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2025 MarsdenLR 6130
HIGH COURT MALAYA KUALA LUMPUR
MCE TECHNOLOGIES SDN BHD – Appellant
Versus
KETUA PENGARAH KASTAM JABATAN KASTAM DIRAJA MALAYSIA & ANOR – Respondent
[Judicial Review Application No: WA-25-536-10/2022]
Goods removed from a principal customs area to a free zone are deemed exports and subject to zero-rated supply under GST, despite intermediary transactions through a parent company.
Headnote:(A) Goods and Services Tax Act 2014 - Section 43, 56(3)(b), 17(1)(b) - Customs Act 1967 - Sections 2(1), 2(1A), 70 - Free Zones Act 1990 - Judicial review application concerning GST treatment of goods delivered to free zones and licensed warehouses - Taxpayer sought to quash the bill of demand issued for alleged underpaid GST - The Court found that goods removed from PCA to free zones are deemed exports under Free Zones Act and subject to zero-rating under GST Act - Customs made errors in imposing GST on goods both to Flextronics and to LMW companies, failing to recognize legislative intent regarding exports and warehousing schemes. (Paras 1, 4, 16, 24, 34, 42)
(B) Judicial Review - Relief sought includes certiorari to quash BOD and refund of GST - Taxpayer's supplies considered as zero-rated exports under GST Act despite the involvement of a foreign parent company - The decision hinged on interpreting the relationship between the statutes governing exports and GST treatment for goods to free zones and licensed warehouses. (Paras 18, 19, 27, 39)
| Table of Content |
|---|
| 1. judicial review concerns gst treatment of goods. (Para 1 , 2 , 3 , 5 , 6 , 7 , 8 , 9 , 10) |
| 2. taxpayer's arguments on illegality and error of law. (Para 14 , 15) |
| 3. assessment of taxpayer's supply as exports. (Para 16 , 18 , 19 , 20 , 21) |
| 4. court's analysis on exports and gst implications. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28) |
| 5. gst charge disregarded for goods within lw. (Para 34 , 35 , 38 , 39 , 40 , 41) |
Introduction
[1] The present judicial review application concerns the Goods and Services Tax ("GST") treatment of goods removed from a principal customs area ("PCA") by the applicant taxpayer, MCE Technologies Sdn Bhd and delivered into: (a) a free zone; and (b) a licensed (bonded) warehouse ("LW") for further manufacturing input before being exported.
[2] The respondents ("Customs") took the position that the supply of goods was taxable as they were made by and to the companies within the PCA. Customs issued a bill of demand ("BOD") under s 43 of the Goods and Services Tax Act 2014 ("GST Act") to the taxpayer for the taxable period 1 September 2016 to 31 August 2017 with penalties.
[3] The taxpayer sought, amongst others, the following reliefs:
(i) an order for certiorari to quash the BOD, including the penalties; and
(ii) a refund of all GST paid as a result of the BOD with interest.
[4] On 25 March 2025, I allowed the prayers sought with costs. This judgment contains the reasons for my decision.
Background
[5] The goods in question are semi-finished goods produced by the taxpayer. Specifically, metal components, sub-assembly modules, and sheet metal fabrication parts. For this purpose, the taxpayer has an LW and a licensed (bonded) manufacturing warehouse ("LMW") under ss 65 and 65A of the Customs Act 1967 ("the Customs Act"), respectively. The intention of Parliament in creating the LMW regime was to incentivise the export industries. Similarly, GST was not levied on exports; it was a tax on domestic consumption and imports.
[6] During the taxable periods of 1 September 2016 to 31 August 2017 ("Taxable Periods"), the taxpayer delivered 95% of the Exports to Flextronics Shah Alam Sdn Bhd ("Flextronics") located in the Free Industrial Zone ("FIZ"), which by definition is a free zone. The remaining 5% of the Exports were delivered to companies which are LMWs ("LMW Companies"). All these goods were eventually exported overseas, after further manufacturing.
[7] The transaction concerning the goods were as follows. The taxpayer sold the goods to its parent company, known as Metal Component. Metal Component is a Singaporean company and Malaysian GST registered, although it has no business establishment or fixed establishment in Malaysia. Metal Component then on-sold 95% of the goods to Flextronics located in FIZ and the remaining 5% to LMW Companies. As shown above, it was the taxpayer who physically delivered the goods to Flextronics and to the LMW Companies.
[8] The tax invoices for the goods supplied to LMW Companies and Flextronics were issued by the taxpayer to Metal Component, and Metal Component would then issue the tax invoices to LMW Companies or Flextronics. The taxpayer treated the supplies as relief supply under s 56(3)(b) of the GST Act, provided under the "Relief by Minister of Finance: 2/2015" ("the Relief) as follows:
(i) Paragraph 3.1: Supply of goods by LMW company. The GST treatment is that the LMW company is relieved from charging GST on the supply of goods.
(ii) Paragraph 3.2: Supply of goods to FIZ company or vice versa. The GST treatment is that the LMW company of FIZ company is relieved from charging GST on the supply of goods.
(iii) Movement of goods by FIZ company located in Free Commercial Zone ("FCZ") at port or airport to "Malaysia", including PCA, LMW, or FIZ outside port/airport. The GST treatment is that on the movement of such goods from FCZ is treated as importation and GST on importation must be declared in the Custom Form.
[9] The taxpayer, in its GST Return (Form G
