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Supreme Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]
SCA NO. 69 OF 2007
BETWEEN:
COLLECTOR OF CUSTOMS, INTERNAL REVENUE COMMISSSION
First Appellant
AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Appellant
AND:
MISIMA MINES LIMITED
Respondent
Waigani: Injia, CJ, Yagi, J and Kariko, J
2010: 30th June
2014: 1st August
SUPREME COURT - Income Tax – Construction of Mining Development Agreement – Reduced rate for Import duty on “imported assets “ required for mining operations – Whether full import duty is payable for “all assets” imported for use in mining operations.
STATUTORY INTERPRETATION – Customs Act, Section 102 (1) and s 191(1) & s 191AA- Where import duty is short levied, whether Commissioner of Customs’ action to garnish funds held on account of taxpayer is dependant on whether there is a dispute over the short levy.
Facts:
The respondent (MML) is or was a company engaged in mining activity who imported “assets” for use in the operations of the Misima Gold Mine , pursuant to provisions of a Mining Development Agreement (MDA) entered into between MML and the State that allowed for import of assets on reduced rate of import duty. The first appellant (IRC) garnished MML’s bank account and recouped money that it said was for short levied duty. MML brought an action to recover the money saying the imported assets were required for mining operations and under the agreement, it was entitled to reduced import levy. Many of the imported items were consumable items for consumption, for which IRC said normal duty levy applied, and therefore duty was short levied for those items. MML argued that under the MDA, it was entitled to reduced rate “for all assets” imported for use in the mining operations including consumables. IRC argued not all assets including consumable items were required for mining operations and normal duty was payable. The trial judge ruled that there was a dispute over the under levy and therefore MML’s accounts should not have been garnished by IRC. The trial judge found in favour of MML and ordered a refund. On appeal from that decision.
Held:
Cases Cited:
Papua New Guinea Cases
Chief Collector of Taxes v Bougainville Copper Ltd (2007) SC853
Collins & Leahy Limited v Collector of Stamp Duties (2001) N2150
Curtain Brothers (Queensland) Pty Ltd and Kinhill Kramer Pty Ltd v The State [1993] PNGLR 285
Internal Revenue Commission v Dr. Pirouz Hamidian-Rad (2002) SC692
Mark Opur v Darbar Enterprises Ltd (2004) N2528
Misima Mines Pty Limited v Controller of Customs and The Independent State of Papua New Guinea (Unnumbered and Unreported judgment delivered on 8 February 2002)
Norah Mairi v Alkan Tololo (1976) PNGLR 125
Overseas cases referred to:
Federal Commissioner of Taxation v ICL Australia Ltd (1972) 72 ATC 4213
Lion Nathan Australia Pty Ltd v Coopers Brewery Limited [2005] FCA 1812; (2006) 223 ALR 560)
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 211 ALR 342
Statutes referred to:
Customs Tariff Act 1990
Income Tax 1959
Counsel:
W Maino, for the appellants
D Wood, for the respondent
1st August, 2014
Background
“Subject to any requirements of the defence, the safety of the public and quarantine and to the obligations of the State under multilateral international agreements to which the State is a party, the Company or of any Related Company shall have the right to acquire, import into and move within Papua New Guinea and use any plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies and any other asset –
(a) required for the construction, installation, provision, expansion, maintenance or operation of any of the facilities required for the Project; or
(b) otherwise required for the purposes of the Project”. (Our emphasis)
“The State will ensure that any import duty imposed on the importation of any plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies or any other assets, any one of which, at the time when such duty is sought to be imposed, is imported solely for the purpose of mining operations or operations connected therewith, will not be in excess of the average rate of duty from time to time payable on the importation into Papua New Guinea of the fourteen (14) items listed in the Description of Goods attached as Schedule II to this agreement. For the purpose of this Clause import duty means the aggregate of any import, duty, levy or tax.” (Our emphasis)
Grounds of Appeal
Orders Sought
Legal Issues
Extrinsic evidence
“I reiterate again that parties cannot call extrinsic evidence to prove what the intention of the parties were at the time when the MDA was drafted. The surrounding circumstances - and other factors as highlighted above, have established that.”
that MML was entitled to a reduced rate of import duty on “all goods connected with mining operations, which included goods of a consumable nature”.
