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THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT
KAMPALA
(COMMERCIAL DIVISION)
HCT-00-CC-CA-0001 OF
2005
Arising from Tax Appeals Tribunal Application No. TAT 8 Of 2004
CELTEL UGANDA LIMITED :::::::::::::::::::::::::::: APPELLANT
VERSUS
UGANDA REVENUE AUTHORITY :::::::::::::::: RESPONDENT
BEFORE: HON. JUSTICE LAMECK N.
MUKASA
J U D G M E N T.
This is an appeal from a decision of the Tax Appeals Tribunal made on the
17th December 2004. The Appellant, Celtel Uganda Limited, is a
Telecommunication Company incorporated in Uganda and is engaged in the
business
of providing mobile cellular phones and telecommunications services. The
Respondent, Uganda Revenue Authority, is the revenue-collecting
agency of the
Government of Uganda. The facts giving rise to this appeal are that the
Respondent conducted VAT and exercise audit
on the Appellant for the period
April 2000 to July 2003 as result of which the Respondent assessed VAT of Ug.
Shs. 358,652,458/=
and a penalty of Ug. Shs. 253,161,660/=. The VAT arose on
airtime issued by the Appellant to its staff for us in their official
duties.
The Appellant objected to the tax and the penalty and appealed to the Tribunal.
The following issues were agreed upon before
the Tribunal:-
1. Whether the supply of airtime by the Applicant to its staff for official use amounted to a taxable supply;
2. Whether the Applicant is liable to pay the VAT of Ug. Shs. 358,652,458/= on the airtime provided by the Applicant to its staff on their official duties and the penalty of Ug. Shs. 253,161,660/=.
3. Costs and remedies.
The Tribunal received written
submissions on the above issues from both parties and after considering the
submissions of each party,
the Tribunal ruled as follows:-
1. Airtime is a consumable product just like gas or air conditioning and as such is goods within the context of the VAT Act, even through both the Applicant and the Respondent were of the view that airtime is in the category of services.
2. Airtime provided by mobile cellular phones, is goods and a taxable supply under sections 10 and 18 of the VAT Act.
3. Not being an exempt supply under section 20 of the said Act is liable to tax.
4. Any supply of airtime made to staff for use on official duties for free is deemed a supply made for reduced consideration between the Applicant and its staff under sections 3 and 18(7) of VAT Act and is liable to VAT.
5. The applicant is liable to pay the VAT assessed of Ug. Shs. 358,652,458/= and the penalty of Shs. 253,161,660/=.
The Appellant has appealed
against the Tribunals ruling on the following grounds.
1. The Tribunal erred in law in holding that “airtime provided by mobile cellular phones, is goods and a taxable supply under sections 10 and 18 of the VAT Act. Not being an exempt supply under section 20 of the said Act, is liable to tax”.
2. The Tribunal erred in law in holding that “airtime is a consumable product just like gas or air conditioning and as such is goods within the context of the VAT Act, even though both the Applicant and the Respondent were of the view that airtime is in the category of services”.
3. The Tribunal erred in law in holding that “any supply of airtime made to staff for use on official duties for free is deemed a supply made for reduced consideration between the Applicant and its staff under sections 3 and 18(7) of the value Added Tax Act and is liable to VAT.”
4. The Tribunal erred in law in upholding the assessment of Ug. Shs. 358,652,458/= and the penalty of Ug. Shs. 253,161,660/=.
The
Respondent is contention is that the supply of airtime by the Appellant to its
staff purportedly for the execution of their official
duties and purportedly for
no consideration was a taxable supply under the VAT Act and therefore subject to
VAT of 17% of the fair
market value thereof. Further that the assessment for
VAT and the penalty was properly made by the Respondent and should be
upheld.
The main issues which arise from the grounds of appeal are
whether:-
(i) The supply of airtime provided by the mobile cellular phones is a supply of goods or a supply of services; and
(ii) The supply of airtime is a taxable supply.
Section 1(h) of the Value
Added Tax Act defines “goods” to include all kinds of movable and
immovable property, thermal
and electrical energy, heating, gas, refrigeration,
airtime conditioning and water, but does not include money. And Section 10 of
the Act provides:-
“ (1) Except as otherwise provided under this Act, a supply of goods means any arrangement under which the owner of the goods parts or will part with possession of the goods, including an agreement of sale and purchase.
(2) A supply of electrical or thermal energy, heating gas, refrigeration, air conditioning and water is a supply of goods.
(3) The application of goods to own use is a supply of goods”.
