The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Albert J. Magri and Mr Justice Tonio Mallia, in the case “VAT Commissioner vs Medairco Ltd and Anthony Migneco”, on November 11, 2011, held, among other things, that a VAT claim which did not give a breakdown of the amount due in tax, penalties and interests was defective and could not give rise to an executive title. The lack of a breakdown was prejudicial to the rights of a citizen to contest the VAT claim.
The facts in this case were as follows.
The VAT claim (as formulated) prejudiced the rights of the taxpayer to contest it
On August 24, 2010, the VAT Department sent a VAT claim for €1,634,459, demanding payment from the company Medairco Ltd and its director Anthony Migneco.
To render its claim “executive”, it served a judicial letter against the company in terms of article 59 of Chapter 406.
According to article 59 of Chapter 406, the VAT Department had to first send its claim and, if its debt was not paid within 30 days, the VAT Commissioner could proceed by serving a judicial letter upon the debtor.
The issue in this case was whether the debtor had been notified according to law.
It resulted that service was effected at 55, Racecourse Street, Marsa which was neither the registered office address of the company nor the residential address of Anthony Migneco. Mr Migneco had ceased acting as a director of the company with effect from September 9, 2009 after he was interdicted by the Court of Magistrates.
The VAT Commissioner, in addition, requested payment without giving a breakdown of tax due and of the sum representing the administrative penalty and interest.
The company and Mr Migneco claimed that this was contrary to article 59(1) of Chapter 406 and that his right to a fair hearing was breached.
Medairco Ltd and Mr Migneco opposed the executive claim of the VAT Department as well as the garnishee order No. 1681/2010 in terms of article 281 of Chapter 12 and article 59(1) of Chapter 406.
They asked the court to declare that no VAT was outstanding:
• To declare that they were not duly notified of the VAT claim;
• To declare that the notice sent by the VAT Commissioner did not satisfy article 59(1) of Chapter 406, as there was no indication of the amount due in tax, administrative penalty and interest.
• To revoke and cancel all the effects of the garnishee order and judicial act in terms of article 281 of Chapter 12.
The VAT Commissioner, in reply, submitted that due notice was given according to law.
It was stated that, from their searches, the company could not be served at its registered address in Valley Road as this property had been transferred to third parties. Besides, Mr Migneco had indicated the address in Marsa from correspondence to the VAT Department.
Despite his general interdiction, the VAT Commissioner maintained that Mr Migneco still appeared as director as of August 9, 2010 and continued to sign VAT returns on behalf of the company.
The VAT Commissioner cited article 66(1) of Chapter 406 which provides that:
“Any secretary, manager, director, liquidator or other principal officer of an entity or of a body of persons, any heir and any testamentary executor and any curator of the vacant inheritance of a deceased person, and any person who is a tutor, curator, administrator or trustee of any other person or of any trust, fund or other entity shall, for the purposes of this Act, be a representative of that body of persons, deceased person, other person, trust, fund or other entity, as the case may be.”
He also cited article 66(3) which stipulates that:
“Subject to the provisions of subarticle (5) a representative of a person shall be liable in the same manner and to the same extent as the person of whom he is a representative for all the obligations imposed by or under this Act.
“(b) Anything done or omitted to be done by a representative acting as such shall for the purposes of this Act be deemed to have been done or omitted to be done by the person of whom he is a representative.
“(c) Any notice served on or any refund paid to a representative in his capacity as such under any of the provisions of this Act shall be deemed to have been served on or to have been made to the person of whom he is a representative.
“(d) The existence or the designation of a person as a representative of another person shall not relieve the latter person from any obligation or liability under this Act.”
The VAT Commissioner maintained that there was no legal requirement to itemise the amounts due in tax and penalties, under article 59 of Chapter 406.
A debtor could request clarification at any stage, pointed the VAT Commissioner.
On April 13, 2001, the First Hall of the Civil Court decided in favour of the company and Mr Migneco.
It held that they had not been validly notified and they should have been given a breakdown of the amount due in tax and penalties, under article 59(1).
The court revoked and cancelled the effects of the garnishee order No. 1681/2010 and of the judicial act in terms of article 281 of Chapter 12.
The court considered that the provisions in the Civil Procedure Chapter 12 were of public order and had to be strictly observed. Reference was made to “Maltacom plc vs Carmel and Mary Doris Muscat” (CA) dated June 14, 2001 and “Said International Ltd vs MAC Limited” (CA) dated July 7, 2003.
The court noted that Mr Migneco ceased to be a director from September 9 2009, as well as a representative of the company and could not be served.
It said that the notice was invalid and not done according to law. The postman’s confirmation (riferta) did not constitute valid service in terms of article 187(4) Chapter 12 as the person accepting the service had to be an employee or legal representative.
In this case, the VAT Commissioner was aware that Mr Migneco had been interdicted, maintained the first court.
Aggrieved by the decision of the first court, the VAT Commissioner entered an appeal calling for the revocation of its decision.
The VAT Commissioner reiterated his argument that both the company and Mr Migneco had been duly notified at the company’s place of business. It was also submitted that the VAT claim was correct and no breakdown was necessary, according to law.
On November 11, 2011, the Court of Appeal gave judgement by dismissing the appeal and by confirming the decision of the first court.
The following reasons were given for the court’s decision.
Notice: The procedure to notify a company was regulated by article 187 (4) Chapter 12 which provides that:
“In the case of a body having a distinct legal personality, service on such body shall be effected by leaving a copy of the pleading:
(a) at its registered office, principal office, or place of business or postal address with any of the persons mentioned in article 181A(2) or with an employee of such body; or
(b) with any of the persons mentioned in article 181A(2) in the manner provided for in subarticle (1).”
Service could be at a company’s place of business and not necessarily at its registered address.
Once the company had a place of business in Marsa, notice at this address satisfied article 187 (4) of Chapter 12.
Despite his interdiction, Mr Migneco still worked for the company. He in fact signed correspondence with the VAT Department as well as VAT returns.
Once he continued to render service to the company, he could accept service of documents on behalf of the company.
Reference was made to “Xanthippe Shipping Limited vs Comptroller of Customs” dated November 30, 2007.
In this respect, the court held that service of notice could not be deemed to be invalid.
Claim: It was important that a breakdown of tax, penalties, and interests was given, even if this was not expressly required by law.
A person who received a claim had a very short period to contest.
The court said that a debtor should not be compelled to waste time seeking clarification.
A taxpayer was entitled to a breakdown to know exactly what to contest and whom to consult to object to the amounts claimed.
The absence of a breakdown rendered the VAT claim to be defective, maintained the court, as this was prejudicial to the rights of a citizen to contest the VAT claim.
The Court of Appeal, therefore, confirmed the decision of the first court not because the company and Mr Migneco were not properly notified by the judicial letter but on grounds that the VAT claim (as formulated) prejudiced the rights of the taxpayer to contest the VAT claim of the VAT Commissioner.
Dr Grech Orr is a partner at Ganado & Associates.