Wintercorn Malaysia Sdn Bhd v 1. ) KETUA PENGARAH JABATAN KASTAM DIRAJA MALAYSIA 2. ) Jabatan Kastam Diraja Malaysia (KDRM)

Case Significance

Affirms the strict construction of sales-tax exemptions: a taxpayer must bring itself clearly within the words of the exempting provision, and the trader/manufacturer distinction under the Sales Tax (Persons Exempted From Payment of Tax) Order 2018 turns on the value-added processes carried out — the Federal Court dismissed the taxpayer's appeal and reinstated the Customs decision.

This Federal Court decision, delivered in a judgment by Zabariah binti Mohd Yusof FCJ (sitting on a panel that also included Harminder Singh Dhaliwal and Abdul Karim bin Abdul Jalil FCJJ), concerns the strict construction of a sales-tax exemption and the boundary between traders and manufacturers for exemption purposes. The appellant, Wintercorn Malaysia Sdn Bhd, had claimed exemption from sales tax; the respondents were the Director General of Customs and the Royal Malaysian Customs Department. The dispute turned on the interpretation of the Sales Tax (Persons Exempted From Payment of Tax) Order 2018, and in particular the distinction between the exemption available under Item 57 of Schedule A and that under Item 53 of Schedule A, in a context where the appellant's activities and the value-added processes it carried out bore on whether it fell to be treated as a trader or a manufacturer. Connected questions concerned judicial review in tax matters, the effect of internal customs policies, and the doctrine of legitimate expectation.

The Federal Court dismissed the appellant's appeal. It approached the exemption on the settled principle that a tax exemption is to be strictly construed, so that a taxpayer must bring itself clearly within the words of the exempting provision, and it held that the value-added processes carried out affected the correct characterisation of the appellant for the purposes of the relevant items of Schedule A. It found that the Court of Appeal had not erred in setting aside the decision of the High Court and reinstating the decision of the Customs authority, and it therefore dismissed the appeal by Wintercorn, making no order as to costs. The judgment is a significant statement on the strict construction of sales-tax exemptions and the trader/manufacturer distinction, and on the limited role of legitimate expectation and internal customs policy in displacing the plain requirements of an exemption order.