While
“Services” are defined by section 1(t) to mean anything that is
not goods or money. And section 110 if the Act provides:
“ (1) Except as otherwise provided under this Act, a supply of services means any supply which is not a supply of goods or money, including -
(a) The performance of services for another person; (b) The making available of any facility or advantage; or (c) The toleration of any situation or the refraining from the doing of any activity.
(2) A supply of services made by an employee to an employer by reason of employment is not a supply made by the employee.”
While section 12 provides:-
“ (1) A supply of services incidental to the supply of goods as part of the supply of goods.
(2) A supply of goods incidental to the supply of services is part of the supply of services.
-----------“
The Tribunal in its ruling looked at
the definitions of “goods” “money” and
“services” in the
interpretation section of the VAT Act and having
found that Airtime is not defined anywhere in the Act held that airtime under
the
VAT Act is neither money nor services. The Tribunal employed the doctrine
of ejusdem generis and interpreted the word “airtime”
by relating it
to the definition of the words “goods” in the Act more specifically
the words embodied in the clause “
thermal and electrical energy, heating,
gas refrigeration, air conditioning and water.” The Tribunal found
that the above words give the word “airtime” colour and meaning and
content. And concluded that
since the definition of the word
“goods” is not exhaustive, the section having proceeded the
definition with the words
“includes”, the word “airtime”
fits in the definition. The Tribunal finally held that airtime provided by
mobile cellular phones is goods under section 10 of the Act.
In its
statement of facts and reasons in support of the Application before the Tribunal
the Appellant contended that the subject to
VAT under application of own use and
supplies for reduced consideration under the provisions of the VAT Act could not
apply to airtime
as it was services and not goods. In its statement of Reasons
for the Tax Decision the Respondent contended that the Applicant/Appellant
company makes taxable supplies of services as part of its business activities
and argued that the supply of airtime to staff purportedly
for no consideration
is an application of the services to own use and further that the taxing of a
supply of goods applied to use
provided for order the VAT Act can be extended to
the supply of services applied to own us under the rules of statutory
interpretation.
The above statements in their respective statements, which
formed the parties pleadings before the Tribunal, show that according
to both
parties airtime is in the category of services. Therefore the Tribunals
holding that airtime provided by mobile cellular
phones is goods under section
10 of the VAT Act was contrary to the parties pleadings which were to the effect
that it is a service.
The issue is whether the Tribunals holding should in the
circumstances be upheld or not.
In his submissions counsel for the
Appellant argued that the Tribunal erred in holding that “airtime”
is “goods”
for the reasons that the holding was contrary to the
facts on which the parties presented the case and secondly that the Tribunal
gave meaning to the word “airtime” which was not an issue
before it as agreed upon by the parties. Counsel further contended that the
Respondent had in its pleadings
and submission before the Tribunal shown that
the Respondent imposed the tax not on the basis that the Appellant was supplying
goods
but on the basis that it was supplying services in the form of airtime.
Reference was made to the holding in Pushpa d/o Raojibhai re patel Vs. The
Fleet Transport Company Limited [1960] EA 1025 where it was stated by
the Court of Appeal for Eastern Africa that:-
“It is of course a salutary and necessary rule that a party is bound by his pleadings. If, however, particulars are give in undue detail and what is proved varies from the ways which are material, it remains the duty of the court to see that justice is done and leave to amend will be given at any stage. If, on the other hand, the particulars given have misled the defendant or led to his shaping his case in a certain way that is a very different matter.”
Counsel also referred to the holding in the case of Esso Petroleum Co. Ltd -Vs- Southport Corporation [1955] 3 All ER 864 quoted with approved in the above case by Lord Racliffe at page 1035 that:-
“To condemn a party on a ground of which us fair notice has been given may be as great a denial of justice as to condemn him on a ground on which his evidence has been improperly excluded.”
Counsel submitted that the Respondent was bound by its
assertion, which assertion was accepted by the Appellant throughout, that the
supply of airtime was a supply of services. Further that it is a principle of
justice that the Tribunal should have proceeded on
the basis of the agreed facts
and should not have departed from them except by amendment and after the parties
had been given an
opportunity to be heard on the amendment which the Tribunal
had not done thus causing injustice to the appellant.
On the meaning of
the word “airtime” which the Tribunal found was order a duty
to give counsel argued that the question had not been posed by either party and
submitted
that the question was irrelevant and the Tribunal was in error to
answer the question.
