Dyson Manufacturing Sdn Bhd v KETUA PENGARAH JABATAN KASTAM DIRAJA MALAYSIA (BA-25-45-05/2019)

An Order of Certiorari to quash the Respondent’s decision in the form of Bill of Demand dated 8.3.2019;

(ii) A Declaration that the Respondent is bound by and shall give effect to the express wording of Sections 65 (6) and 65(8) of the GST Act 2014 Research Design and Development services rendered by DOPL were zero rated under Item 12 Second Schedule of the Goods and Services Tax (Zero-Rated Supply) Order 2014; and

(iii) A Declaration that the Respondent cannot deem an agent appointed under Section 65(6) of the GST Act 2014. Factual Background [4] The Applicant is involved in manufacturing of Dyson products and provides Research, Design and Development services. The Applicant was a registered taxable person under section 20 of the GST Act 2014. The Respondent notified the Applicant on the registration under section 21 of the GST Act 2014 with the Goods and Services Tax reference number (GST Registration No. 000561549312). [5] The Applicant carries out Research and Development Services (R&D) activities for DYSON branded products on a contract basis to a related company of Dyson Operation Pte Ltd (DOPL) which is a company operating in Singapore. Apart from that, for finished goods manufacturing activities, it is done by contract manufacturing/outsourcing to the contract manufacturer who is also the licensee of the Licensed Manufacturing Warehouse (Gudang Pengilang Berlesen). [6] DOPL is an external company registered under the Goods and Services Tax Act 2014 with reference number (GST Registration No. 000859230208) in Malaysia in accordance with section 65 (6) of the Goods and Services Tax Act 2014, which requires an agent to be appointed to act on its behalf and meet any requirements under the Goods and Services Tax Act 2014. [7] The Applicant was appointed as an agent on behalf of the DOPL (principal) who is liable to fulfill all responsibilities in under the Goods and Services Tax Act 2014. The Applicant and DOPL entered into a R&D Services and Supply Agreement where, among others, the Applicant will provide Research Design and Development Services to DOPL. [8] On 6.12.2017 an audit was conducted by the Respondent on the Applicant’s company. Vide a letter dated 27.6.2018, the Respondent informed the Applicant of its audit findings that the Applicant was in breach of section 9 of the GST Act 2014 as standard rate that is 6% is imposed. [9] The Applicant’s contention is that no GST was chargeable i.e. zero rated in respect of services provided by a Malaysian entity, such as the Applicant, to “a person who belongs in a country other than Malaysia”. [10] On 18.7.2018, at the Round Table Discussion, the R&D services rendered by DOPL could not be regarded as zero rated supply as Dyson Operations Pte Ltd would deemed business performed in Malaysia and 6% imposed on the Applicant R&D services for the taxable periods from 1.04.2015 to 31.12.2017. [11] Due to above reasons, the amount of GST output tax which was under-declared by the Applicant together with the penalty is in the sum of RM28,028,857.88. [12] As a result of the audit finding conducted, the Respondent issued Bill of Demand for the taxable periods from 1.4.2015 to 31.12.2017. [13] Dissatisfied with the Respondent’s decision in the form of the Bill of Demand dated 8.3.2019, the Applicant filed this application for judicial review essentially for an order of certiorari to quash the Respondent’s decision. Grounds for Judicial Review [14] In furtherance of the Applicant’s application for judicial review, the Applicant put forth the following grounds:

Illegality-Error of Law

Item 12 of Second Schedule Tax and Services Goods and Services (Zero Rate Supply) Order 2014 supply is zero-rated;

The issue of agent under section 65 (6) of the GST Act 2014; and

The issue of fixed establishment under section 65(8) of the GST Act 2014.

