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Misima Mines Ltd v Collector of Customs, Internal Revenue Commission [2003] PGNC 22; N2497 (18 December 2003)

N2497


PAPUA NEW GUINEA


[IN THE NATIONAL COURT OF JUSTICE]


OS. NO. 434 OF 2003


MISIMA MINES LIMITED

Plaintiff


AND:


THE COLLECTOR OF CUSTOMS,
INTERNAL REVENUE COMMISSION
First Defendant


AND:


THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant


WAIGANI: KANDAKASI, J.
2003: 08th September & 18th December


IMPORT DUTY – Under assessment of – Goods already entered and passed – Whether importer or owner of goods required to pay under protest first before issuing proceedings in Court – Importer or owner of goods not required to pay under protest before issuing Court proceedings once the goods have been entered and passed – Where goods already entered and passed under a short-levy of duty payable, the Collector of Customs is entitled to demand payment within 12 months form date of short-levy and or sue for the amount of short-levy – ss.19, 20, 102, 191 and 176 of Customs Act.


STATUTORY INTERPRETATION – Interpretation of tax legislation – Strict interpretation of tax legislation appropriate – Words used by Parliament in a tax legislation must be given their plain and ordinary meaning.


Papua New Guinean Cases Cited:
Internal Revenue Commission v. Dr Pirouz Hamidian-Rad (Unreported judgment 22/03/02) SC692.
Mairi v. Tololo [1976] PNGLR 125.
Savewell Stores Pty Ltd v. Commissioner of Customs, Director of Customs & The State (Unreported judgement delivered on 12/01/98) N1669.
Manufacturers Council of Papua New Guinea Inc v. Commissioner General Internal Revenue Commission and The Independent State of Papua New Guinea (Unreported judgment delivered on 17/04/03) N2441.
Madana Holdings Pty Ltd v. Pious Saun as Controller of Customs & The Independent State of Papua New Guinea (Unreported and unnumbered judgment delivered on 07/05/93) per Brown J.
Pacific Media Publications Pty Ltd v. Pious saun Collector of Customs & The Independent State of Papua New Guinea (Unreported judgement delivered on 06/04/90) N919.


Counsel:
Mr. R. Bradshaw for the Plaintiff.
Ms. P. Bre for the Second


18th December 2003


KANDAKASI, J.: By originating summons, the plaintiff is seeking various orders and declarations. This is given rise to by an assessment by the defendant of a Customs import duty of K1,377,010.46 as being short-levied against the plaintiff. The plaintiff has disputed that assessment and refused to pay it. Consequential on that refusal, the plaintiff issued a statutory garnishee under the Customs Act[1] against the plaintiff’s bank account.


On 11th August 2003, the plaintiff unsuccessfully applied for an injunction seeking to prevent the defendants ("the IRC") from enforcing a statutory garnishee. That resulted in a remittance of an amount equal to those in dispute to the IRC by the Westpac Bank as the garnishee under the statutory garnishee on 18th August. At the time of declining to issue injunctive orders, this Court was of the view that the question of whether or not the plaintiff should pay under protest, and whether or not the proceedings were correctly before the Court should be first addressed. The Court considered these issues critical to deciding whether or not to grant the injunctive orders. The Court therefore directed both parties to file written submissions for the Court’s consideration and a decision on the issue.


Arguments of the Parties


The IRC argues that the proceedings are not appropriately before the Court as the Plaintiff has no standing to commence these proceedings until and unless it pays the short-levy demanded of it, pursuant to s.176 of the Customs Act. Misima Mines argues that the goods, the subject of the Collector of Customs claim for K1, 377, 010.46, were entered, passed and released between 1997 and March 2001. Therefore the provisions of s. 176 of the Customs Act do not apply. Instead, it argues that the provisions of ss. 102 and 191 of the Customs Act apply.