The main issue before the Tribunal was whether the
supply of airtime by the Applicant to its staff for official use amounted to
taxable
supply. Section 18(1) of the VAT Act provides;-
“ A taxable supply is a supply of goods or services, other than an exempt supply, made by a taxable person for a consideration as part to his or her business activities.
A supply whether of goods or services, if not exempt, is
taxable. Whether the supply of airtime was goods or services it was imperative
upon the Tribunal to define the word airtime so as to be able to classify it
whether among the taxable or exempt supplies. I note
however that the Tribunal
did not define “airtime” but only proceeded to classify it as
“goods” as opposed to “services”.
As to
whether the Tribunal was justified to find that “airtime” was
“goods” as opposed to “services”; the
general view of both parties, Counsel for the Respondent submitted that the
Tribunal is mandated to make such interpretation
of the Law as it deems
necessary to determine the application. That this includes making
interpretations that may differ from the
pleadings of either or both the parties
should it be necessary in determining the application. Counsel argued that
simply because
the parties submitted that the supply of cellular phone airtime
was a supply of services doesn’t mean that the Tribunal must
stick with
that interpretation if it is not convinced by the arguments raised. Secondly
that no new grounds were raised by any of
the parties.
It is trite
law that evidence must be consistent with pleadings and a Court is not permitted
to reach a decision based on grounds
which were not pleaded. See also
Frank Rwakijajiri -Vs- Kabayo [1992 – 93] HCB 165. A
party is bound by its pleadings. However in the instant case the Respondent did
not during the trial before Tribunal make any
attempt to change its pleadings or
line of argument. The Tribunal on its own motion made a finding different from
the view as pleaded
by the Respondent. This is clearly indicated in its ruling
where the Tribunal stated;
“... the Tribunal reaches a conclusion that airtime ... is goods within the context of the VAT Act, even though both the Applicant and the Respondent were of the view that airtime is in the category of services”
Therefore the instant case is distiqishable from the cases cited above since there was no diversion from the pleadings by any of the parties. The issue is whether on its own the Tribunal was justified to make such a finding, in the circumstances of this case. Taxation Appeals Tribunals are established by the Tax Appeals Tribunal Act, section 22 of which provides;-
“ 22 (1) In any proceeding before a Tribunal, the procedure of the tribunal is, subject to this Act, within the discretion of the Tribunal.
(2) A proceeding before a Tribunal shall be conducted with as little formality and technicality as possible, and the Tribunal shall not be bond by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate.
--------”
Employing the rules of Court to the proceedings before the Tax Tribunal
section 33 of the Judicature Act provides;-
“The High Court shall, in the exercise of the jurisdiction vested it by the Constitution, this Act or any written law; grant absolutely or on such terms and conditions as it thinks just, all such remedies as any of the parties to a cause or matter is entitled to in respect of any legal or equitable claim properly brought before it, so that as far as possible all matters in controversy between the parties may be completely and finally determined and all multiplicities of legal proceedings concerning any of those matters avoided. “
The main issue before the Tribunal was whether the supply of
airtime was a taxable supply under the VAT Act. Under the VAT Act there
are two
types of supplies, that is “goods” or “services”. It
was necessary before making decision as to
whether a supply is taxable to
determine the category of the supply in question. Though both parties had
proceeded in their respective
view that the supply of airtime was a supply of
services, the Tribunal was entitled on the evidence before it and the law as
provided
in the Value Added Tax Act to make its independent decision as to the
category of the supply which finding was necessary for the
purposes of finally
and completely determining all the matters in controversy. That is whether the
supply was a taxable supply under
the Act. The issues is whether the Tribunal
made a correct finding when it held that the supply of airtime was supply of
goods under
the VAT Act. This brings me to the second ground of
appeal.
The second ground is that the Tribunal erred in law in holding
that “airtime is a consumable product just like gas or air conditioning
and as such goods within the context of the VAT Act, even
though both the
Applicant and the Respondent were of the view that the airtime is in the
category of services.” In arriving at its decision the Tribunal
considered the definition of “goods” in section 1 of the VAT Act and
adopting
the doctrine of ejusdem generis (Latin for “ of the same kind or
class”.) This rule of general statutory interpretation
is to the effect
that when a general word or phrase follows a list of specific persons or things,
the general word or phrase will
be interpreted to include only persons or things
of the same type as those listed.
Section 1 of the VAT Act provides;-
“ 1. In this Act, where the context otherwise requires –
(h) “goods” includes all kinds of movable and immovable property, thermal and electrical energy, heating, gas, refrigeration, air conditioning and water, but does not include money.”