(ii) Irrationality/Unreasonableness a) The Respondent’s decision amounts to a denial of the Applicant’s legitimate expectation. b) The Respondent had exercised its authority arbitrarily and/or mechanically without applying its mind to the facts and circumstances of the Applicant; and c) The Respondent failed to give any valid justification, reason or basis for its decision to issue the Bill of Demand. Law pertaining to Judicial Review [15] Prior to considering and analyzing this application, it would be prudent for this court to be reflect on the legal principles relating to judicial review. [16] Order 53 Rules of Court 2012 provides for the procedures for an application for judicial review. [17] The grounds for judicial review are illegality, irrationality, procedural impropriety and proportionality. These grounds were laid down by Lord Diplock in the case of Council of Civil Service Unions & Ors v Minister of Civil Service [1985] AC 374 which was adopted by the Federal Court in the case of R Rama Chandran v The Industrial Court of Malaysia & Anor [1997] 1 MLJ 145 as follows: “In this context, it is useful to note how Lord Diplock (at pp 410– 411) defined the three grounds of review, to wit, (i) illegality, (ii) irrationality, and (iii) procedural impropriety. This is how he put it: By 'illegality' as a ground for Judicial Review I mean that the decision maker must understand directly the law that regulates his decision making power and must give effect to it. Whether he has or not is par excellence a justiciable question to be decided, in the event of a dispute, by those persons, the judges, by whom the judicial power of the state is exerciseable. By 'irrationality' I mean what can by now be succinctly referred to as 'Wednesbury unreasonableness' (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223). It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. Whether a decision falls within this category is a question that judges by their training and experience should be well equipped to answer, or else there would be something badly wrong with our judicial system. To justify the courts' exercise of this role, resort I think is today no longer needed to Viscount Radcliffe's ingenious explanation in Edwards v Bairstow [1956] AC 14, of irrationality as a ground for a court's reversal of a decision by ascribing it to an inferred though undefinable mistake of law by the decision maker. 'Irrationality' by now can stand on its own feet as an accepted ground on which a decision may be attacked by Judicial Review. I have described the third head as 'procedural impropriety' rather than failure to observe basic rules of natural justice or failing to act with procedural fairness towards the person who will be affected by the decision. This is because susceptibility to Judicial Review under this head covers also failure by an administrative tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred, even where such failure does not involve any denial of natural justice. Lord Diplock also mentioned 'proportionality' as a possible fourth ground of review which called for development.” Analysis and Findings [18] Based on the principles of law relating to judicial review, this court will proceed to examine the application before this court. [19] An audit was conducted by the Respondent on the Applicant on 6.12.2017. As a result of the audit, the Respondent found the Applicant had underpaid or understates goods and services tax of total RM 23,932,158.69. The Respondent issued a Bill of Demand dated 8.3.2019 for the tax due. This is the root of this judicial review application. [20] The GST Act has since been repealed via Goods and Services Tax (Repeal) Act 2018 [Act 805]. Nonetheless, section 4 (1) (b) of the Goods and Services Tax (Repeal) Act 2018 [Act 805] provides for continuation of liability where tax is recoverable under the repealed Act as if the repealed Act had not been repealed. On this basis, the Respondent contend that they are able to issue the Bill of Demand to the Applicant. [21] This court agrees with the contention of the Respondent that section 4 (1) (b) of the Goods and Services Tax (Repeal) Act 2018 enables the Respondent to issue the Bill of Demand. Illegality

Item 12 of Second Schedule Good and Services Tax (Zero-Rated Supply) Order 2014 supply is zero-rated [22] The Applicant is an agent on behalf of DOPL appointed by DOPL to handle all DOPL goods and services tax (GST) matters in Malaysia. DOPL is a foreign company that has been registered in Malaysia (GST Registration No. 000859230208) in accordance with the requirements of subsection 65 (6) of the GST Act. In this regard, the provision of the law is subsection 65 (6) of the GST Act which is reproduced below: “(6) Where a person who does not belong in Malaysia makes a taxable supply in Malaysia and is liable to be registered under section 20 or intends to be registered under section 24, he shall appoint an agent to act on his behalf and such agent, whether or not he is a taxable person, shall be liable for the tax and comply with any other requirements imposed under this Act as if the agent is a person who does not belong in Malaysia.” [23] Is the Applicant entitled to Zero-rated Supply? To answer this question, it would perhaps be prudent to consider what categories are taxable or otherwise. Subsection 9(1) of the GST Act states that the scope of charge to Goods and Services tax is pertaining to:

