THE SUPREME COURT, LAGOS STATE AND VAT

THE SUPREME COURT, LAGOS STATE AND VAT

BY M.T. ABDULRAZAQ*

The Supreme Court of Nigeria in Suit No. 20/2008 delivered judgment on Friday, 11^th of April 2014 in the case of Attorney – General of Lagos State v Attorney – General of the Federation and 35 others.

The decision in the case was like the casting of an Ifa Opele (Divining Chain) which identifies the problem and of necessity provides a solution. In other words the Opele offers a diagnosis of, and the remedy for, the client’s problem that necessitated the consultation. The appropriateness or process or consequences of the solution is entirely another matter.

By an amended originating summons filed on the 12^th day of August, 2009, Lagos State claims against the Federal Government thus:

“That the House of Assembly of Lagos State of Nigeria is the body entitled, to the exclusion of any legislative body, to enact laws with regard to the imposition and collection of tax on the supply of all goods and services within Lagos State of Nigeria and that the Lagos State of Nigeria, or any agency of the State, is the body entitled, to the exclusion of any other body, to assess and collect such tax, and that the revenue of the Lagos State Government has been and continues to be affected by the enforcement of the provisions of the Value Added Tax Act Cap VI laws of the Federal Republic of Nigeria, 2004 (hereinafter referred to as ‘The VAT ACT’.”   

 In its consideration of the foregoing claim, Lagos State urged the court to determine the following questions:-

1. Whether upon the coming into effect of the Constitution of the Federal Republic of Nigeria 1999 the said Value Added Tax Act is an existing law within the meaning of Section 315 of the said constitution, being a Federal Legislation which is deemed to be an act (sic) of the National Assembly?
    
2. If the answer is in the affirmative, whether the combination of the provisions of Sections 2, 4, 6 and 7 of the said Value Added Tax which empower a Federal Organ to impose and collect taxes on the supply of all goods and services other than those listed in the first schedule to the said Act amount to an imposition of tax on the supply of all goods and services within other states of the Federation?
    
3.  If the answer to 2 is in the affirmative, whether sections 2, 3, 4, 5, 6 and 7 of the said Value Added Tax Act are within the contemplation and competence of the powers conferred on the National Assembly under Section 4 of the 1999 constitution?
    

On determining the questions, Lagos State prayed the court for the following reliefs:-

“(1)   A declaration that the Value Added Tax Act Cap VI laws of the Federal Republic of Nigeria 2004 is, to the extent that is provides for the imposition and collection of taxes on goods and services in Lagos State (and other states of the federation0, outside the legislative competence of the National Assembly and is therefore unconstitutional, null and void and of no effect whatsoever.

(2)    A perpetual injunction restraining the Federal Government of Nigeria by itself, its servants or any of its agencies from continuing to give effect to the provision of the said Tax Act to impose and collect taxes on goods and services within the Lagos State of Nigeria.”

The 1^st defendant, the Attorney General of the Federation, upon being served the amended Originating Summons, the supporting affidavit and the Exhibits annexed thereto, on 3^rd February, 2010 filed a Notice of Preliminary objection pursuant to Order 2 Rule 29 of the Supreme Court Rules 2002 and Section 232 (1) of the Constitution of the Federal Republic of Nigeria, 1999 urging the Court to strike out and/or dismiss plaintiff’s suit on the grounds set out in the schedule to the preliminary objection. 1^st defendant also canvassed for such further order(s) as the court may deem fit to make in the circumstances of the case.

The two grounds on which the preliminary objection is predicated are hereunder reproduced shorn of their particulars:-

(GROUND 1)            The plaintiff’s cause of action relates to acts of Federal Organ and cannot form the basis of invoking this Honourable Court’s Original Jurisdiction to entertain this suit

(GROUND 2)            The entire suit constitutes an abuse of court process and should be struck out”

The Supreme Court decided that paragraphs 12 and 13 of the Lagos State affidavit in support of the originating summons capture the thrust of the claim it seeks to raise by invoking the original jurisdiction of the Court under Section 232 (1) of the 1999 Constitution. The two paragraphs are hereinunder reproduced for ease of reference:-

“(12.) I very believe that the Lagos State Government is entitled, to the exclusion of any other body, to collect any tax charged on supply of all goods and services within the Lagos State of Nigeria under any law passed by the Lagos State House of Assembly and no other body or Government is entitled to a share of such tax as may be collected.  

(13.)The Federal Government continues, through it agents, to administer the Value Added Tax Act and to asses and collect tax thereunder with regard to the supply of goods and services within the Lagos State of Nigeria and within the territories of other States and distribute such tax in accordance with the fee sharing formula.”

The Supreme Court lead judgment also stated that “Lagos State grouse as captured inter-alia in the foregoing paragraphs is about a dispute between the Federal government and the governments of the States rather than between the federation and the various states. It is also a dispute pertaining to the operation of an agency of the Federal government, Federal Inland Revenue Service (FIRS), vis-à-vis an agency of the plaintiff. It is not unreasonable to also assess the dispute as which seeks the interpretation and examination of the operation of the 1999 Constitution as it affects both sides to plaintiff’s suit. I do not have the slightest doubt that a dispute on all or any of these comes squarely within the purview of the jurisdiction the makers of the constitution specifically provided the Federal High Court under Section 251 (a), (b) and (q) of the 1999 Constitution which provision tampers and conditions the original jurisdiction of this Court pursuant to section 232 (1) of the same constitution. The plaintiff, whose claim clearly relates to the revenue of the Government of the Federation, consequent upon the taxes one of its agencies levies and/or seeks the interpretation of the Constitution as to how the operation of the Constitution affects the 1^st defendant or any of its agencies, is at the wrong court. This Court must decline jurisdiction. I so hold.”   