The definition above by the use of the word
“includes” is not limited to examples given. However it must be
read together
with section 10, which relates to the supply of goods. Under the
section a supply of goods means any arrangement under which the
owner of the
goods parts or will part with possession of the goods, including an agreement of
sale and purchase. There is therefore
an element of the owner having
possession and parting or agreeing to part with possession of the item to be
supplied. The owner
must have been in position to possess the item for supply.
The supply of the electrical or thermal energy, heating, gas, refrigeration,
air
conditioning or water is specifically classified as a supply of goods under
sub-section 2 of the section. The above supplies
are scientifically collected
or generated by the owner/supplier whereby the supplier possesses the supply and
then supplies it to
the consumer/buyer.
The Tribunal found that
“airtime” is within the same class of supplies as the above. As
already pointed out herein, the
Tribunal found that it had a duty to give a
meaning to the word “airtime” but had actually not executed that
duty. The
Advanced Learners Dictionary 6th ed. defines
“airtime” as “(1) the amount of time given to a particular
subject or radio or television (2) the amount
of time that is paid for when you
are using a mobile phone.” Airtime is therefore the time paid for to
transmit massages by
airwaves on phone. The supplier in the instant case
connects the buyer to the airwaves transmission. The supplier doesn’t
possess the airwaves but facilitates the consumer’s connection to the
airwaves for the period of time paid for. Without that
element of first
possession and then parting or agreeing to part with it, the supply of airtime
cannot be a supply of goods under
section 10 of the VAT Act. Therefore the
Tribunal erroneously found that the supply of “airtime” is a supply
of goods.
Under section 1(t) of the Act “services” means anything
that is not goods or money. I have already held that “airtime”
is
not “goods” under the Act and clearly it is not money as defined by
para (n) of the section. The definition of “services”
in the Act is
exclusive, it excludes “goods” and “ money”. I
accordingly find that the supply of airtime
is a supply of services under
section 11 of the Act.
The section provides:-
“11 (1) Except as otherwise provided under this Act, a supply of services means any supply which is not a supply of goods or money, including -
(a) The performance of services for another person;
(b) The making available of any facility or advantage; or
(c) The toleration of any situation or the refraining from the doing of any activity.”
The supply of airtime is making available of a
facility, thus a supply of service.
The third good of appeal is
that the Tribunal erred in law in holding that “any supply of airtime made
to staff for use on official
duties for free is deemed a supply made for reduced
consideration between the Applicant and its staff under sections 3 and 18(7)
of
the Value Added Tax Act and is liable to VAT.”
The Tribunal
found that airtime provided by mobile cellular phones is a taxable supply under
sections 10 and 18 of the VAT Act, it
not being an exempt supply under section
20 of the Act. I have already held that the supply of airtime is not a supply
of goods
under section 10 but a supply of services under section 11 of the Act.
As regards taxable supplies section 18(1) of the Act provides:-
“ (1) A taxable supply is a supply of goods or services, other than an exempt supply made by a taxable person for a consideration as part of his or her business activities.”
The subsection shows that
a taxable supply must have the following qualities:-
“ (i) Must be a supply of either of goods or services.
(ii) It must not be an exempt supply.
(iii) Must be by a taxable person
(iv) Must be for a consideration, and
(v) Must be as part of his or her business activities.
As already held a
supply of airtime is a supply of services. I must point out that it is section
19 of the Act which provides for
exempt supply and not section 20. Under
section 19 of the VAT Act a supply of goods or services is an exempt supply if
it is specified
in the second schedule to the Act Airtime is not among the
supplies specified in the schedule. Sections 6 and 7 of the Act respectively
define and show the process by which a person can be registered as a taxable
person and it not disputed that the Appellant is a taxable
person under the Act.
The Appellant is in the business of selling airtime and in its normal business
receives payment in form of
money for the airtime sold. Therefore airtime
provided by cellular phones is a taxable supply.
In the instant case the
Appellant case is that the Appellant provides its staff with airtime for use in
execution of their official
duties. That there is no payment received or
receivable by the Appellant from its staff in respect of the airtime so provided
because
the Appellant is the provider and user of the airtime through its
staff.
Counsel for the Appellant submitted that since the Respondent had
charged VAT Act on airtime as a supply of services, section 18(5)
of the VAT Act
prevented it from imposing VAT on the Appellant.
The subsection
reads:
“ (5) The Application to own use by a taxable person of goods supplied to him or her for the purposes of his or her business activities shall be regarded as a supply of those goods for consideration as part of his or her business activities.”