Supply of goods and services made in Malaysia (including anything treated as a supply; and

(ii) Importation of goods into Malaysia, or

(iii) Supply of imported service (section 13 GST Act 2014). [24] The Applicant (in Malaysia) in this case provided Research and Development services to DOPL in Singapore. In the view of this court, the service therefore was made in Malaysia. This would mean the Applicant is subject to GST [25] Under the GST Act, there are two categories of taxable supplies, namely standard-rated supplies and zero-rated supplies. A standard-rated supplies are taxable supplies of goods or services which are subject to GST (6%). For it to be a taxable supply, there will need to be a supply of goods or services by a taxable person. The supply will generally need to be made for consideration and made in Malaysia. (b)The supply not be taxable supply if it is zero-rated or exempt. [26] Paragraph 12 Goods and Services Tax (Zero-Rated Supply) Order 2014 states the following: “12. Services supplied under a contract with a person who belongs in a country other than Malaysia and which directly benefit a person who belongs in a country other than Malaysia who is outside Malaysia at the time the services are performed, but shall not include—

any services comprising either one or both of the following:

the supply of a right to promulgate an advertisement by means of any medium of communication; and

(ii) the promulgation of an advertisement by means of any medium of communication; or

services which are supplied directly in connection with—

a land situated in Malaysia or any improvement to such land;

(ii) goods which are in Malaysia at the time the services are performed; or

(iii) capital market products as defined in the Capital Markets and Services Act 2007 [Act 671] traded in Malaysia or insurance contracts where the coverage relates to risk in Malaysia and includes any similar transaction conducted in accordance with the principles of Syariah.” [27] Paragraph 2 (2)(b)(iii) of the Second Schedule of the Goods and Services Tax (Zero-Rated Supply) Order 2014 reads as follows: “(2) For the purpose of this Order, a person shall be treated as belonging a country if-

he has his usual place of residence in that country where the supply is made to him as an individual and received by him otherwise than for the purpose of any business carried out by him; and

In the case where paragraph (a) does not apply

he has in that country a business establishment or fixed establishment and no such establishment elsewhere;

(ii) he has no business establishment or fixed establishment in any country but his usual place of residence is in that country; or

(iii) he has business establishment or fixed establishment both in that country and elsewhere and his establishment which is most directly concerned with the supply is in that country.” [28] The facts in this case is that the Applicant was appointed the agent of DOPL. DOPL is a foreign company which is registered as GST person under section 65(6) of the GST Act. The Applicant is the agent of DOPL who has been registered in Malaysia. The R&D services carried out by the Applicant to DOPL are at a standard rate of 6%. Item 12, Goods and Services Tax (Zero-Rated Supply) Order 2014 P.U.(A) 272 is not applicable. [29] Moreover, the Applicant was informed vide a letter dated 22 March 2018 that the Zero-rated status did not apply to the Applicant. [See Exhibit ALAK-8 of Enclosure 35]. [30] In the view of this court, the Applicant is not eligible to enjoy the treatment under Item 12, Second Schedule of the Goods and Services Tax (Zero-Rated Supply) Order 2014. This is because tax treatment for R&D services is not applicable as the R&D services by the Applicant to DOPL are standard rate of 6%. The supply of Research and Development (R&D) services supplied by the Applicant to DOPL, in the view of this court, is a taxable supply at a rate of 6% in accordance with section 9 of the GST Act 2014.

