ORICA GHANA LIMITED V THE COMMISSIONER-GENERAL

Citation:  Unreported Judgement of the High Court (Commercial Division) CM/TAX/0118/21 dated 19th July 2022

Brief Facts:
Orica Ghana Limited (the Appellant), a company involved in the manufacturing and selling of bulk commercial explosives, disputed tax assessments issued by the Ghana Revenue Authority (the Respondent) for the period 2010–2016. The dispute centered around several key issues, leading to the Appellant to file an appeal against the Commissioner General of the Ghana Revenue Authority (Respondent), objecting to his decision. The main contention was on location incentives and credits in respect of direct and indirect tax payments.

Grounds of Appeal
The Appellant set out ten grounds for appeal, challenging various aspects of the Respondent’s tax assessments and their handling of the case which included denial of location incentive, abuse of the discretionary power of the respondent, denial of the use of  value added tax credits, denial of the use of legitimate income tax credits, and refusal  of VAT Relief Purchase Orders.

Issues

  1. Whether or not the Respondent erred in law by denying the appellant them the full entitlement to the location incentive as a manufacturing business under the Income Tax Act, 2015 (Act 896).
  2. Whether or not the respondent erred in law by apportioning the appellant’s business income into manufacturing and management service contrary to Article 296 (c) of the 1992 Constitution.
  3. Whether the respondent erred in law by denying the appellant the use of Value Added Tax (VAT) credits which had accrued prior to the 2013 year of assessment.
  4. Whether the appellant was lawfully denied the use of its legitimate income tax credits.
  5. Whether or not the Rejection of photocopies of the VAT Relief Purchase Orders (VRPOs) contrary to Section 91 of the Revenue Administration Act, 2016 (Act 915) and Section 166 of the Evidence Act, 1975 (NRCD 323).

Areas of Tax Law Considered

  1. Income Tax, specifically, the application of location incentives for manufacturing businesses under the Income Tax Act, 2015 (Act 896).
  2. Value Added Tax (VAT) in relation to the utilization of VAT credits and implications of statutory time limits for claiming refunds.
  3. Tax Assessment Procedures which relates to challenges to the Respondent’s assessment methodology and the evidence considered in the process.

Arguments

Appellant (Taxpayer)

  1. The Appellant argued that their transportation and delivery services for explosives are integral to their manufacturing business and should qualify for the location incentive.
  2. They contended that the Respondent incorrectly separated their income into manufacturing and management service categories, denying them the full location incentive.
  3. The Appellant argued for the recognition of their accrued VAT credits from prior years, citing the permissiveness of the relevant tax provisions.
  4. They challenged the rejection of photocopied VRPOs, arguing that they meet the requirements of the Evidence Act and had been accepted in previous audits.

Respondent (Ghana Revenue Authority)

  1. The Respondent argued that the Appellant’s transportation and delivery services are distinct from manufacturing and therefore ineligible for the location incentive.
  2. They defended their apportionment of the Appellant’s income, asserting that management services are separate and taxable at a different rate.
  3. The Respondent claimed that the Appellant’s failure to claim a VAT refund within the statutory timeframe resulted in the forfeiture of those credits.
  4. They justified their rejection of photocopied VRPOs, citing the need for original documents to prevent recycling of invoices and ensure accurate assessments.

Ruling
The Court ruled in favour of the Appellant.

Reasoning

  1. The Court found that the Respondent’s interpretation of “manufacturing business” was too narrow and that the Appellant’s transportation and delivery services are an integral part of their manufacturing activities, thus qualifying them for the location incentive. The appellant’s business should have been considered as a whole for tax assessment as their manufacturing activities also included services.
  2. The Respondent’s discretionary power in apportioning income was inconsistent with Article 296 (c) of the 1992 Constitution.
  3. The Respondent incorrectly denied the Appellant’s VAT and income tax credits, stating that statutory time limits for refunds do not prevent the utilisation of credits to offset current tax liabilities.
  4. The Respondent should have accepted the photocopied VRPOs, ruling that they fulfilled the requirements of the Evidence Act and especially when the originals of these documents had already been inspected and annotated.

Principles for Tax Practitioners

  1. Tax laws are generally to be construed strictly. However, comprehensive and purposive interpretation of tax laws are important when necessary to ensure fairness and avoid unduly restricting taxpayers’ rights
  2. A taxpayer who is in tax credit with the revenue authorities can appeal to the High Court on a tax decision without referring to the statutory precondition under Order 54 rule 4(1) of C.I.47
  3. Revenue authorities must be consistent in tax administration, particularly regarding the acceptance of evidence and the application of statutory time limits.
  4. The taxpayer has the right to challenge assessments and to clarify the scope of permissible discretionary powers vested in tax authorities.
  5. The decision provides valuable guidance on the interpretation of key tax provisions, including those related to location incentives, income apportionment, VAT credits, and the admissibility of evidence.

References

Constitutional

  • Constitution of Ghana, 1992

Statutory

  • Evidence Act, 1975 (NRCD 323)
  • High Court Civil Procedure Rules, 2004 (C.I. 47)
  • Income Tax Act, 2015 (Act 896)
  • Minerals and Mining Regulations, 2012 (L.I. 2177)
  • Revenue Administration Act, 2016 (Act 915)

Case Law

  • Cape Brandy Syndicate v IRC KB 64
  • Kwadwo Dankwa & Ors v AngloGold Ashanti Limited 137 GMJ @ 30,
  • Supreme Court Case of Bamfo (Mrs.) JSC
  • Multichoice Ghana Ltd v Internal Revenue Service (SCGLR 783)
  • Osei v Ghanaian Australian Goldfields Ltd 1 SCGLR 69
  • Republic v Minister for the Interior; Ex-parte: Bombelli DLHC990