Counsel agued that under above subsection VAT could
not be charged on a supply of services since the subsection limits itself to the
supply of goods.
Subsection 6 provides:-
“ Where goods have been supplied to a taxable person for the purposes of his or her business activities, the supply of those goods for reduced consideration shall be regarded as a supply for consideration unless the goods are supplied or used only as trade samples”
Counsel submitted that the airtime supplied could
not be captured under the subsection since it was not a supply of goods, the
Appellants
staff are not VAT taxable persons during their employment with the
Appellant and make no taxable supplies while working with the
Appellant. As
such could not be registered as taxable persons under the Act. Further that the
airtime was not for the proposes
of the Appellant’s staff business
activities but for the business activities of the Appellant itself.
Under
the VAT Act there at two categories of supplies, the supply of goods and the
supply of services. Clearly subsections 18 (5)
and (6) limit themselves to only
the supply of goods and could not apply where the supply was of
services.
However the Tribunals holding was that any supply of airtime
made to staff for use on official duties for free is deemed a supply
made for
reduced consideration between the Applicant and its staff under sections 3 and
18(7) of the Act. Section 18(7) provides;-
“ (7) A supply is made for reduced consideration if the supply is made between associates for no consideration or between associates for a consideration that is less than the fair market value of the supply.”
The issue is whether the Appellant’s members of staff were
associates to the Appellant under the provisions of the VAT Act.
An associate
is defined by section 3(1) which provides;-
“ 3(1) for the purposes of this Act “associate” in relation to a person, means any other person who acts or is likely to act in accordance with the directions, requests, suggestions or wishes of the person whether or not they are communicated to that other person.”
Then subsection (2) of the Act gives specific types of
associates. Clearly there was no evidence to know, whether directly or
indirectly,
that the Appellant’s staff qualified among any of the
specified categories of associates under subsection 3(2) of the Act in
their
business relations with the Appellant. However, as rightly submitted by the
Respondent’s counsel this list is not exhaustive.
Counsel for the
Respondent submitted that any supply of airtime made to staff for use on
official duties for free is deemed a supply
made for reduced consideration
between associates and thereby a supply made for consideration and liable to VAT
under the VAT Act.
Fair market value of a taxable supply is defined by section
2(1) of the VAT Act to mean the consideration in money which a similar
supply
would generally fetch if supplied in similar circumstances at that date in
Uganda being a supply freely offered and made between
persons who not
associates. On the basis of the above definition Counsel agued that it follows
that a supply of airtime to staff
for less than the fair market value will be a
supply for reduced consideration since it was made between a associates. That
under
section 2(1) parties will be associates if a relationship exists whereby
the other person acts or is likely to act on the directions,
requests and
suggestions of the party giving them. He contended that the Appellants staff
were under the master – servant
relationship, not independent contractors,
and as such expected on act or the Appellant’s directions, requests and
suggestions
and therefore associates of the Appellant under the
definition.
On the other hand Counsel for the Appellant agued that the
staff of the Appellant were not its relatives, partners or trustees and
did not
constitute 50% or more of its voting power and were not in any relationship
ejusden generis to any of the foregoing. He
therefore submitted that they were
not associates of the Appellant. Counsel further relied on the definition of
the word “associate”
in the Shorter Oxford English Dictionary the
relevant part of which states that an “ associate” is:-
“One who is united to another by community of interests, etc ... partner, comrade, companion,---- companion in arms, ally--- one who shares an office, or position of authority wish anther, on equal and intimate terms, a companion, mate – One who belongs to an association wish a status subordinate to that of a full member or “fellow” – A thing placed or found in conjunction with another --- “
Counsel further submitted that a member of staff of the Appellant is a mere employee and referred to the definition of an “employee” and “employer” – in the Employment Act. Under Section 1 of the Employment Act (h) “employee” means any person employed for wages and includes an apprentice and a domestic servant.
(i) “Employer” means any person, Company, firm or corporation, that has entered into a contract of service to employ any other person, and the agent, foreman, –manager or factor of that employer, and where a person has entered in to a contract of service with the Government or with any officer on behalf the Government, the Government Officer under whom that person is working shall be deemed to be his or her employer.”
