The full judgment from the Court of Appeal is now available. The full judgment can be found here. The written submissions showing the full arguments of the appellant (GRA) can be found here and that of the respondent (Orica) can be found here. Below is a summary of two of the main issues from the judgment.
Meaning of manufacturing business for location incentives
What the law says
One of the issues in dispute related to location incentive available for manufacturing businesses. The First Schedule to the Income Tax Act, 2015 (Act 896) provides for reduced company income tax rates for manufacturing businesses based on their location. This is called location incentives and they are available for businesses outside Greater Accra Region. For manufacturing businesses located in any of the other 15 regional capitals, their company income tax rates will be slashed by 25%. So, for such businesses, instead of paying income tax at 25%, they will pay 18.75% (25% * 75%). For manufacturing businesses located anywhere else in Ghana aside from Accra and Tema, theirs will be slashed by 50%. So, they will pay tax at 12.5%. Historically, these locational incentives were meant to encourage establishment of manufacturing businesses outside Accra and Tema. The law did not explain manufacturing business
What Orica said
Orica is a manufacturer of explosives for mining companies. So, it qualifies for the location incentives described above. It also provides transportation services to move the explosives to the right place. It applied the discounted income tax rate to all its income without excluding the income attributable to the transportation services. It said the GRA was confusing income from a manufacturing business with income from a manufacturing activity. The transportation service should not be seen as distinct. Orica defended the High Court’s reliance on the Minerals and Mining Regulations, 2012 (L.I. 2177). Using Regulation 15 of L.I. 2177, which is on issuance of certificates of competency to individuals who handle explosives for storage and transportation of explosives, Orica argued that the risk in handling explosives make it necessary for Orica to be the party delivering the explosives to its clients. Essentially, it has licences to manufacture, store and transport explosives, and all these activities are necessary for the manufacturing process.
What GRA said
The GRA said it realised Orica’s income didn’t fully arise from its manufacturing activities. It engaged in transportation activities too. The transportation activities involved transporting the manufactured explosives to the mine site. The transportation activities are very distinct and have nothing to do with manufacture of explosives. Indeed, a different company could have been engaged to transport the explosives and so the transportation isn’t related to the manufacturing activities. The act of manufacturing is a technical term and must be limited to physical or chemical transformation of materials. Even if L.I. 2177 is considered, there is a definition in there that aligns with the physical and chemical transformation and does not involve transportation.
What the Court of Appeal says
The Court of Appeal simply said
We agree with learned Counsel for the Respondent that it would be inaccurate or improper to limit a manufacturing business to the single activity of manufacturing which is the process of converting raw materials into a finished product when in fact such a business may need to employ other activities, depending on the product it manufactures, for the total realisation of its objectives as a manufacturing business.
The Court of Appeal therefore agreed with the High Court that there is no basis to separate the transportation activities from the manufacturing business.
Validity of VAT Relief Purchase Orders (VRPOs) photocopies
What the law says
The Value Added Tax Act, 2013 (Act 870) did not specifically allow companies to use VRPOs. VRPO was a tool used by the GRA under the 1998 VAT law to enable persons who were not required to pay VAT and were relieved by the VAT law to avoid the payment. VRPOs were subsequently extended to other persons in the mining and petroleum sector. These persons were not directly relieved by the VAT law, but by practice, instead of making them pay and coming for refund, VRPOs were used. Since the usage of VRPOs in this manner is not regulated by Act 870, there is no provision on how to deal with it. The practice was, once a customer received the VRPO, they kept the document until the GRA showed up for audit and inspected them.
What Orica said
VRPOs are not tax invoices and hence the requirements of tax invoices which the GRA is extending to VRPOs is unlawful. Using the Evidence Act, Orica argued that photocopies can be accepted by the court. In any case, the GRA already verified the originals of these photocopies in the past and initialed on them. The absence of those originals cannot suddenly throw the authenticity of the VRPOs in question. Moreover, the GRA is the body that prints and issues the VRPOs. It should be able to verify the authenticity or at least obtain comfort from the customer about the duplicate of the VRPO.
What the GRA said
The GRA said it could not validate some of the VRPOs by inspecting the originals and hence rejected them. It appears for the GRA, the requirements attached to VAT invoice especially for input VAT deduction must be extended to VRPOs. Orica should have produced the originals or duplicates. Photocopies are unacceptable. It was trying to prevent Orica from re-cycling invoices and resubmitting old documents already processed by the GRA. The GRA contended that under Section 41(2) of the VAT Act, 2013 (Act 870), only original tax invoices or duplicate copies (carbon copies) are valid. Photocopies are not “duplicates” in the legal sense. The GRA submits that even if their officers initialed the photocopies during an audit, this does not waive the statutory requirement for the taxpayer to produce originals to claim a refund or relief.
What the Court of Appeal says
Again, the court did not do any separate analysis. It simply said
We have carefully considered the facts and circumstances of this matter. After evaluating the submissions of both Counsel for the parties which we have already reproduced herein, we are satisfied that the learned High Court Judge’s decision to accept the photocopied VAT Relief Purchase Orders (VRPOs) is not against the weight of evidence. Her decision is legally right and we endorse same. Based on our analysis, this ground of appeal fails.
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