The facts giving rise to these arguments and the issue before this Court are not in issue and are straightforward. By letter dated 12th December 2001, the IRC through the Collector of Customs, demanded Misima Mines to pay a sum of K1, 826, 998.98 being for duty allegedly short-levied on imports from 1997 to March 2001 without any explanation. But in support of the demand, the IRC provided Misima Mines a copy of an audit report demonstrating the short payment. That followed a judgement of Los J. in Misima Mines Pty Ltd v. Comptroller of Customs & The State.[2]


Misima Mines rejected the demand by letter dated 27th December 2001, and indicated that the demand appear to relate to concessional rates for import duties it had and enjoys under its Mining Development Agreement ("MDA") with the State. It also indicated that the subject of the concessional rate was discussed with senior IRC officials and resolved.


By a facsimile letter dated 9th October 2002, the IRC responded. The IRC said it had gone through an Audit Report and noted certain goods imported by Misima Mines were not "solely for purposes of mining operation or operation connected ... as per clause 9.4" of the MDA. Instead, they were found to be ordinary consumable goods which attracted the full import duty. Proceeding on that basis, the IRC maintained its demand.


Misima Mines maintained its rejection of the demand. This resulted in the parties entering into further correspondence in furtherance of their respective positions. Neither of them gave up their respective positions, and that resulted in no agreement. Then by letter dated 28th July 2003, the IRC issued to Misima Mines’ Bank, Westpac Bank (PNG) Ltd a statutory garnishee notice under s.191AA of the Customs Act.


Misima Responded by issuing these proceedings on 8th of August 2003. At the same time, it filed a notice of motion seeking an interim restraining order, which came before me on 11th August 2003. The IRC opposed the application. The Court declined the application on the basis amongst others, that Misima Mines did not demonstrated the likelihood of a possible irreparable damage being done which was sought to be prevented by interim injunctive orders.


The issue raised in these proceedings can be resolved by reference to the relevant provisions of the Customs Act. This Act is a tax Act as it raises income tax through the imposition and collection of import duties and or levies and other charges.


The Law


As the Supreme Court said recently in Internal Revenue Commission v. Dr Pirouz Hamidian-Rad:[3]


"The law ... is that all tax legislation must be interpreted strictly. The words used by the legislature in the legislation must be given their literal and ordinary meaning unless a clearly irrational result will be arrived at."[4]


The reasons justifying such an interpretation were adequately covered initially by the Supreme Court in Mairi v. Tololo[5] and restated in the Hamidian-Rad case.[6] The reasons for this rule of interpretation are that, in order for the State to legally impose a charge against its subjects, it must be clear and unambiguous in the language it uses. Hence there is no room for any inference or looking for the intent of the legislation and equity about a tax or a presumption in favour of a tax law. Instead, the natural meaning of the words used by Parliament must be given effect to without more either in addition or subtraction.


In the Hamidian-Rad case,[7] The Supreme Court had before it the provisions of s. 46(1)(a)(ii) of the Income Tax Act 1959 as amended. This provision makes a person "who has actually been in the country continuously or intermittently during more than one-half of the year of income" a resident. Dr. Pirouz Hamidian-Rad, admitted to actually being in the country for 183 days. The Supreme Court found and held following the strict interpretation rule that:


"... that was about two days more than one half of the usual 365 days in a year. The legislation here speaks of ‘actually been in the country continuously or intermittently during more than one-half of the year of income’. This simply means more than one half of the days that make up a year of income. A year usually has, except in a leap year, 365 days. One-half of that is 182.5 days. In this case, the period of 183 days in the relevant income year was more than one-half of that year. Neither is there an argument against this, nor is there any argument or evidence that this is irrational." [8]


In the present case, the first provision to consider is s.176 of the Customs Act. That provision reads:


"176. Payment under protest


(1) If a dispute arises as to-
(2) A protest under Subsection (1) shall be made by writing on the entry of the goods the words "Paid under protest" and adding a statement of-
(3) The sum paid under Subsection (1) shall, as against the owner of the goods, be deemed to be the amount of the proper duty unless the contrary is determined in proceedings brought under Subsection (4).
(4) Within the period prescribed by Subsection (5)(b), the owner of the goods may bring proceedings against the Collector in any court of competent jurisdiction for the recovery of the whole or any part of the sum paid.
(5) Proceedings do not lie for the recovery of any sum paid to the Customs, as the duty payable in respect of any goods, unless –
(6) This section does not affect any rights or powers under Section 104."