The issue of agent under section 65 (6) of the GST Act 2014 [31] Here, the Applicant had sought to be registered under section 20 of the GST Act and therefore falls within the ambit of subsection 65(6) of the GST Act. There is no dispute with pertaining to these facts. [32] Subsection 65(1) of the GST Act provides as follow:

Where goods or services are supplied by an agent acting on behalf of a principal, the supply shall be deemed to be made by the principal and not by the agent. [Emphasis added] [33] Hence subsection 65(1) of the GST Act provides that where an agent is acting on behalf of a principal, the supply by the agent is deemed to be made by the principal and not by the agent. In this case the facts reveal that the Applicant is the agent of DOPL. Applying subsection 65(1) of the GST Act to the facts of this case, this would mean that the supply of the Applicant is deemed to be done by DOPL. [34] Therefore, as the supply of the Applicant is deemed to be done by DOPL, it could be considered that DOPL was in Malaysia at the time the services were provided as a registered person under section 20 of the GST Act 2014. Moreover, DOPL is a foreign company that has been registered (GST Registration No. 000859230208) in Malaysia in accordance with the requirements of section 65 (6) of the Goods and Services [35] As the GST registration applies to persons in Malaysia, DOPL appointed the Applicant as an agent in Malaysia, to act on its behalf.

The issue of fixed establishment under section 65(8) of the GST Act 2014 [36] The Applicant contends that the Applicant is entitled for zero-rated because there is no fix establishment in Malaysia. In this regard, it was argued that DOPL and the Applicant are separate entities. Moreover, DOPL has no presence in Malaysia. [37] Pertaining to this issue, reference was made to subsections 14(2) of the GST Act which provides: “(2) For the purposes of this section, a fixed establishment in any country includes a branch or an agency through which a person carries on a business in that country” [38] The definition of fixed establishment can be seen in the Royal Malaysian Customs Guide on Supply 13 February 2017 as follows: “64. A fixed establishment is an establishment other than the business establishment. The other considerations for fixed establishment are:

The activities of the organizations are carried out;

Has the permanent presence of both the human and technical resources necessary for making or receiving the supplies of goods or services of the company;

Includes a branch or an agency through which a person carries on a business in that country;

Where the trader has a HQ in one country and the other premises located in different countries, the HQ is the business establishment for the purpose of the place of supply rules, and the other premises in other premises in other countries are ‘other fixed establishments”. [Emphasis added] [39] The facts are the DOPL is in Singapore and DOPL’s agent is in Malaysia. The Applicant is DOPL’s agent. The provision insubsection 14(2) of the GST Act and definition of fixed establishment in the Royal Malaysian Customs Guide on Supply 13 February 2017 are clear. [40] Therefore, based on subsections 14(2) of the GST Act and definition of fixed establishment under the Royal Malaysian Customs Guide on Supply dated 13 February 2017, this court is of the considered view that this would translate that DOPL to have a fixed establishment in Malaysia.

(ii) Irrationality/Unreasonableness

The Respondent’s decision amounts to a denial of the Applicant’s legitimate expectation.

(b)

(ii) The Respondent had exercised its authority arbitrarily and/or mechanically without applying its mind to the facts and circumstances of the Applicant; and

(C)

(iii) The Respondent failed to give any valid justification, reason or basis for its decision to issue the Bill of Demand. [41] The Respondent's decision in the form of a Bill of Demand dated 8.3.2019 was issued under the GST Act 2014 in relation to Goods and Service Tax. It is this decision that is currently being challenged by the Applicant. Is the decision irrational or unreasonable?

The Respondent’s decision amounts to a denial of the Applicant’s legitimate expectation. [42] The Applicant contends that the Respondent’s decision constitutes a denial of the Applicant’s legitimate expectation. In the case of Ambiga a/p Sreenevasan v. Director of Immigration, Sabah, Noor Alam Khan bin A Wahid Khan & Ors [2018] 1 MLJ 633 the court held as reproduced below: “[52] The principle of legitimate expectation has been accepted by our law...The doctrine of legitimate expectation protects both procedural and substantive rights. [53] The doctrine of legitimate expectation originates from common law principles of fairness. English courts developed this doctrine clearly to encourage good administration and prevent-abuses by decision-makers...Generally, the courts will grant judicial review of an administrative decision based on individual’s legitimate expectation if a public authority has made a representation to the individual within its powers. The individual has to show that the representation was a clear and unambiguous promise, an established practice or a public announcement. This is largely a factual inquiry...” [Emphasis added] [43] The State Government of Sabah v. Sipadan Dive Centre Sdn Bhd & Ors [2013] 2 MLJ 793 the court stated as follows: “[9] The principle of substantive legitimate expectation is rooted in the concept of fairness. As a matter of law, a legitimate expectation arises when there is clear and unambiguous representation made by a public authority…” [Emphasis added] [44] Founded on the cases referred to above, for there to be a legitimate expectation, there must be present a clear and unambiguous representation made by a public authority. Was there such a representation in this case? [45] This court has considered the facts before this court and has satisfied no such representation was made to the Applicant. If there was no clear and unambiguous representation made by the Respondent, it follows therefore the argument of legitimate expectation cannot stand.