The judgment further stated that:

“The 2^nd ground upon which the preliminary objection predicates is on the abuse of the process of this Court by the plaintiff. The door has been shut against him. Had this Court found plaintiff’s suit as coming within the purview of Section 232 (1), it would have then become necessary to consider the 2^nd leg of the objection raised against the suit. It is accordingly unnecessary to delve into the ground having declined jurisdiction for the reasons already articulated.

In sum, the preliminary objections raised against the competence of plaintiff’s suit having succeeded are hereby upheld. Plaintiff’s suit is resultantly struck-out for want of jurisdiction. I make no order on costs.”  

The question that must strike immediately is which Agency of the Federal Government is being referred to? The Supreme Court accordingly located this in paragraphs 12 and 13 of the affidavit of Lagos State and concluded that this case is also a dispute pertaining to the operation of an agency of the Federal Government, Federal Inland Revenue Service (FIRS) vis-à-vis an agency of the plaintiff.

The claim by Lagos State was on the competency to enact laws with regard to the imposition and collection of tax on the supply of all goods and services within Lagos State. It was not about collection by a federal agency or by an agency of Lagos State.

It is instructive to note that the Federal Inland Revenue Service only collects as well as administer but does not impose tax.

Section 25 (1) of the Federal Inland Revenue Service (Establishment) Acts 2007 provides that:

The Service shall have power to administer all the enactments listed in the First Schedule to this Act and any other enactment or law on taxation in respect of which the National Assembly may confer power on the Service.

How come this matter became reduced to a dispute pertaining to the operation of an agency of the Federal Government? The Supreme Court itself stated that it was not unreasonable to also assess the dispute as one which seeks the interpretation and examination of the operation of the 1999 constitution as it affects both sides to plaintiff’s suit. This was precisely the crux of the dispute before the Supreme Court. Lagos State’s claim clearly does not relate to the revenue of the Government of the Federation consequent upon the taxes one of its agencies levies. No agency of the Federal Government or any State Government can levy tax as the power to levy tax is clearly that of the National Assembly under the 1999 constitution.

It would appear that the second question posed for determination by Lagos State was problematic and confusing. Lagos State stated that “If the answer is in the affirmative, whether the combination of the provisions of Sections 2, 4, 6 and 7 of the said Value Added Tax which empower a Federal Organ to impose and collect taxes on the supply of all goods and services other than those listed in the first schedule to the said Act amount to an imposition of tax on the supply of all goods and services within other states of the Federation?”

Sections 2, 4, 6 and 7 which deals with taxable goods and services, rate of tax, value of imported goods and administration of the tax does not empower a federal organ to impose taxes. The Value Added Tax Act in section 1 imposes the tax and in section 7 the tax shall be administered and managed by the Federal Board of Inland Revenue.

The Federal Board of Inland Revenue or the Federal Inland Revenue Service was not a party to this suit yet the case was predicated on them as the federal agency with which Lagos State has a dispute.

If Lagos State was confusing in its second question, the Supreme Court provided the remedy that “It is indeed the law that the form in which plaintiff’s claim has been couched should not be the overriding consideration. Time it was when Courts lean an technicalities. In the instant matter only consideration of the plaintiff’s claim will ensure the just resolution of the issue in dispute”.

The just resolution in this matter was that this case was squarely within the provision of section 232 (1) of the 1999 Constitution that “The Supreme Court shall, to the exclusion of any other court, have original jurisdiction in any dispute between the federation and state or between states if and in so far as that dispute involves any question (whether of law or fact) on which the existence or extent of a legal right depends.”

It is clear that like the Ifa Opele, the Supreme Court has provided a solution to the dispute between Lagos State and the Federal Government of Nigeria. Was this an appropriate solution in the circumstance? Frankly, I think not.

What, therefore, is to be done? It is a simple matter. Parties are advised to imbibe the age – long philosophy of the Igunnuko masquerade of Epetedo Area of Lagos Island that “Ogbon ati oye ni igunnu fi riran” afterall both the prayers of the cockroach to be invisible so as not to be eaten by the chicken as food and that of the chicken to see invisible cockroaches to be eaten as food were answered. Lagos State should go back to the Supreme Court for a variation of its judgment as its claim does not relate to the revenue of the Government of the Federation consequent upon the taxes one of its agency levies since no agency of the federal government can levy or impose tax. It is a straight forward issue of who has the power in the Nigerian Federation to impose tax on goods and services simpliciter.  

This Country needs to have a final pronouncement on who has the power to impose and collect tax on goods and services between the Federal Government and the States. Nigerian taxpayers deserve to have some peace in this incessant dispute.

Eko o ni baje o. Long live the Federal Republic of Nigeria.

 

*M.T. Abdulrazaq is Professor of Taxation, Faculty of Law, Lagos State University and former Registrar/Chief Executive, Chartered Institute of Taxation of Nigeria.