Ketua Pengarah Jabatan Kastam Diraja Malaysia v Zillion Sunrise Sdn. Bhd. (W-01(A)-744-10/2022)

ANTARA KETUA PENGARAH KASTAM …PERAYU-PERAYU

JABATAN KASTAM DIRAJA MALAYSIA DAN ZILLION SUNRISE SDN BHD …RESPONDEN DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR (BAHAGIAN KUASA-KUASA KHAS) 5 PERMOHONAN SEMAKAN KEHAKIMAN NO: WA-25-230-08/2020 Dalam perkara seksyen 39 dan seksyen 177 Akta Cukai Barang dan Perkhidmatan 2014 berkenaan dengan tuntutan cukai input luar biasa; Dan Dalam perkara peraturan 39(2) dan peraturan 46 Peraturan-Peraturan Cukai Barang dan Perkhidmatan 2014 berkenaan dengan tuntutan cukai input termasuk cukai input luar biasa; Dan Dalam perkara suatu keputusan responden seperti yang dinyatakan dalam surat bertarikh 14 Februari 2020 yang disampaikan pada 3 Jun 2020; Dan 28/04/2025 16:23:51 Kand. 38 Ketua Pengarah Kastam v Zillion Sunrise 2 Dalam perkara suatu permohonan untuk, antara lain, suatu perintah certiorari; Dan Dalam perkara aturan 53, Kaedah-Kaedah Mahkamah 2012. ANTARA ZILLION SUNRISE SDN BHD …PEMOHON

DAN KETUA PENGARAH KASTAM …RESPONDEN-RESPONDEN

JABATAN KASTAM DIRAJA MALAYSIA CORAM MARIANA HAJI YAHYA JCA 5 MOHD NAZLAN MOHD GHAZALI JCA AZIZUL AZMI ADNAN JCA JUDGMENT OF THE COURT INTRODUCTION 10 [1] The appellants, who are the Royal Malaysian Customs and its director general, appealed against the decision of the High Court that had allowed the application for judicial review by the respondent, Zillion Sunrise Sdn Bhd. At the court below, the respondent—referred to here as the taxpayer—sought and obtained an order of certiorari to quash the decision of Customs disallowing the 15 Ketua Pengarah Kastam v Zillion Sunrise 3 taxpayers claims for exceptional input tax under regulation 46(1) of the Goods and Services Tax Regulations 2014. [2] The taxpayer had made an exceptional input tax claim of RM10,516,560. Of this amount, only RM501,245.81 was allowed. The remaining RM10,015,314.19 was disallowed. This was the sum that was the subject matter 5 of the dispute. Chronology of Material Facts [3] The taxpayer is a property developer. On 14 August 2017, it entered into an agreement to purchase 48 parcels of land located in Tawau for RM175,276,000. The goods and services tax payable on the transaction was 10 RM10,516,560. [4] On 28 December 2017, the taxpayer entered into a lease agreement to lease out the subject lands for a period of two years commencing 1 February 2018. [5] On 18 January 2018, the taxpayer made an exceptional input tax claim for 15 such amount pursuant to regulation 46(1) of the Goods and Services Tax Regulations 2014. [6] In the meantime, the taxpayer made an application to be registered under the Goods and Services Tax Act 2014. Its application for registration was approved with effect from 1 March 2018. 20 [7] The Goods and Services Tax Act 2014 was repealed with effect from 1 September 2018. Ketua Pengarah Kastam v Zillion Sunrise 4 [8] The Customs Department, by its letter dated 14 February 2020 allowed only RM501,245.81 of the taxpayer’s exceptional input tax claim for RM10,516,560. The taxpayer received the 14 February 2020 letter only on 3 June

On 6 June 2020, the taxpayer wrote to Customs, requesting an explanation for, and seeking to appeal against, the decision of Customs. Not having received 5 any reply, the taxpayer again wrote a letter on 21 July 2020 seeking an update on the status of its appeal. [9] On 19 August 2020 the taxpayer received a letter from Customs dated 28 July 2020. The material portion of this letter explained the decision of Customs in the following terms:

Selaras dengan kuasa yang diperuntukkan di bawah Peraturan 46, Peraturan-Peraturan Cukai Barang dan Perkhidmatan 2014, Ketua Pengarah Kastam telah merujuk kepada undang-undang yang berkaitan dengan cukai input bagi sesuatu keputusan yang dibuat. Seksyen 39, Akta Cukai Barang dan Perkhidmatan 2014 jelas menyatakan cukai input yang layak dikreditkan hendaklah munasabah untuk 15 dihubung kait dengan pembekalan bercukai yang dilakukan oleh Zillion Sunrise Sdn Bhd semasa menjadi orang berdaftar GST, bagi tempoh bermula 1 Mac 2018 hingga 31 Ogos 2018. [10] In October 2022, the taxpayer commenced a judicial review application against the decision of Customs substantially refusing to allow the taxpayer to 20 allow it to treat as input tax the goods and services tax that it had incurred in connection with the purchase of the subject lands. Decision of the High Court [11] The High Court at Kuala Lumpur allowed the judicial review application and quashed the decision of the appellants. It held, among others, that:

the decision of Customs to reject the exceptional input tax claim was against the object and spirit of the Goods and Services Tax Act 2014; Ketua Pengarah Kastam v Zillion Sunrise 5

regulation 46(1) of the Goods and Services Tax Regulations 2014 did not confer upon the director general of Customs any discretion to impose additional requirements when considering a claim for exceptional input tax; and

the taxpayer ought not be penalised for not anticipating the abolition 5 of the Goods and Services Tax Act 2014, as it would have been entitled to claim for the exceptional input tax had the Act not been abolished. Summary of Our Decision [12] After hearing the submissions of parties, we dismissed the appeal by Customs. In our view:

the amount of input tax that is allowable and reasonable to attributable to any taxable supply under section 39 has been prescribed by regulation 39(2)(b) of Goods and Services Tax Regulations 2014 to be the whole of the input tax on the goods which are used or to be used by the taxable person exclusively in making 15 taxable supplies. Regulation 39(2)(b) would also apply in respect of exceptional input tax;

even if regulation 46(1) conferred upon the director general of Customs a power to apportion input tax, that apportionment could only have validly been made in respect of the period before the 20 taxpayer became a taxable person, but not in respect of the period after the Act was repealed;

thirdly, the repeal of the Goods and Services Tax Act 2014 cannot be construed to adversely affect the rights of the taxpayer that had Ketua Pengarah Kastam v Zillion Sunrise 6 accrued or been acquired prior to the repeal, by virtue of section 30(1)(b) of the Interpretation Acts 1948 and 1967; and

it was not in material dispute that had the Act not been repealed, the taxpayer’s exceptional input tax claim would have been allowed in its entirety. We fail to see why the taxpayer should be disadvantaged 5 simply because the Customs had not processed the application earlier and had only responded after the repeal of the Act. [13] The bases of our findings are explained in further detail below. ANALYSIS GST Generally 10 [14] Goods and services tax is a form of consumption tax levied on goods and services sold. It is paid for by consumers, and collected by businesses selling the goods or services on behalf of the government. The authority in Malaysia responsible for the administration and enforcement of goods and services tax is the Royal Malaysian Customs. 15 [15] During the period in which the Goods and Services Tax 2014 was in force, a business that made a taxable supply must be registered under the Act if its annual sales turnover exceeded RM500,000. It was only when a business was so registered that it may charge and collect goods and services tax. A person who was liable to be registered is referred to under the Act as a taxable person. The 20 amount of goods and services tax charged was based on the value or price of the goods or services sold, and would typically be the standard rate of 6%. [16] If a taxable person incurred goods and services tax when it bought goods or services (defined under the Act as input tax), it may deduct the input tax it Ketua Pengarah Kastam v Zillion Sunrise 7 incurred from the amount of tax that it subsequently charged on the onward supply of such goods or services (the output tax). This was provided for in section 38(1) of the Goods and Services Tax Act 2014, which read as follows: Credit for input tax against output tax 38(1) Any taxable person is entitled to credit for so much of his input tax as is 5 allowable under section 39 to be deducted from any output tax that is due from him. [17] Section 39(1) in turn provided as follows: Amount of input tax allowable 39(1) The amount of input tax for which any taxable person is entitled to credit in any taxable period shall be so much of the input tax for the period that is allowable 10 and reasonable to be attributable, as may be prescribed, to the following supplies made or to be made by the taxable person in the course or furtherance of any business in Malaysia:

any taxable supply, including a taxable supply which is disregarded under this

any supply made outside Malaysia which would be a taxable supply if made in

any other supply as may be prescribed. [18] The key operative words of section 39(1) permitted the deduction against output tax of “so much of the input tax… that is allowable and reasonable to be 20 attributable” to a taxable supply. Section 39(1) specifically anticipated that the manner and extent in which the deductions may be made would be prescribed in regulations made under the Act. [19] The Goods and Services Tax Act 2014 empowered the Minister of Finance to make regulations for the carrying into effect of the provisions of the Act. The 25 Goods and Services Tax Regulations 2014 were promulgated pursuant to this power. Ketua Pengarah Kastam v Zillion Sunrise 8 Regulation 39 [20] Regulation 39 of the Goods and Services Tax Regulations 2014 was prescribed for the purposes of section 39(1), and explained how input tax may deducted once the goods in question have been used in a taxable supply. Of particular relevance is subregulation 39(2)(b), which made it clear that the whole 5 of the input tax on the goods would be regarded as being attributable to a taxable supply, if the goods were used or were to be used exclusively by the taxpayer in making such taxable supply. [21] In other words, the effect of subregulation 39(2)(b) would be that, had the taxpayer in the present case already been registered under the Act when it 10 incurred the input tax, then the taxpayer would have been entitled to deduct the whole of that input tax, because the lands in question had been used for a taxable supply when it entered into the lease agreement. [22] The material portion of regulation 39 provided as follows: 39 Attribution of input tax to taxable supplies 15

Subject to regulation 43, the amount of input tax which a taxable person shall be entitled to deduct provisionally shall be that amount which is attributable to taxable supplies in accordance with this regulation.

In respect of each taxable period—

goods imported by and goods or services supplied to the taxable person in the 20 period shall be identified;

there shall be attributed to taxable supplies the whole of the input tax on the goods or services which are used or to be used by him exclusively in making taxable supplies or in making supplies outside Malaysia which would be taxable supplies if made in Malaysia;

no part of the input tax on the goods or services which are used or to be used by him exclusively in making exempt supplies, or in carrying on any activity other than the making of taxable supplies shall be attributed to taxable supplies; and Ketua Pengarah Kastam v Zillion Sunrise 9

there shall be attributed to taxable supplies and supplies made outside Malaysia which would be taxable supplies if made in Malaysia such proportion of the input tax as determine in accordance with the formula under subregulation (4) on the goods or services which are used or to be used by the taxable person in making taxable supplies, supplies made outside Malaysia 5 which would be taxable supplies if made in Malaysia and exempt supplies. [Emphasis added] [23] What if a taxable person incurred an input tax before it became registered under the Act? Can it deduct the input tax in such circumstances? This scenario was addressed in regulation 46. 10 Exceptional Input Tax [24] Regulation 46(1) of the Goods and Services Tax Regulations 2014 granted the power to the director general of Customs to authorise a taxable person to treat tax that had been paid by that person on the supply of goods before it became registered under the Act as though such tax were input tax. This allowed 15 a taxable person to deduct such input tax from the output tax, even though at the time the input tax was incurred, the taxable person was not yet registered under the Act. Such input tax is referred to as an exceptional input tax. [25] Regulation 46(1) reads as follows: 46 Exceptional claims for input tax 20

Subject to subregulation (2), the Director General may authorize a taxable person to treat as if it were input tax, any tax paid on the supply of goods to the taxable person before the date with effect from which he was registered, or paid by him on imported goods before that date, for the purpose of a business which was carried on or was to be carried on by him at the time of such supply or payment. 25 [26] It was this provision of the Goods and Services Tax Regulations 2014 that the taxpayer relied upon in the present case. It had incurred an input tax of RM10,516,560 when it bought the 48 parcels of land in August 2017. At that Ketua Pengarah Kastam v Zillion Sunrise 10 time, it was not yet registered as under the Act. In December 2017, it entered into an agreement to lease the subject lands, for which it would receive a monthly rental of RM48,822. This meant that its annual revenue would exceed the threshold for registration under the Act. It thus proceeded to make an application for registration, which it obtained with effect from 1 March 2018. 5 [27] As explained, the taxpayer made an application on 18 January 2018 for an exceptional input tax claim. It did not hear back from Customs until 3 June 2020, some one and half years later. In the meantime, the Goods and Services Tax Act 2014 was repealed with effect from 1 September 2018. [28] The formula that had been used by Customs to determine the permissible 10 exceptional input tax was as follows: 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐺𝑆𝑇 𝑃𝑎𝑖𝑑× 𝐴𝑠𝑠𝑒𝑡 𝐿𝑖𝑓𝑒−𝐷𝑎𝑦𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝐺𝑆𝑇 𝑅𝑒𝑔𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑜𝑛 𝐴𝑠𝑠𝑒𝑡 𝐿𝑖𝑓𝑒 × 𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑅𝑒𝑔𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑜𝑛 𝐴𝑠𝑠𝑒𝑡 𝐿𝑖𝑓𝑒 The amount of goods and services tax paid in this case was RM10,516,560. The asset life was taken to be 10 years. The tax was taken to have been incurred on 14 August 2017 (being the date of the purchase agreement for the lands), which 15 was 199 days prior to the taxpayer’s registration under the Goods and Services Tax Act 2014. The taxpayer was registered for 184 days before the Act was repealed. Hence the exceptional input tax that was determined by Customs to be attributable to taxable supplies was as follows: 𝑅𝑀10,516,560 × 199 3650 × 184 3650 = 𝑅𝑀501,245.81 20 The formula employed by Customs was communicated to the taxpayer via email on 28 July 2020. Ketua Pengarah Kastam v Zillion Sunrise 11 The Issue [29] The entitlement of the taxpayer to apply for an exceptional input tax claim was not in issue in the present case, as it was common ground that the taxpayer was entitled to avail itself of regulation 46. The dispute between the parties lay with the effect of the repeal of the Goods and Services Tax Act 2014 on the 5 exceptional input tax claim made by the taxpayer. [30] In our view, the outcome of the case depended on the answer to the following two questions:

Was the director general of Customs seised with a discretion under regulation 46(1)?

Did the director general of Customs correctly exercise his discretion under regulation 46(1) to refuse to allow the deduction of a substantial portion of the input tax incurred? Our Decision [31] Learned Senior Federal Counsel for the appellant argued that there were 15 two conflicting decisions of the Court of Appeal on the issue at hand: the first was the case of Ketua Pengarah Kastam v Jimah East Power [2024] 3 MLJ 314, where the court disallowed an exceptional input tax claim by the taxpayer, a company that operated a power generation plant. The second was the case of Ketua Pengarah Kastam v Metrogold Commercial [2024] 2 MLJ 918, where it was 20 held (among others) that the director of general of Customs did not have the power to make any apportionment or reduction of input tax under regulation 46(1). Ketua Pengarah Kastam v Zillion Sunrise 12 [32] In our view, the case of Jimah East Power is distinguishable on the basis that the operations of the power plant in that case only commenced after the abolition of the Goods and Services Tax Act 2014. Accordingly, there could not be said to have existed any taxable supply by the respondent in that case. [33] By contrast, in the present case before us, the taxpayer had leased out the 5 subject lands before the abolition of the Good and Services Tax Act 2014, and hence there was indisputably a taxable supply by the taxpayer. [34] In our considered judgment, the following points were determinative of the issues in this appeal:

the amount of input tax that was allowable and reasonable to 10 attributable to any taxable supply under section 39 has been prescribed by regulation 39(2)(b) of Goods and Services Tax Regulations 2014 to be the whole of the input tax on the goods which were used or to be used by the taxable person exclusively in making taxable supplies. Once an application for exceptional input tax was 15 allowed, regulation 39(2)(b) would be triggered and would apply for the purposes of ascertaining the allowable input tax. The formula employed by Customs was nowhere provided for in law, and hence the director general had no power to apportion the exceptional input tax in the manner that he did;

even if regulation 46(1) conferred upon the director general a power to apportion input tax, that apportionment could only have validly been made in respect of the period before the taxpayer became a taxable person, but not in respect of the period after the Act was repealed. This must necessarily be the case, because there is nothing 25 Ketua Pengarah Kastam v Zillion Sunrise 13 in the Goods and Services Tax Act 2014 or the regulations made under it that expressly confers upon the director general this power. It is a trite principle of law that any taxing statute must be construed strictly, and construed in favour of the taxpayer;

thirdly, the repeal of the Goods and Services Tax Act 2014 cannot be 5 construed to adversely affect the rights of the taxpayer that had accrued or been acquired prior to the repeal. This is so by virtue of section 30(1)(b) of the Interpretation Acts 1948 and 1967, which provides as follows: Section 30. Matters not affected by repeal.

