the relevant tax laws backing the FIRS decision to raise penalty and interest include: Sections 19, 20, 34 of the VAT Act and Sections 27, 32 and 40 of the FIRSE Act 2007. The Respondent stated further that, the penalties are in line with the provisions of the tax laws and it must be from the date the duty to deduct arose and not from the date the assessment was raised. The Respondent submitted further that, the Company through their letter dated 14" day of July, 2022 admitted that they did not charge Vat on rental income based on the provisions of the Finance Act, 2019. That this is clearly a contravention of the tax law and an admission on their part, which relieves SPPEAL YT Page 6 of 13the Respondent of any burden of proving same and as such the maximum penalty should be applied. The Respondent therefore urged this Honorable Tribunal to uphold the Respondent's Notices of assessment and Demand Notice for VAT for 2021 year of assessment and also an Order declaring that the Respondent acted lawfully when it assessed the Appellant to VAT in the sum of #36,185,564.25 (Thirty-Six Million, One Hundred and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty-Five Kobo) Only, for 2021 year of assessment. ANALYSIS: ISSUE ONE Whether the Respondent erred in law when it imposed a VAT liability on the -Six Million, One Hundred Appellant in the sum of #36,185,564.25 (Thi and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty- Five Kobo) Only or at all, for the Appellant's 2020 accounting year. It is the consensus of the parties in this appeal that the nature of the Appellant's Business is essentially on real estate property, especially in the letting of property for monetary value. The Parties are also in agreement that by the provisions of Section 2 of the Value Added Tax Act (Cap VI LFN), 2007, all goods and services supplied in Nigeria are liable to VAT in Nigeria except goods and services specifically exempted and listed in the First Schedule to the Act. Also, that all goods and services consumed or otherwise utilized in Nigeria are subject to VAT in Nigeria. This is actually, in line with the “destination principle” of VAT, practiced in Nigeria. Section 2 of the VAT Act, 2007 provides; Page 7 of 13“The Tax shall be charged and payable on the supply of all goods and services (in this Act referred to as taxable goods and services) other than those goods and services listed in the First Schedule to this Act.” Parties are also in agreement that the Finance Act of 2019 has introduced some amendments to the provisions of the VAT Act of 2007, especially as it relates to the meaning of ‘Goods’ and ‘Services’ for the purpose of the implementation of the value added tax on related transactions. This fact was agreed to by the parties in both their oral presentations before this Honourable Tribunal and in their final written addresses. By the provisions of Section 46 of the Finance Act, 2019, “Goods” is defined to mean: (a) all forms of tangible properties that are movable at the point of ; and (b) any intangible product, supply, but does not include money or securiti asset, or property over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land. “Services” is defined as anything other than goods, money or securities which is supplied, excluding services provided under a contract of employment. “Taxable supplies” means any transaction for the sale of goods or the performance of a service, for a consideration in money or money’s worth. The controversy and point of disagreement however, is as to whether, the amendments introduced by the Finance Act 2020 by way of adding ‘Buildings’ to land, as exempted from the application of VAT should be applicable to this case. In addressing this fact, we say that the position of the law is very clear, that the law applicable at the time a course of action arose should be the law to be applied by a court of law in a case, as retrospective application of laws is not allowed, except where specifically allowed by the law itself. In the case of BELLO V STATE (2014) LPELR-41075, the Court of Appeal held that it is an elementary fundamental rule of law that no statute shall be construed as to have a retrospective operation AS PPEAL TRIB Page 8 of 13unless its language is such as to plainly require such a construction. Similarly, in ROSSEK & ORS v ACB LTD & ORS (1993) LPELR-2955(SC), the Supreme Court held, thus; “It is trite law that the substantive law existing at the time a cause of action arises, governs the determination of the action and the rights and obligations of parties, must be determined in accordance with the substantive law when the cause of action arises. A change of law after the cause of action has arisen will not affect accrued rights and ligations unless the change is made retrospective.” In AFOLABI V GOVERNOR OF OYO STATE (1985) 2 NWLR (PT. 9), 734, the Supreme Court held that no rule of construction is more firmly established than that a statute is not to be given retrospective operation as to impair an existing right or obligation otherwise than as regards matters of procedure, unless than effect cannot be avoided without doing violence to the language of the enactment. ESSO JSC, categorically stated that; “No statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the RAK eat am iad) CERIIAIEDT "TRUE C copy SIGN. aa Act.” OPUTA JSC, in the case said; “Perhaps no rule of construction is more firmly established than this, that a retrospective operation is not given to a statute as to impair an existing right or obligation”. It is therefore our position that the relevant law is the Finance Act, 2019. The said Finance Act 2019 defines what constitutes goods and services for VAT purposes in its amendment of Section 46 of the VAT Act, 2007, thus; Page 9 of 13“any intangible product, asset or property over which a person has ownership rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land.” In relation to service it provides that; anything other than