It has been a busy period in our law courts and we have witnessed the delivery of a number of judgments seeking to highlight the correct procedure to be followed by the VAT Department in its actions through the filing of judicial letters.

It is the VAT Department’s notice for payment that creates the executive title and not the judicial letter- Sarah Scicluna

A First Hall of the Civil Court judgment established that it is the VAT Department’s notice for payment that creates the executive title and not the judicial letter per se. In the case at hand, an applicant initiated court proceedings for the revocation of a garnishee order filed by the department, arguing that the judicial letter preceding the garnishee order quoted an incorrect disposition of the VAT Act (chapter 406) – due to the error, the then Commissioner of VAT, now Director General of VAT, was in the impossibility of obtaining executive title on the basis of which he could have then proceeded with the filing of the relative garnishee order. The court examined the provisions of article 59, VAT Act on the constitution of the executive title.

The court concluded that for the purposes of the Code of Organisation and Civil Procedure an executive title is a notice (demand note) issued by the commissioner showing any amount of tax and administrative penalty due and not contested by a person, not the judicial letter.

The notice for payment issued by the commissioner had reached the applicant and the latter had not put forward any claims directly effecting the execution of the executive title. The court stated that it was precluded from investigating whether the execution process of the executive title followed the provisions of the law, quoting Farrell vs Commissioner of VAT (where it was upheld that it is not legitimate for the court to investigate further than what is asked for).

An appeal was filed from this judgment.

A Court of Appeal judgment tackled the mode of notification of executive titles. The commissioner filed an appeal from a decision which was handed down in 2009 from the Court of Magistrates (Gozo) in its general superior jurisdiction. The applicant had challenged an executive title on the basis that he had not received the notice for payment from the commissioner as contemplated in article 59, chapter 406.

It transpired that the notice was sent to the person registered with the VAT Department, in this case the company of which he was director, and not to the applicant personally. The Court of Magistrates (Gozo) stated that it is sufficiently evident that the law stipulates that the note of demand for payment has to be made to the person who is being asked to pay the tax allegedly due and therefore also to the director personally, and not just the entity in which he held the role of director.

The non-notification of the individual meant that he was never given the opportunity to defend himself from the pretensions of the commissioner going against natural justice principles – the demand note should have never created a state of executive title.

The commissioner appealed on the basis of an ubi lex voluit dixit argument. The law is to be interpreted to mean that the demand note for payment has to be presented to the taxable person as a result of whose economic activity tax would be due.

No provision is made for the demand note to also reach the representative of the taxable person so registered when the taxable person is not physical, the VAT Department maintained.

According to the Court of Appeal, in this case, the person from whom the tax was due was not notified with the demand note, and so up until the individual was notified, the commissioner could not have moved to seek payment through garnishee orders. This was one of the reasons which led the court to uphold the first instance decision. It is significantly clear that cases over executive titles are becoming all-the-more common and the matter is continuously creating a vast jurisprudence. It is now up to practitioners to take note of the challenges brought by the tax departments and taxpayers.

Sarah Scicluna specialises in tax law, corporate and commercial law and financial services.