28. The trial judge regarded this evidence not as extrinsic evidence but rather as “surrounding circumstances” which she viewed could be taken into account in determining the intention of the parties when entering into the MDA. In support
of this position, the trial judge her Honor after stressing the principle that interpretation of a contract must be determined on an objective basis (referring to a number
of case authorities including the Australian High Court decisions of Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 211 ALR 342 and Lion Nathan Australia Pty Ltd v Coopers Brewery Limited [2005] FCA 1812; (2006) 223 ALR 560) relied on the following statement of Leonard, J in Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (supra) at paragraph 251:
“It is now clear and settled that the meaning of commercial contracts and documents is to be determined objectively. To determine the objective intention of the parties regard must be had, of course, to the words in the document themselves but regard should also be had on all of the surrounding circumstances which were known to the contracting parties at the time the document was created including the underlying purpose and object of the commercial transactions..”(Our emphasis)
29. We note that the MDA was executed on 17th December 1987. The first IRC letter was written over 5 years later while the second IRC letter was written nearly 14 years later. Gazette G75 was issued nearly 7 years after the MDA was signed and Gazette G167 some 13 years after. These documents and circumstances relating to them happened well after the MDA was executed and cannot be regarded as surrounding circumstances known at the time the MDA was entered into. The trial judge therefore clearly erred in applying the proposition enunciated in the passage from the Lion Nathan case (supra).
30. This error is confirmed by the trial judge’s statement at paragraph 34 of the judgment that the letters were sent “at the time of negotiations” for the drafting of the MDA when in fact they were issued several years after the signing of the MDA. Also in determining whether the goods questioned by the IRC are for purposes of mining operations, the trial judge’s discussions at paragraphs 39 to 43 of the judgement wrongly considered the two IRC letters and the two gazettal notices as “evidence leading up to the drafting of the MDA and Clause 9.4”.
31. Although the trial judge states otherwise, we are of the opinion that the Judge erroneously considered extrinsic evidence in the form of the IRC letters and the Gazettal notices in determining the intention of clause 9.4 of the MDA.
32. The remaining relevant surrounding circumstance considered by the trial judge is the purpose and object of the agreed reduced rate of import duty. There is no dispute that the reduced duty was to assist the commercial viability of the mining operations given that the ore to be mined was not high grade ore. The parties therefore agreed to clause 9 of the MDA providing in clause 9.4 that the reduced rate would apply to assets imported by MML “solely for the purpose of mining operations or operations connected therewith”.
33. The plain reading of clause 9.4 is that the State agreed to allow a reduced import duty rate to MML for certain imported goods, namely substantial assets such as plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, and supplies and “any other assets” required for the mining operations and other “operations connected therewith”.
34. What then is meant by the phrases:
(1) “any other assets”; and
(2) “operations connected therewith”?
Interpretation of “operations connected therewith”
35. We consider it convenient to begin with the interpretation of the second of the phrases.
36. The trial judge found the wording of clause 9.4 of the MDA to be in very general terms and she considered it necessary for the Court to interpret the words “goods imported solely for mining operations or operations connected therewith”.
37. The trial judge accepted the IRC’s definition of “mining operation” as the extraction of minerals from their natural location. The IRC had firstly relied on a number of Australian High Court decisions including Federal Commissioner of Taxation v ICL Australia Ltd (1972) 72 ATC 4213 where Gibbs, J in dealing with an operation for the recovery of salt by pumping and natural evaporation held that such operation constituted mining because mining involved “the recovery from below the surface of the earth by effort, human or mechanical of a mineral or a mineral bearing substance”. The IRC also referred to and relied on the definition of the term “mining operations” found in section 4(1) Income Tax which essentially means the extraction of minerals from their natural site.
38. The trial judge then went on to determine what was meant by the words “operations connected therewith”?
39. Los, J in Misima Mines Pty Limited v Controller of Customs and The Independent State of Papua New Guinea (Unnumbered and Unreported judgment delivered on 8 February 2002) considered the same clause 9.4 of the MDA and decided that business
cards and trophies imported by MML were not connected with the mining operations but more to do with social activities. The trial
judge disagreed with the decision of Los, J because shethe trial judge found that his Honour had not taken into account the “surrounding circumstances”.
40. The trial judge instead referred to and relied on:
(1) the evidence of Mr Trainor in respect of negotiations leading up to the MDA;
(2) the letters from the IRC dated 5th March 1993 and 10th December 2001; and
(3) the contents of Gazettal Notices G75 of 22 September, 1994 and G167 of 28 December, 2000,
to conclude at paragraph 55 that the reduced rate of import duty applied to “all goods connected with mining operations, which included goods of a consumable nature”.
41. With respect, the trial judge did not interpret what was meant by the phrase “operations connected therewith” in reaching that conclusion in paragraph 55. We note from the submissions by counsel for MML at the trial that the words “operations connected therewith” must necessarily refer to operations or facilities that are a part of the mining project, and therefore clause 8 of the MDA is relevant because it sets out MML’s obligations in relation to the mining project to construct works that include transport infrastructure, accommodation and community facilities, power supply and telecommunication services. We are of the opinion that this is a proper construction of the words under consideration. Those other facilities are directly connected to the mining operations and as such are a part of the mining project.
