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2022 MarsdenLR 2551
HIGH COURT MALAYA KUALA LUMPUR
PETROLIAM NASIONAL BERHAD (PETRONAS) – Appellant
Versus
KETUA PENGARAH KASTAM & ANOR – Respondent
[Judicial Review No: WA-25-79-03/2021]
The imposition of GST is based on the supply of goods, not ownership, and export sales qualify for zero-rated tax under the GST Act.
Headnote:(A) Goods and Services Tax Act 2014 – Sections 17(1)(b) and 27 – Judicial review – The applicant, a member of the Petronas GST Group, challenged the issuance of a Bill of Demand for GST on exported Ethylene. The respondents failed to provide written justification for the demand. The court found that GST applies on the supply of goods and not the ownership thereof – The K2 Customs Form indicates that the Ethylene was exported, thus GST should be zero-rated. (Paras 24, 37-38)
(B) Judicial review – An order of certiorari was granted to quash the impugned decision due to errors in the respondents' reasoning and failure to acknowledge the GST Act’s provisions on exports. (Paras 38-39)
Facts of the case: The applicant, Petronas, was audited for GST compliance, leading to a demand for over RM11 million. The applicant contended that the demand was unlawfully based on goods exported. (Paras 4-13)
Findings of Court: The court held that the GST is applied to the supply of goods and that the K2 Customs Form from PC Marketing confirms the Ethylene had been exported, thereby qualifying for zero-rated GST under s 17(1)(b). (Paras 37-38)
Issues: The court addressed whether the GST demand was valid given the nature of the exports and the applicant’s GST group status. (Paras 21-34)
Ratio Decidendi: The supply, not ownership, triggers GST liability, establishing the threshold for zero-rated tax on exported goods under the GST Act. (Paras 27-29)
Result: Impugned decision quashed with declarations made in favor of the applicant. (Paras 38-39)
JUDGMENT
[1] The applicant is Petronas, established under the Petroleum Development Act 1974 to own and manage petroleum resources in Malaysia.
[2] Pursuant to s 27 of the Goods and Services Tax Act 2014 ("GST Act"), the applicant was nominated for all GST Filing and communications with the respondents for the applicant's group of companies. Section 27 (2) of the GST Act provides that:
Members of a group may apply in the prescribed form to the Director General to be treated as a group and every member shall, in that application, nominate a member to be their representative member.
[3] Both Petronas Chemicals Ethylene Sdn Bhd ("PC Ethylene") and Petronas Chemicals Marketing Sdn Bhd ("PC Marketing") are registered members of the Petronas GST Group effective from 1 April 2015.
[4] On 10 January 2019, the 1st respondent issued a letter to the applicant for the applicant to provide information for the purposes of audit under the GST Act for the taxable period between 1 April 2015 and 31 August 2018. The documents sought by the 1st respondent include the transaction listing, calculation sheet for the output and input taxes, tax overview report and audited financial statements.
[5] Pursuant to the audit finding letter dated 27 June 2019 and addressed to PC Ethylene, which was duly replied to, the parties were engaged in Round Table Discussion ("RTD") with the respondents to discuss the issues raised.
[6] There were further correspondences between the parties when on 13 October 2020, the applicant received two emails attaching the notice of assessment regarding the audit findings on the members of the Petronas GST group. The total claim was RM11,584,052.25. The email, inter alia, states as follows:
Dimaklumkan bahawa auditan ke atas Petroleum Nasional Berhad (Group) telah selesai dijalankan. Hasil daripada pengauditan yang dijalankan bagi tempoh April 2015 hingga Ogos 2018 mendapati bahawa syarikat tuan telah melakukan kesalahan di bawah s 88(a) dan (b) Akta Cukai Barang dan Perkhidmatan 2014 dengan jumlah CBP dikesan berjumlah RM11,584,052.26.
[7] There were a series of correspondences between the parties in an attempt to resolve the issues.
[8] It was quite apparent that the matter could not be resolved, culminating in the respondents issuing the Bill of Demand dated 11 December 2020 through the 2nd respondent. The Bill of Demand, which was made under s 43 of the GST Act and for the taxable period of 1 April 2015 to 31 August 2018 ("the said taxable period"), was for the sum of RM11,584,052.26 ("the impugned decision").
[9] On 21 December 2020, the 2nd respondent had offset the sum of RM14,978,520.45 comprising RM11,584,052.25 for GST and RM3,214,468.20 for the late payment of penalty against the remaining GST refund for Petronas GST group.
[10] The applicant appealed to the 1st respondent seeking remission of late penalty payment. The 1st respondent had on 29 March 2021, approved the applicant's application for remission of late payment of penalty amounting to RM3,214,468.20.
[11] Aggrieved, the applicant commenced this application for judicial review for an order of certiorari to quash the impugned decision.
[12] The application for judicial review is supported by the affidavit of Rihanna Haryanti binti Mohd Ramli in Encl 3. Puan Rihanna is the Head of Tax, Group Tax of Petronas.
[13] The grounds of the applicant's application for judicial review can be summarised as follows:
(a) In assessing whether any GST is due or owing, the respondents failed to appreciate that the companies involved in the Ethylene supply are members of Petronas GST Group, which had been registered under s 27 of the GST Act. In any event, the respondents failed to provide any written explanation or basis for the issuance of the Bill of Demand.
(b) The Respondents' decision is unreasonable as sufficient evidence had been adduced to establish that the Ethylene had been exported. In any event, the Respondents had failed to provide any valid explanat
