Tax dispute: Court upholds FIRS’ N54m VAT charge on firm

A  Federal High Court in Lagos Monday upheld an appeal by the Federal Inland Revenue Service (FIRS) on the alleged N54,263,899.50 tax liability of a firm, Ess-Ay Holdings Limited.
Justice Daniel Osiagor set aside the judgment of the Tax Appeal Tribunal delivered on September 10, 2020, which was in the firm’s favour.

The judge upheld Ess-Ay Holdings Limited’s tax liability of N54,263,899.50 for the 2014-2016 accounting year as set out in the Value Added Tax (VAT) Re-assessment Notice dated July 9, 2019, for Commercial Leases as different from residential buildings.

The FIRS filed the appeal, marked NO: FHC/L/11A/2020 against the judgment of the Tax Appeal Tribunal, Lagos Zone in Suit no: TAT/LZ/VAT/029/2019, between it and Ess-Ay delivered on September 10, 2020, by O.M. Lassise Phillips (Chairman).

The firm had appealed before the Tax Appeal Tribunal, Lagos Zone against the FIRS’ decision in respect of its alleged tax liability for the 2014-2016 accounting years as set out in the firm’s VAT Re-assessment Notice dated July 9, 2019.
It argued, among others, that the VAT assessment of N54,263,899.50 on rental income it earned in the period 2014 to 2016 unlawfully subjected its rental income to VAT contrary to the provisions of the VAT Act, 2004.

It contended further that the FIRS erred in law when it issued a Notice of Refusal to Amend VAT Additional Assessments dated 22 July 2019 (NORA) where it stated that “income from commercial rent is VAT-able income and the one from residential has administrative exemption”.

It added that the Information Circular No. 9701 issued by the FIRS dated 1st January 1997 and captioned “Detailed list of Items Exempted from Value Added Tax and upon which FIRS based its decision to impose VAT on the firm’s rental incomes “is ultra vires,nulll and void to the extent that it purported to subject commercial rents to VAT.”

The Tribunal in a September 10, 2020 judgment upheld the firm’s appeal.

Dissatisfied, the FIRS appealed the Tribunal’s judgment at Federal High Court. The FIRS, in its Notice of Appeal filed on November 13, 20,20 argued that the Tribunal erred in law when it failed to recognise Rent from Developed Land as consumable commodity chargeable to Value Added Tax (VAT), holding that such transactions are outside the scope of VAT.
It further contended that the Tribunal misdirected itself when it upheld the Appellant’s Appeal setting aside the VAT Re-Assessment Notice dated July 9, 2019, as well as the interest and penalties accrued.

It sought three reliefs, including an order allowing this Appeal, an Order setting aside the Tribunal’s judgment and an order upholding the respondent’s tax liability for the 2014-2016 accounting years as set out in th2 VAT Re-Assessment Notice dated July 9, 2019.

Justice Osiagor held: “In the final analysis, the Appeal is meritorious and is allowed.
“The Judgement of the Tax Appeal Tribunal delivered on the 10th day of September 2020 is hereby set aside.

“The Respondent’s tax liability for 2014-2016 accounting year as set out in the VAT Re-assessment Notice dated July 9, 2019 for Commercial Leases as different from residential buildings is hereby upheld.”