Interpretation of “any other assets”
42. It falls on this Court to construe the expression “any other assets” in the context of Clause 9 and the MDA as a whole, applying ordinary principles relating to construction of commercial contracts. This exercise involves ascertaining the intention of the parties expressed in the words used in the contract at the time the contract was entered into. Clause 9 titled “Rates and Duties” made provision for the import of all assets required for the mining Project and recognized MML’s right to import assets for use for the mining Project and MML’s obligation to pay full import duty on those imported items. However exception is made by way of incentive to encourage capital investment in the natural resource development sector, whereby the State agreed to give certain benefits or concessions in terms of import duty for imported items. Amongst those incentives found in Clause 9.4 provided for reduced import duty for the types of assets described in that clause and Clause 9.1 (in identical terms) and for the purpose in Clause 9.1 (a) and Clause 9.4. Clause 9.1 and 9.4 were intended to be read together in terms of the description of the assets and their designated purpose. The type of “assets” set out in these provisions are assets that were required “for the construction, installation, provision, expansion, maintenance or operation of any of the facilities required for the project” (Clause 9 (1)(a)) and imported “solely for the purposes of “mining operations or operations connected therewith.” Any assets and supplies associated with the type of assets described in Clause 9.1(a) and 9.4 that were required solely for the purpose “construction, installation, provision of expansion, maintenance or operation of any of the facilities required for mining project. Assets by definition are things or property of value that a mining company can own which can be used over time; it does not include consumable items and supplies that are unconnected with the assets.
43. A list of 14 “assets” provided in the inaugural list appearing in Schedule II of the MDA accords with this description of the assets and class of assets. e.g. Nitrites and Nitrates, Bulldozers, Road trailers and semi trailers, AC Generators, Motor Lorries and trucks and Steel beams to name a few. It is such assets of that description falling into that class of assets that attracted reduced import duty.
44. We also note that MML’s submission at the trial and indeed on this appeal that the reduced rate of duty applied to all goods imported by MML for the mining project. We are unable to agree with this submission which argues that the trial judge did not err in finding that the reduced rate of import duty applied to all goods for the mining operations including consumables. It is unconscionable to think and to read into the terms of the clear and plain provisions of Clause 9 that it was intended and consensus ad idem was reached by both parties that MML would enjoy the benefit of reduced import duty for “all assets or supplies” imported into PNG for the use of the entire mining operations. The State in particular would be in no position to agree to such clause that would discriminate against other companies operating in PNG that import a wide range of consumable assets and supplies for their business operations at full import duty.
45. If that was the intention of the parties clause 9.4 should have read otherwise such as “The State will ensure that any import duty imposed on goods imported solely for the purpose of mining operations or operations connected therewith, will not be in excess of the average rate of duty from time to time payable on the importation into Papua New Guinea of the fourteen (14) items listed in the Description of Goods attached as Schedule II to this agreement. For the purpose of this Clause import duty means the aggregate of any import, duty, levy or tax.”
46. We consider it appropriate to apply the ejusdem generis rule of interpretation to determine the meaning of the words “any other assets”. We have already found that the assets listed in clause 9.4 were of the substantial kind, so the assets for those operations connected with the mining operation would include for example:
(1) plant, machinery, equipment, vehicles and fuel for the transport to build the transport infrastructure;
(2) machinery, equipment and major building materials to erect the accommodation and community facilities;
(3) generators, fuel, power pylons and transmission lines to supply electricity; and
(4) generators, fuel, towers and satellite dishes to provide telecommunications.
47. The list of goods the subject of the claim for short-paid duty is found in Appendix B of the Audit Report on MML for the period January 1997-March 2001. The Report is Annexure C to the affidavit of Jerry Kaon filed 1st August 2006. The list includes stationary (such as paper, manila folders, envelopes, books, message pads, markers, biros, and masking tapes), office chairs, filing cabinets, general cleaning equipment such as buckets and general cleaning liquids, clothing, safety gear (goggles and gloves), signs, sweat bands, terry towels, toilet rolls, garbage bags, rubbish bins, soap, disinfectant, sunscreen, plastic coolers, foam cups, paints, brushes, glues, Polaroid film, framed mirror, plastic bottles, and drums. Most if not all of the items are consumables and all of them are not the significant or major assets that in our view were contemplated by clause 9.4 of the MDA.
48. These are the sort of assets that any company doing business in PNG would import on full import duty. It is clear to us that the parties to the MDA intended that full import duty would be paid for assets that did not fall in the class of assets expressly listed in Clause 9.4 If the interpretation of these expressions advanced by the respondent were accepted by this Court, mining companies operating in PNG would avoid tax liability for “all assets” including consumable items imported into PNG during the life of the mine. This would defeat the underlying purpose and object of the tax regime on imported goods in the country.