goods, money or securities which is supplied, excluding services provided under a contract of employment.” Itis very clear that whilst the VAT Act simply defines taxable goods and services as those that are not listed in the First Schedule to the VAT Act, the Finance Act goes a step further by defining what generally constitutes goods and services for VAT purposes. It also defines what constitutes taxable supplies. “Goods” by the provisions of the Finance Act include all forms of tangible properties that are movable at the point of supply, but does not include money or securities and that any intangible product, asset, or property over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, but clearly excludes interest in land for VAT purposes. The Finance Act goes further to define “Services” as anything other than goods, money or securities which is supplied, excluding services provided under a contract of employment. Also, that “Taxable supplies” means any transaction for the sale of goods or the performance of a service, for a consideration in money or money's worth. To this end parties are in agreement that the amendments introduced by the Finance Act 2019 (which is agreed to be the applicable law during the period under consideration) has clearly excluded interest on land from the application of VAT. The challenge is to whether by all necessary implication this exemption should be extended to the developments on land, especially the buildings on land used for lease, which forms the core of the Appellant’s business. Page 10 of 13To address this, this Honourable Tribunal has made reference to the decisions of the Apex Courts in Nigeria on the understanding of “Land”. The Supreme Court in the case of NATIONAL ELECTRIC POWER AUTHORITY V MUDASIRU AMUSA & ANOR (1976) LPELR-1956 said; “It is general rule of great antiquity that whatever is affixed to the soil becomes, in contemplation of the law, a part of it, and is subjected to the same rights of property as the soil itself ...”. The Court of Appeal in the case of EZE JESI V EZE JESI (2008) LPELR-4476 maintained that; “The law is trite as embedded in the maxim ‘Quic quid plantator solo, solo cedit’, meaning whatever is affixed to the soil become in contemplation of law, a part of it and is subjected to the same rights of property as the soil itself...”. In UNILIF DEVELOPMENT CO. LTD V ADESHIGBIN (2001) NWLR (PT. 704) 609 at 624 the Supreme Court held, that; “Immovable property or lands includes land and everything attached to the earth or permanently fastened to anything which is attached to the earth and chattel reels”. In the same case, at page 625, the Supreme Court went on to state that; “... No doubt, even to the laymen today, land no longer means the ordinary ground with its subsoil, but surely includes buildings and trees growing thereon...”. Cumulative reading of these decisions gives an understanding that reference to land all the appurtenances attached to the land. This is the meaning that this Honourable Page 11 of 13Tribunal will give in this Appeal, such that the exemption granted in the Finance Act of 2019 in respect of land, should naturally extend to the buildings affixed to the land. This position is without prejudice to the amendment introduced to provide further clarification to the definition of Goods and Services by the Finance Act, 2020. In view of the foregoing, this Honorable Tribunal rules that the Respondent erred in charging the Appellant to tax to the tune of #36,185,564.25 (Thirty-Six Million, One Hundred and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty-Five Kobo) Only and accordingly orders that the assessment be discharged ISSUE TWO. Whether the Respondent erred in law when it charged interests and penalties on the tax assessment or demand notice when same was neither final nor conclusive. Flowing from the decision of this Honorable Tribunal on issue one above, it has become very clear that the Appellant cannot be liable to any penalty and interest without any liability on the main assessment. It is therefore the position of this Honorable Tribunal that any step taking in deciding on issue two by this Honorable Tribunal will be an academic exercise in futility and the Supreme Court of Nigeria has decided in several cases that a court or Tribunal should refrain from academic exercise futility. See the case of ARDO V. INEC & ORS 2017 LPELR - 41919 (SC) an action becomes hypothetical and academic when there is no live matter in it to be adjudicated upon or when its determination holds no practical or tangible value for making a pronouncement upon it. It is otherwise an exercise in futility and when it happens, it does not require to be answered; SALIK V IDRIS & ORS 2014 LPELR — 22909 (SC). When a judge restrain himself from deciding issue in a case Page 12 of 13or the whole case because its effort will amount to an academic exercise, all that His Lordship is saying is that if he decides the suit with a hollow victory, a victory with no value whatsoever, a victory that cannot be enforced. See also ONOCHIE & ORS V. ODOGWU & ORS 2016 LPELR — 2689 (SC); ABRAHAM V AKEREDOLU & ORS 2018 LPELR — 44055 (SC); Finally, itis the decision of this Honorable Tribunal that the sum of #36,188,564.25 (Thirty-Six Million, One Hundred and Eighty-Five Thousand, Five Hundred and Sixty-Four Naira, Twenty-Five Kobo) Only representing the alleged Value ‘Added Tax liability, Interest and Penalty assessed in this appeal is inconsistent with the provisions of the relevant laws and is hereby set aside. The Respondent's VAT Re-assessment Notice dated the 22" day of June, 2022 and the Notice of Refusal to Amend dated the 8" day of August, 2022 are also set aside. This Appeal is thereby allowed DATED THIS 19" DAY OF OCTOBER 2023 (Chairman) OE wel Mou. e\0\ 22 P. A. OLAYEMI ESQ. BABATUNDE E. SOBAMOWO ESQ Commissioner Commissioner WW whsioong. mah SAMUEL N. OHWERHOYE ESQ TERZUNGWE GBAKIGHIR ESQ Commissioner Commissioner Page 13 of 13 &