July 20, 2018
On 20 June 2018, in the case between Chemiron International Limited (Chemiron) vs Lagos State Board of Internal Revenue (LIRS), the Lagos State High Court (the Court) ruled that it had jurisdiction to hear and determine matters relating to Personal Income Tax (PIT) as a court of first instance. In reaching its decision, the Court relied on the provisions of Section 272 of the 1999 Constitution which grants the High Court of a State an unlimited jurisdiction over civil and criminal proceedings.
In 2016, LIRS issued a demand notice of over N10 million to Chemiron for an alleged under-deduction and under-remittance of PIT of its employees for 2015 year of assessment. Subsequently, Chemiron instituted an action before the Court challenging the demand notice without exploring available internal mechanisms for resolving the matter.
LIRS objected to the jurisdiction of the Court to hear and determine the matter at first instance on the grounds that Chemiron instituted the action in contravention of Section 58 and Section 60 of the PIT Act by failing to comply with the internal dispute resolution mechanisms stipulated therein. Section 58, PIT Act requires an aggrieved taxpayer to object to a disputed assessment within 30 days of receipt of the notice of assessment and Section 60 empowers the Tax Appeal Tribunal (TAT) to entertain all cases arising from the operations of the PIT Act.
The Court ruled in favour of Chemiron upholding the jurisdiction of the State High Court to hear matters relating to PIT as a court of first instance. In reaching this decision, the Court held that Section 272 of the 1999 Constitution grants the High Court of a State an unlimited jurisdiction over civil and criminal proceedings.
In addition, the Court, while taking note of the procedure for dispute resolution under the PIT Act, held that every citizen has the right to approach the courts of law to air his/her grievances. Relying on a dictum of the Supreme Court, the Court further held that a court of law should not allow the provisions of an enactment to be read in such a way as to deny citizens direct access to courts.
This ruling upholds the jurisdiction of the Lagos State High Court to determine state tax disputes without first recourse to the TAT. This ruling gives aggrieved taxpayers in respect of PIT issues an option to seek redress directly from State High Courts as opposed to the TAT.
It is instructive to note that the Court of Appeal (CoA) had, in 2017, in a similar case relating to Federal taxes (Federal Inland Revenue Service (FIRS) vs TSKJ Construcoes Internacional Sociadade Unipersoal), held that the TAT is a condition precedent to the jurisdiction of the Federal High Court to entertain matters relating to taxation. In that case, the Court of Appeal, relying on a dictum of the Supreme Court, held that where a statute prescribes a legal line of action for determination of an issue, the aggrieved party must exhaust all the remedies in that law before going to court.
Based on the foregoing, it is uncertain whether the decision in the Chemiron case will be upheld upon appeal given the inconsistencies in the provisions of the PIT Act and FIRS (Establishment) Act vis-à-vis the Constitution, especially as the Federal High Court is empowered to exercise appellate jurisdiction over matters arising from the TAT.
Nonetheless, if LIRS’ argument is upheld, and appeals relating to state tax disputes are held to lie directly to the TAT, the State High Court may, in effect, be robbed of its original jurisdiction to hear and determine matters relating state tax disputes as provided for under the Constitution. This would result into an anomaly as it would imply that PIT disputes would rarely be heard at the State High Court. It is, however, hoped that the CoA will resolve the apparent inconsistencies.