The court held that exceptional input tax claims under GST Regulations are not subject to the requirements of the GST Act, and the Director General's decision was unreasonable.

JUDGMENT

Azizah Nawawi JCA:

Introduction

[1] This is an appeal against the decision of the learned High Court Judge dated 28 September 2020.

[2] The learned High Court Judge had allowed the Respondent's Judicial Review application to quash the Director General of Customs ("DG") decision to only allow a nominal portion of the Respondent's claim for exceptional input tax ("Exceptional ITC") under reg 46(1) of the Goods and Services Tax Regulations 2014 ("GST Regulations") for the sum of RM2,231.21 instead of the full sum of RM45,873,669.66.

The Brief Facts

[3] The principal activities of the Respondent are to design, construct, commission, operate, and maintain a 2,000 MW Coal-Fired Power Plant in Mukim Jimah, Port Dickson, Negeri Sembilan ("Power Plant"). The Power Plant was to commence commercial operation in year 2019.

[4] The Respondent had entered into a Power Purchase Agreement dated 22 July 2014 ("PPA") to sell electricity to Tenaga Nasional Berhad ("TNB") for a period of 25 years.

[5] The Respondent made an application to the DG for it to be registered under Goods and Services Tax Act 2014 ("GST Act"). The application was approved with the effective date of 1 March 2018.

[6] However, the approval was cancelled on 16 June 2015. The Respondent applied again and it was approved on 20 September 2016.

[7] The Respondent made an Exceptional ITC to the DG under reg 46(1) of the GST Regulations for the sum of RM45,873,669.66.

[8] The DG informed the Respondent that, as the Respondent has not started to make any taxable supply, the DG would postpone his final decision on whether to allow the Exceptional ITC until after the Respondent had started to make a taxable supply from its business activities.

[9] The Respondent then applied to vary the duration of its taxable period. The DG had allowed the Respondent's application and changed its first taxable period to commence from 1 August 2016 to 31 August 2018. Following from this, the Respondent was required to file its first GST by 29 December 2018. The Respondent had filed its first GST return and claimed for input tax credits in the sum of RM360,247,062.64, which consists of the following:

(i) The Exceptional ITC of RM45,873,669.66; and

(ii) Input tax credits paid for the transactions which took place in the Respondent's first taxable period in the sum of RM314,373,392.98.

[10] The DG made his decision ("the Decision") on 25 March 2019 and informed the Respondent that only RM2,231.21 is allowed as the Respondent's Exceptional ITC in respect of item (i) above. There is no issue with regards to item (ii).

[11] Aggrieved by the DG's decision, the Respondent applied to quash the decision of the DG and sought a declaration that the Respondent is entitled to claim the Exceptional ITC for sum of RM45,873,669.66 pursuant to reg 46(1) of the GST Regulations;

[12] The learned High Court Judge had allowed the Respondent's Judicial Review application to quash the DG's decision and grant the declaratory prayers sought by the Respondent. Hence, this appeal was filed by the DG of Customs

Decision Of The High Court

[13] The core issue identified by the High Court is whether the DG was right in law in rejecting the full amount claimed of RM45,873,669.66.

[14] In allowing the judicial review application, the learned High Court Judge, inter alia, held that:

(i) Sections 38 and 39 of the GST Act are only applicable to general input tax claim for GST incurred during the taxable period and not towards the Exceptional ITC (para [21] GOJ).

(ii) Exceptional ITC is governed by reg 46 of the GST Regulations, which is a separate and independent provision. In the absence of any express reference in the aforesaid provision, an Exceptional ITC under reg 46 of the GST Regulations should not be subject to the requirements set out in ss 38 and 39 of the GST Act (para [21] GOJ).

(iii) To satisfy reg 46 of the GST Regulations, there is no specific or other requirements needed, except what has been stated in regs 46(2) to 46(5). The DG's