(b)The Respondent had exercised its authority arbitrarily and/or mechanically without applying its mind to the facts and circumstances of the Applicant [46] It is the Applicant’s contention that the Respondent had exercised its authority arbitrarily and/or mechanically without applying its mind to the facts and circumstances when issuing the Bill of Demand. [47] The facts before this court demonstrate that the Bill of Demand was issued after an audit was undertaken. There was a failure on the part of the Applicant to provide proof of documents (Borang Kastam 2). Hence, it is the considered view of this court that the Respondent had taken into account the facts and circumstances of the Applicant. It cannot be said that the Respondent had exercised its authority arbitrarily.

The Respondent failed to give any valid justification, reason or basis for its decision to issue the Bill of Demand [48] The Applicant submitted that the Respondent’s decision is irrational as the Respondent failed to give any valid justification, reason or basis in issuing the Bills of Demand. [49] The decision challenged by the Applicant was in the form of a Bill of Demand. That in itself, in the view of this court, is self-explanatory. The Bill of Demand was issued for tax purposes. Furthermore, prior to the issuance of the Bill of Demand, there were several letters issued which pertaining to the audit finding and there were several round table discussions between the Applicant and the Respondent. During those discussions and via the letters issued, the Applicant was informed of the reasons for the imposition of the GST tax. [50] There is no legal provision which imposes duty on the part of the Respondent to give any reason in the Bill of Demand. Even though there is no legal requirement for the Respondent to inform the Applicant of the Respondent’s reasons or justification for the decision to issue the Bill of Demand, the Applicant was informed during round table discussion with the Applicant that Applicant is not eligible to enjoy treatment under Item 12 of the (Zero-Rated Supply) Order 2014. [51] Moreover, a second Round Table Discussion (RTD) meeting which was conducted by the Respondent with the Applicant and the reasons for issuing the claim bill were informed during the RTD meeting with the Applicant on 18.7.2018 and 3.9.2018. [52] The Applicant was informed through a letter dated 27.6.2018, namely the Audit Results Notification Letter to the Applicant that the basis for issuance of this claim bill was issued because the Applicant did not comply with section 9 of the Goods and Services Tax Act 2014 [See Exhibit DG-5 Applicant's Affidavit of Support Enclosure 6] [53] It cannot be that the Applicant was not aware about the reasons behind the issuance of a bill of demand when it was communicated to the Applicant during the round table discussions and the letter to the Applicant. For these reasons this court finds this contention to be without merit. Conclusion [54] For the abovementioned reasons, this court is of the view this application is without merit. It follows therefore that this application is dismissed with costs of RM 5000.00 subject to allocator. Date: 11 December 2022 (SHAHNAZ BINTI SULAIMAN) Judge High Court of Malaya Shah Alam Counsels: - For the Applicant Ivy Ling Yieng Ping TETUAN LEE HISHAMMUDDIN ALLEN & GLEDHILL Advocates & Solicitors Level 6, Menara 1 Dutamas, Solaris Dutamas, No. 1 Jalan Dutamas 1, 50480 Kuala Lumpur. +6 03 6208 5888 enquiry@lh-ag.com For the Respondent Krishna Priya a/p Veenagopal @ Venugopal JABATAN PEGUAM NEGARA MALAYSIA Bahagian Guaman, No. 45, Persiaran Perdana, Presint 4, 62100 Putrajaya. +6 03 8872 2000