PEOPLE'S LEASING AND FINANCE PLC

PEOPLE'S LEASING AND FINANCE PLC

Vs.

COMMISSIONER GENERAL OF INLAND REVENUE

COURT OF APPEAL
DR. FERNANDO, J.
WIJERATNE, J.
CA/TAX/21/2019
TAC/VAT/11/2016
MARCH 1, 2021

Value Added Tax Act, No. 14 of 2002, sections 25A(1), 25B(1)(a), 25C(1), (5), 25F, 33(1), (2), 34(1), (8)-VAT on financial services-Specified institution-Aggregating different taxable periods in a single assessment-Time bar-Annual adjustment-Wilful failure to make full and true disclosure of all material facts-Meaning of "supply of financial services"

The appellant, a registered finance company, was registered for Value Added Tax (VAT) and VAT on Financial Services (VAT on FS) under the Value Added Tax Act, No. 14 of 2002, as amended (VAT Act). The assessor refused to accept the appellant's monthly VAT returns for the taxable period from 01.04.2010 to 31.03.2011, citing incorrect net profit and incorrect emoluments payable in the calculation of value addition in the annual adjustment for the purpose of section 25C(1) of the VAT Act, and the computation of the value addition attributable to financial services not having been made in terms of section 25C(5) of the Act. The assessor thereafter assessed the VAT on FS payable by the appellant for the periods from 01.04.2010 to 31.12.2010 (nine months) and 01.01.2011 to 31.03.2011 (three months) separately and issued two separate notices of assessment. The appellant appealed to the respondent against the said assessments and the respondent confirmed the assessments issued by the assessor. The appellant then appealed to the Tax Appeals Commission (TAC) and the TAC confirmed the determination of the respondent. The appellant appealed by way of a case stated against the said determination of the TAC to the Court of Appeal. The appellant challenged the validity of the assessments made by aggregating the taxable periods of nine months and three months. The appellant also argued that the assessments and the determination of the appeals by the respondent were time barred and that the income

derived from the sale of shares, dividend income and interest income were not liable to VAT on FS.

Held:

1. Although wherever possible the VAT should, as a good practice, be allocated to individual periods and a single assessment should be issued covering one or multiple taxable periods by calculating the amount of tax due for each taxable period separately, there may be situations where this will be impossible or impracticable. In such cases the assessor is entitled to aggregate several taxable periods into a single, global assessment and calculate one total amount of tax due for that entire period.

2. The assessor has obtained the details for the assessment from the annual adjustment, which does not include accurate figures to ascertain the actual amounts of the VAT due on financial services for each taxable period separately from 01.04.2010 to 31.12.2010 and from 01.01.2011 to 31.03.2011. Thus, it was impossible and impractical for the assessor to spilt up and determine the amount of tax due on each of the nine taxable periods from 01.04.2010 to 31.12.2010 and each of the three taxable periods from 01.01.2011 to 31.03.2011 separately. The assessor was justified in making a single global assessment for each of the combined periods.

3. The annual adjustment of any specified institution is an integral part of the VAT mechanism established by the VAT Act and is a condition precedent to the assessment of a specified institution. The appellant had submitted its annual adjustment for the months of April and May 2010 after the lapse of the statutory time bar and for the month of June 2010 just two days before the lapse of the statutory time bar. The natural consequence of such default was that the assessment was delayed, as the appellant had not disclosed all material facts together with the annual adjustment in time to enable

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