49. Mining companies that commence operations in PNG are accorded certain investment privileges or benefits by the State to promote investment. These include tax exemption or concessions on income tax over expenses incurred in the construction phase of mineral extraction that occurs in the early stages of the mining operations. Tax exemptions and concessions are usually provided in agreements entered into between the State and the mining company. Clause 9 of the MDA in the case at hand is an example.
50. It is also our view that Los, J’s reasoning for his decision in Misima Mines Pty Limited v Controller of Customs and The Independent State of Papua New Guinea (supra) was correct.
51. We find therefore that the trial judge erred in determining that those goods listed in Appendix B of the audit report were subject to the reduced import duty.
Provisions of the Customs Act
52. The appellants have also appealed against the interpretation and application of sections 102(1), 191(1) and 191AA of the Customs Act by the trial judge. Section 102(1) reads:
“When any duty has been short levied or erroneously refunded, the person, who should have paid the amount short levied or 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 twelve months from the date of the short levy or refund.”
Section 191(1) states:
“Customs duty is a debt to the State and is—
(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 at any time in any court of competent jurisdiction by proceedings in the name of the Commissioner.”
Section 191AA relevantly provides:
“(1) In this Section—
"duty" means customs duties and includes a judgement debt and costs in respect of any such duty;
"taxpayer" means any person against whom the Commissioner of Customs is entitled to recover any duty or penalty that is due and payable under this Act.
(2) The Commissioner of Customs may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner of Customs), require—
(a)
....; or
(b) any person who holds or may subsequently hold money for or an account of the taxpayer; or
(c) ....; or
(d) ....,
to pay to the Commissioner of Customs, either forthwith upon the money becoming due or being held or at or within a time specified in the notice (not being a time before the money due or is held)—
(e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of any duty and of any fines, penalties and costs imposed upon him under this Act, or the whole of the money when it is equal to or less than the amount; or
(f) ......” (Underlining for emphasis)
53. In interpreting these provisions, we bear in mind the following principles:
(1) All tax legislation shall be interpreted strictly and the provisions given their plain and ordinary meaning; Norah Mairi v Alkan Tololo (1976) PNGLR 125; Collins & Leahy Limited v Collector of Stamp Duties (2001) N2150; Internal Revenue Commission v Dr. Pirouz Hamidian-Rad (2002) SC692; and Chief Collector of Taxes v Bougainville Copper Ltd (2007) SC853; and
(2) The intention behind tax legislation is for the amount assessed as duty must be first paid and any objection to the amount assessed made later; Chief Collector of Taxes v Bougainville Copper Ltd (supra) and Mark Opur v Darbar Enterprises Ltd (2004) N2528.
54. At the trial, the trial judge was asked:
(1) Whether the IRC properly claimed the alleged short paid duty pursuant to section 102(1); and
(2) Whether the IRC lawfully garnisheed MML’s bank account to recover the short duty claimed.
55. We agree with the trial judge’s observation that section 102 is a specific provision relating to short paid duty and refund of duty while section 191 is a general recovery provision for customs duties. We also accept the trial judge’s finding that pursuant to section 102(1) where a demand is made for duty short levied, within 12 months of the short levy, the amount short levied must be paid. The trial judge then determined that the letter of demand issued by the Commissioner of Customs 12th December 2001 ought to have been issued in January 2001 because the date of the short levy was March 2001. This determination is clearly wrong because the letter was issued within the 12 months from March 2001.
56. The evidence is that there were short levies that occurred well outside of the 12 months preceding the date of the letter of demand. Was the IRC entitled to claim the duty owed on those short levies? The plain reading of section 102(1) is that if the amount short levied is claimed within 12 months of the short levy, the amount shall be paid (and this would accord with the rule of pay first and question later). In our view, if the demand is not made within the prescribed 12 months period, the person charged need not pay the short paid duty if he disputes the claim, but the IRC is still entitled to pursue the outstanding duty as a debt owing to the State by virtue of section 191.
57. The trial judge also found that section 191AA cannot be applied if there is a dispute regarding any duty claimed by the IRC as outstanding. We find nothing in the words of section 191AA to support that conclusion by the trial judge.
58. It is our opinion therefore that the trial judge wrongly interpreted and applied sections 102, 191 and 191AA Customs Act.
Conclusion
59. Accordingly, we are satisfied that the grounds of appeal have been made out and we would grant the relief sought by the appellants.
Orders
60. The Court orders that:
(1) The appeal is allowed.
(2) The decision of the National Court dated 22 June 2007 in proceedings OS No. 434 of 2003 – Misima Mines Limited v Collector of Customs, Internal Revenue Commission and The Independent State of Papua New Guinea, is quashed.
(3) The Respondent shall pay the Appellants’ costs of this appeal and the National Court proceedings.
___________________________________________________
Policy & Legal Affairs Division, IRC: Lawyer for the Appellant
Bake Dawson Waldron: Lawyer for the Respondents
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