(Emphasis supplied)


Sections 19 and 20 of the Customs Act provide as to the entry and passing of entries, which are relevant for the purposes of s.176 (2). These sections, in so far as they are relevant read:


"19. Entries.


(1) Entries may be made and passed for all goods subject to the control of the Customs.

(2) Subject to Subsection (3), an entry in respect of any goods shall be made by the delivery to a Collector of an entry specifying the goods, and on the delivery of the entry the goods shall, for the purposes of this Act, be deemed to have entered.

(3) Where an entry in respect of any goods is delivered to a Collector at a port or airport before the arrival at the port or airport of a ship or aircraft carrying the goods, then for the purposes of this Act—

(a) the entry shall be deemed to be made; and

(b) the goods shall be deemed to have entered,

on the arrival of the ship or aircraft at the port or airport."


"20. Passing of entries.

(1) Entries shall be passed by the Collector placing on the entry the word "Passed" and adding his signature.

(2) An entry passed in accordance with Subsection (1) is warrant for dealing with the goods in accordance with the entry."


Both counsels have ably assisted me with their written submissions, which make reference to cases that have already dealt with s.176 of the Customs Act. One of these cases is Savewell Stores Pty Ltd v. Commissioner of Customs, Director of Customs & The State.[9] In that case, the then Deputy Chief Justice and now Chief Justice had a case of the plaintiff issuing proceedings against the IRC out of a dispute over the duty payable. His Honour found that s. 176 of the Customs Act was applicable and held in these terms:


"It is clear that a dispute has arisen within the meaning of s.176 of Act. This provision states that the owner of the goods may pay the duty determined by the Collector under protest. The amount so determined by the Collector is deemed to be the proper duty payable on the goods (s.176 (3)). The goods would be released upon payment of the amount determined by the collector.


However, the owner of goods has a cause of action to sue for any amount that is in excess of the proper amount payable under the law. This cause of action has not yet arisen because the plaintiff has not fulfilled the conditions set out under s.176 of the Act (see Smith v. Hudson (1921) SR (NSW) 557. It is clear from a brief survey of this provision that the owner of the goods must pay for the duty as determined by the Collector in order for the goods to be released. As the owner disputes the amount of duty determined by the Collector, he should pay under protest in accordance with the terms of s.176 and subsequently issue proceedings under s.176 (4) of the Act to recover any excess."


(Emphasis supplied)


This judgment was cited with approval and applied in Manufacturers Council of Papua New Guinea Inc v. Commissioner General Internal Revenue Commission and The Independent State of Papua New Guinea.[10] In that case, Justice Sevua had before him an application on behalf of three separate companies for release of certain goods already imported and yet to be imported by them without the payment of import duties. His Honour declined the application and proceeded to dismiss the proceedings for a number of reasons. On the issue before this Court, His Honour reasoned that at p.10 that:


"It is my opinion that these proceedings are premature and misconceived. In law, the owner of the goods in question ought to have paid the 20% duty imposed by the Regional Collector of Customs in Lae pursuant to s.176 (1) and (2) of the Act so that they can have the goods removed from Customs. The owners then can proceed to ss (4) to file legal proceedings to claim the duty they had paid. The correct mode then will be by writ of summons and there would be no problem claiming injunctions, declarations and the reimbursement of the duty that had been paid. Whether there is an agreement or not, I am of the view that s.176 of the Customs Act must be complied with before the owner of any goods exercises his right to sue. The right to sue does not arise until compliance with s.176 has taken place."


