Judgment

M.C.B.S. Morais J.

This is an appeal by way of a case stated against the determination of the Tax Appeals Commission dated 19^th of June 2023 in the case of CA/TAX/56/2023, determination dated 17^th of July 2023 in the case of CA/TAX/90/2023, determination dated 17^th of July 2023 in the case of CA/TAX/91/2023 and determination dated 19^th June 2023 in the case of CA/TAX/97/2023.

This appeal is filed under and in terms of section 11A of the Tax Appeals Commission Act No. 23 of 2011 (as amended). Since the matters CA/TAX/56/2023, CA/TAX/90/2023, CA/TAX/91/2023, and CA/TAX/97/2023 primarily deal with the same substantial issue of Value Added Tax (VAT) on Financial Services (FS), these cases are addressed together. Even though, the observation is mainly based on case No. CA (Tax) No.56/2023, the matters in relation to the remaining cases has also been addressed under the question of law raised. If the parties wish to pursue the remaining questions of law undecided, they could do so separately under those cases.

The taxable period for the value addition on Financial Services is from 1^st of January 2016 to 31^st of December 2016.

Factual Background

The Bank of Ceylon (sometimes will be referred to as the Appellant) is established under and in terms of the Bank of Ceylon Ordinance No. 53 of 1938 (as amended). The Appellant is challenging the determination of the Tax Appeals Commission (hereinafter will be referred to as TAC) dated 19^th of June 2023 by the Commissioner General of Inland Revenue (hereinafter sometimes will be referred to as the CGIR/ Respondent) in case No. TAC/VAT/032/2021. The total Tax in Dispute is an amount of Rs.424,062,870.00 and a penalty of Rs.222,074,132.00.

The Appellant Company has filed the returns for VAT for the taxable period 1^st of January 2016 to 31^st of December 2016, which was rejected by the Deputy Commissioner, and an intimation letter dated 22^nd of May 2019 was issued stating the reasons for refusal. Being aggrieved by the said assessment, the Appellant Company has made an appeal to the Respondent. After hearing the appeal, the Respondent has made a determination dated 11^th of June 2021 confirming the assessment of the Deputy Commissioner. Being aggrieved by the said determination, the Appellant Company has preferred an appeal to the TAC.

The main issue arises from the loan provided by the Appellant to its employees on a concessionary rate which is less than the market rate. However, the Respondent has considered the market rate of those loans, which is higher than the concessionary rate provided by the Appellant in determining the VAT of the Appellant for the period mentioned above.

Appeal to Tax Appeals Commission

After considering the written submissions filed by both parties, the TAC has made a determination dated 19^th of June 2023 by dismissing the appeal. Accordingly the Tax Appeals Commission determined as follows.

“A. Emoluments payable to all employees in terms of Section 25C of the VAT Act should be the emoluments payable not only the amount payable in cash but the gross emoluments payable in cash and all other benefit as well, hence, the amortization of staff interest is correct as it is within the emoluments.

B. The gains from the sale of shares of Miraka Investment should be liable to VAT on FS”

Appeal to the Court of Appeal & Questions of Law

Being aggrieved by the determination of the TAC, the Appellant has appealed to the Court of Appeal, to have the case stated for the opinion of the Court. Accordingly, the following question of law has been raised by the Appellant;

CA (Tax) No.56/2023

“1. Did the Assessor, the Commissioner - General, and the Tax Appeals Commission, err in law by failing to understand and properly apply the concept of "value addition" in computing the VAT liability on the supply of financial services?

2. Did the Assessor, the Commissioner Appeals Commission, err in law by failing to recognize that;

a. Section 25C (1) of the Value Added Tax Act applies only to transaction whic