The repeal of a written law in whole or in part shall not— …

affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed law; or … 15 and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed, as if the repealing law had not been made. On the facts of the present case, once the taxpayer became a taxable person, it would have acquired the right to credit the output tax 20 against the input tax that it had previously incurred. The repeal on 1 September 2018 of the Goods and Services Tax Act 2014 cannot be read as having taken away that right. In this respect, we endorse the views expressed by this court in the Metrogold Commercial at paragraph 43 of the judgment in that case, 25 which explained that a person becomes a “taxable person” when he reasonably forms the belief that the value of his taxable supplies will Ketua Pengarah Kastam v Zillion Sunrise 14 exceed the prescribed threshold during the relevant period. Thus, on the facts of the present case, once the taxpayer had signed the lease agreement on 28 December 2017, the case could be made that it became a taxable person at the very earliest at this point. Once the lease took effect, the taxpayer will have then made a taxable supply, 5 which entitled it to credit its input tax against its output tax; and

the taxpayer had made its exceptional input tax claim on 18 January 2018, well before the repeal of the Goods and Services Act 2014. It was not in material dispute that had the Act not been repealed, its exceptional input tax claim would have been allowed in its entirety. 10 On the facts, the Customs did not respond with its decision until 14 February 2020, more than two years after the application was made. We fail to see why the taxpayer should be disadvantaged simply because the Customs had not processed the application earlier and had only responded after the repeal of the Act. A taxpayer should not 15 be imposed with a higher liability for tax when it had done all that it could reasonably be expected to in the circumstances. [35] It was not a valid exercise of discretion for the director general of Customs to state that, in exercising its discretion whether or not to allow prior tax as input tax, the prior tax would not be allowed because that tax had been incurred 20 before the person became a registered person under the Act. This reading would be otiose. Clearly a taxable person would be entitled to apply under regulation 46 for its prior tax to be treated as input tax—that is what is expressly provided under regulation 46. That self-same criteria—that the prior tax had been incurred before the taxable person became registered under the Act—cannot 25 form the grounds for refusing an application under regulation 46. Ketua Pengarah Kastam v Zillion Sunrise 15 [36] In Ketua Pengarah Kastam v Metrogold Commercial the taxpayer respondent entered into an agreement on 24 November 2015 to purchase the lease of five plots of freehold land for a purchase consideration of RM170,650,000. The goods and services tax payable on the transaction was RM10,239,000. It became registered under the Goods and Services Tax Act 2014 5 as of 1 March 2016. On 9 September 2017, the respondent sold two of the five plots of leases. [37] The respondent made a claim for input tax. Customs allowed only RM2,320,472.55 out of the claim for over RM10 million. According to Customs, this was because relief for input tax was restricted to the period during which 10 the respondent remained a registered person under the Act, which was from 1 March 2016 until 31 August 2018, the last on date on which the Goods and Services Tax Act 2014 remained in force. Once the Act was repealed—according to Customs—there was no longer any taxable supply to which the input tax could be attributed. 15 [38] Even though that case did not involve a claim for exceptional input tax under regulation 46, the Court of Appeal made certain findings that are pertinent in the context of the present case. [39] First, the amount of input tax that is allowable and reasonable to attributable to any taxable supply under section 39 has been prescribed by 20 regulation 39(2)(b) of Goods and Services Tax Regulations 2014 to be the whole of the input tax on the goods which are used or to be used by the taxable person exclusively in making taxable supplies. [40] Secondly, the formula employed by Customs was nowhere provided for under the applicable laws relating to goods and services tax. For Customs to 25 Ketua Pengarah Kastam v Zillion Sunrise 16 deny a deduction based on a formula which has not been prescribed by law and which contradicts regulation 39(2)(b) would, in our considered view, amount to an illegality. [41] Thirdly, neither regulation 46 nor section 4 of the Goods and Services Tax (Repeal) Act 2018 (which, among others, provides for the continued subsistence 5 of prior liabilities for tax) provide for the power or discretion of the director general of Customs to make any apportionment for input tax. [42] In our judgment, the language employed in regulation 46 indisputably conferred upon the director general of Customs a discretion. However, this discretion was limited. The only determination that the director general may 10 make under regulation 46 was whether to allow a taxable person to treat as input tax the tax paid on the supply of goods made prior to the date the person was registered as a taxable person. Once the approval is granted, regulation 39(2)(b) would apply to treat the whole of the exceptional input tax as being attributable to a taxable supply. 15 [43] For the reasons explained in this judgment, the appeal was dismissed with costs. 22 April 2025 20 Azizul A Adnan Judge of the Court of Appeal Malaysia Ketua Pengarah Kastam v Zillion Sunrise 17 For the appellants: Mr Liew Horng Bin, Senior Federal Counsel & Mr Mohammad Sallehuddin Md Ali, Federal Counsel— Attorney General’s Chambers For the respondent: Mr S Saravana Kumar, Ms Nur Amira Ahmad Azhar—