Similar views were expressed in Madana Holdings Pty Ltd v. Pious Saun as Controller of Customs & The Independent State of Papua New Guinea (Unreported and unnumbered judgment delivered on 07/05/93) per Brown J.


These case authorities only strengthen what is already clear from the natural meaning of the words employed by the Customs Act in s.176 when combined with ss.19 and 20. These provisions clearly provide the procedure that should be followed when there is a dispute over the import duty on goods at the point of entry before their release to their owners or importers. The emphasis here is at the point of entry and prior to the release of the goods the subject of the dispute. In a case where s.176 becomes relevant, the correct procedure to follow are as set out in that provision as recently elaborated and laid out by Justice Sevua in Manufacturers Council of Papua New Guinea Inc v. Commissioner General Internal Revenue Commission and The Independent State of Papua New Guinea.[11]


Whilst speaking of the procedure under s.176 of the Customs Act, I note that Brown J. in Pacific Media Publications Pty Ltd v. Pious Saun Collector of Customs & The Independent State of Papua New Guinea,[12] held that judicial review is available. He expressed the view that a party who does not accept an import duty assessment need not pay the disputed amount before issuing proceedings. He was of the view that, such a person could apply to the National Court for Review of the assessment even before paying the amount in dispute as is required by s.176 (1). He reasoned that, there was no expressed exclusion of judicial review.


The views expressed in that case, with respect, fails to note or if it does, it at least fails to appreciate that, where there is a dispute over the import duties payable in anyone case, Parliament has prescribed a way in which such a dispute should be addressed. It is not as if no remedy was provided for. I am also of the view that, Brown J. did not realize that, what he was saying was contrary to the well established principle in administrative law that, before judicial review is granted; all other available remedies must be first exhausted. For these reasons, I do not agree that judicial review is a remedy that is available without first following the procedure and the remedy provided for under s. 176 of the Customs Act.


Now returning to the case at hand, I accept Mr. Bradshaw’s arguments on behalf of Misima Mines that, s.176 does not apply in a case where the goods the subject of a disputed duty has passed entry and has been released to the owner or importer. This is on the basis of a plain reading and application of the natural meaning of the words used in that provision, as interpreted and applied by the cases already noted and in accordance with the settled principles of interpretation and application of tax legislation, which was also noted already.


In consequence of accepting Misima Mines argument, I reject Ms. Bre’s argument on behalf of the IRC that s.176 is intended to cover disputes well after the entry and release of the goods stages. The reason for this is simple. If Parliament wanted the provisions of s.176 to apply as she submits, Parliament could have specifically and unambiguously provided for it but it did not. Indeed, the various Supreme Court judgements I noted in the earlier part of this judgment support this view.


The question then is, is there any provision in the Customs Act or else where dealing with what has occurred in this case? What has occurred in this case by way of restating is that, various import duties were assessed by the IRC against Misima Mines and were paid. No dispute arose; therefore there was no need for the application of the provisions and the procedure under s.176 of the Customs Act. Much later however, the IRC has conducted an audit and based on the results of that audit and an earlier case, the IRC found that Misima Mines’ import duties were short-levied and paid for and the various goods were released. Hence the conclusion arrived at that s.176 of the Customs Act does not apply.


Counsel for Misima Mines submits that ss. 102 and 192 apply in a case where there has been a short-levy or a levy has been erroneously refunded. Section 102 provides:


"102. Shore-paid duty.


When any duty has been short-levied or erroneously refunded, the person—
(a) who should have paid the amount short-levied; or
(b) to whom the refund has erroneously been made,

shall pay the amount short-levied, or repay the amount erroneously refunded, on demand being made by the Collector within 12 months from the date of the short-levy or refund."