If guided by the
above dictionary definition and the definition of an employee and employer in
Employment Act the Appellants employees/staff
cannot be regarded as its
associates. However the VAT Act gives a specific definition of the word
“associate” which
gives a safer guide in the circumstance of this
care. It is trite law of statutory construction (called the generalia
specialibus
rule) that where there is a specific legislative provision and a
general provision on a particular matter or procedure, the specific
provision
takes precedence over the general provision. See Sule Pharmacy Limited
-Vs- The Registered Trustees of the Khoja Shia Itana Shari Jamat H.C Misc. App.
No. 147 of 1999(unreported).
The word “associate” in
the VAT must be given its specific definition assigned to it in section 3 of the
Act. The Appellants
staff were not in any relationship ejusedem generis to the
classified associates in subsection (2) of the Act but as already pointed
out
the list therein is not exhaustive. It does not limit the general provision in
subsection (1) of the section. It provides;-
“ (2) Without limits the generality of subsection (1), the following are treated as an associate of a person - --”.
The Appellant’s members of staff are employees of the
Appellant and are thereby expected to work on the directions, reports
and
suggestions of the Appellant as their employer/master. In its statement of
Facts and Reasons in Support Respondent - of the
Application before the Tribunal
the Appellant stated;
“Facts of the case
(i) --- The airtime provided is based on each staffs job communication requirements and any personal abuse of the phones or airtime provided to staff results in appropriate disciplinary action---.”
The above
goes to show that the airtime provided is used by the staff upon the directions
of the Appellant. This brings the Appellant’s
staff within the arbit of
an “associate” under section 3(1) of the VAT Act.
The
remaining issue is whether a supply of airtime to the Appellants staff was a
supply made for reduced consideration under section
18(7) of the Act. Under
section 18(1) of the Act a taxable supply is a supply of goods or services, made
by a taxable person for
a consideration and under subsection (4) a supply is
made for a consideration if the supplier directly or indirectly receives payment
for the supply; Under subsection 6 where goods have been supplied to a taxable
person for the purposes of his business activities,
the supply of those goods
shall be regarded as a supply for consideration and under subsection (7) a
supply is made for reduced consideration
if the supply is made between
associates for no consideration or between associates for a consideration that
is less than the fair
market value of the supply. I have already held that the
supply of airtime by the Appellant to its staff was a supply of services
and the
Appellant and its staff were associates within the provisions of section 3 of
the VAT Act. Therefore it was supply of services
between associates. However
the Appellants case before the Tribunal was that the supply was for no
consideration. The Tribunal
held that any supply of airtime made to staff for
use on official duties for free is deemed a supply made for reduced
consideration
between the Appellant and its staff under sections 3 and 18(7) of
the VAT Act and is liable to VAT.
Section 18(7) of the Act makes
reference to “A supply” and I have found that supplies are in two
categories under the
Act – “supplies of goods” and
“supplies of services.” In the instant case I have already held
that
the supply of airtime was a supply of services.
While submitting
about the provisions of subsection 7 of section 18 Counsel for the Appellant
argued that subsection (7) cannot stand
alone. That it must be read together
with subsection 18(6) which limits itself to supply of goods. He therefore
concluded that
there was no supply of goods to the Appellant’s staff
written the meaning of subsection 18(6) and (7) of the Act. Subsections
18(5)
and (6) make specific reference to supplies of goods. Subsection 18(6) is
applicable in reference of supply of goods supplied
to a taxable person for
purposes of his or her business activities in which case such a supply if for a
reduced consideration, shall
be regarded as a supply for consideration. The
issue is whether the supply in subsection 18(7) refers to supplies generally or
to supplies of goods only. My considered view is that subsection 18(2), (4),
(7) and (8) make provision for supply generally whether
of “goods”
or “services”. Under the subsection any supply whether of
“goods” or services”,
if made between associates for no
consideration or between associates for a consideration that is less than the
fair market value
of the supply, is a supply made for reduced consideration.
Subsection 18(7) doesn’t make any reference to the forging subsection
(6)
for them to be read together. All the subsections in section 18 must be read in
light of subsection 18(1), which recognises
the taxable supplies as being
supplies either of goods or services.
I therefore find that the airtime
provided by mobile cellular phone companies is a supply of services, that the
supply made by the
Appellant to its staff was between associates for no
consideration and as such at reduced consideration under section3 and 18(7)
of
the VAT Act and therefore a taxable supply under section 18(1) of the VAT
Act.
In view of my finding above I find that the Tribunal was correct to
uphold the assessment of Ug. Shs. 358,652,458/= and the penalty
of Ug. Shs.
253,161,660/=.
In the premises the appeal is dismissed with
costs.
Lameck N. Mukasa
J U D G E
5/01/06
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