In my view, the fact that this provision is there, strengthens the view that s. 176 does not apply to a case in which duty has been levied and paid and the goods have been released. In other words, because Parliament has already provided for situations in which there might be a case of a duty being short-levied and is paid, s.176 can not apply to such a situation. Instead the provisions of s. 102 apply.


Naturally, the next question is the meaning and effect of the provisions of s. 102. Again going by the settled rule of interpretation of tax legislation the plain and natural mean of the words used in this section are very clear. Where a duty has been short-levied or erroneously refunded, the IRC is entitled to demand and receive a payment of the amounts short-levied or erroneously refunded if demand for such a payment is made within 12 months from the date of the short-levy or the refund.


No argument has been put before me by either of the parties as to the effect of the phrase "on demand being made within 12 months from the date of the short-levy or refund." In my view, and again going by the settled principle of interpretation of tax legislation, it seems clear to me that, provided the IRC makes a demand within 12 months from the date of the short-levy or the erroneous refund, the importer is obliged to make the payment. Then considering this in the light of s.176 of the Customs Act, it seems clear to me that, if the importer disputes the short-levy or erroneous refund demand, the demand must be met before challenging the demand.


This view also fits in well, in my view, with s. 191 of the Customs Act, which reads:


"191. Recovery of duty.


Customs duty is a debt to the State—


(a) charged on the goods in respect of which it is payable; and

(b) payable by the owner of the goods,

and may be recovered in any court of competent jurisdiction by proceedings in the name of the Collector."


Clearly, in my view, this provision states the obvious, which is customs duty is a debt to the State, which is chargeable on goods in respect of which the debt is payable by the owners. The collector of customs is authorised to recover this debt in any court of competent jurisdiction by proceedings in the name of the Collector of Customs. I am of the view that s. 191 is there to cover situations such as in the present case where, goods have been released under allegedly short-levy in respect of which no demand has been made within 12 months from the date of the short-levy. This is reasonable, given that in some instances, the short-levy or the erroneous refund could not be easily discovered until sometime after the passage of more than 12 months.


What then should be the effect of this ruling? The parties have not addressed that question in their submissions. But based on the views, I have expressed in the foregoing, it would appear that, the IRC has wrongly demanded and forcefully received payment of the amounts in question allegedly for short-levies when there was a dispute over it. The short-levies appear to date back more than 12 months from when they were first levied. That dispute is yet to be resolved. The judgement of Los J. between the parties in Misima Mines Pty Ltd v. Comptroller of Customs & The State,[13] appear to render support for the position taken by the IRC on the demand for the short-levy. Also, there is no argument that Misima Mines is progressing to a closing down of its operations. Indeed, that is the very reason why Misima Mines was arguing for injunctive orders against the IRC.


Given the above circumstances, I consider it would be appropriate for the parties to expedite the substantive matter to trial under pleadings. This would, in my view, enable the parties to fully specify their respective positions on the dispute and respond to each other’s positions with a view to narrowing down to the real issue or issues for trial and determination. Accordingly, I direct that the parties address the Court on the question of how they wish to expedite a determination of the substantive.
________________________________________________________________________
Lawyers for the Plaintiff: Blake Dawson Waldron.
Lawyers for the Defendants: Employed Lawyer

[1] Chp. 101.
[2] (Unreported judgment delivered on 08/02/02)
[3] (Unreported judgment 22/03/02) SC692.
[4] Per Kandakasi J. at p. 17.
[5] [1976] PNGLR 125.
[6] Supra note 2 at pp. 12 – 13.
[7] Ibid.
[8] Per Kandakasi J. at pp. 17 – 18.
[9] (Unreported judgement delivered on 12/01/98) N1669.
[10] (Unreported judgment delivered on 17/04/03) N2441.
[11] Supra noted 10 at p.10.
[12] (Unreported judgement delivered on 06/04/90) N919.
[13] Supra note 2.

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