Protracted Battle Looms as VAT War Shifts to Supreme Court

CICERO/Report

Alex Enumah writes that the current litigations over the rightful authority to collect the Value Added Tax would become fiercer and probably long-drawn as litigants take case to Supreme Court

Barely two months after a Federal High Court in Port Harcourt, Rivers State pronounced as illegal the collection of Value Added Tax (VAT) by the Federal Inland Revenue Service (FIRS), that matter has suddenly become an issue before the Supreme Court. This is so following an appeal by the Rivers State Government seeking to set aside the interim order of injunction by the Court of Appeal, Abuja, restraining it from executing the judgment of the Federal High Court.

A three-man panel led by Justice Haruna Tsanammi, of the Court of Appeal, Abuja had on September 10, 2021, ruled that in the overriding interest of justice, all parties who submitted themselves before the court should not take any further steps that would destroy the res (the subject matter of the appeal – who is entitled to collect VAT in Rivers State). “It is hereby ordered that status quo ante bellum should be maintained, pending the hearing of the motion,” the judge ruled.

Justice Stephen Pam of a Federal High Court in Port Harcourt had in a judgment delivered on August 9, held that the Rivers State Government and not the FIRS, has the right to collect VAT and Personal Income Tax (PIT) in the state. Justice Pam, in the judgment subsequently restrained the Attorney General of the Federation and FIRS (1st and 2nd defendants) from collecting VAT in Rivers and directed the Rivers State Government to take charge of the duty. The court, in addition, issued an order of perpetual injunction restraining both the FIRS and AGF from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, Personal Income Tax and Value Added Tax.

Based on the judgment, Rivers State enacted a law that empowers it to collect VAT in the state. The bill was signed into law by Governor Nyesom Wike on August 19, 2021.

Although FIRS had attempted to stay the execution of the judgment of Justice Pam, the request was turned down by the court, forcing the agency to proceed to the appellate court for rescue and redress.

Pending the hearing of the main suit against the judgment of the Federal High Court, the appellant had applied for an application to stay the execution of the judgment of the lower court and another application for an interlocutory injunction restraining the respondent (Rivers State) from collecting VAT in the state.

However, the application for stay and interlocutory injunction could not be heard on that day (September 10) because of the request by the Lagos Attorney General (AG) to be included as a party in the suit. Although the appellant had opposed the joinder application, the court held that his right would be affected adversely if not heard. Justice Tsammani consequently fixed September 16 for the hearing of the joinder application by Lagos AG. However, the panel held that since the application for stay and interlocutory injunction could not be heard it was only proper to preserve the res and consequently ordered that “all parties that have submitted themselves before the court should maintain status quo”. Justice Tsanammi further ordered parties to refrain themselves from giving effect to the judgment of Justice Pam of the Federal High Court, Port Harcourt, Rivers State, delivered on August 9, which restrained the FIRS from collecting VAT in Rivers State. According to the panel the decision to take such action was vested to them by Section 6 of the Constitution.

But displeased by this decision, the Rivers State on Tuesday approached the Supreme Court to set aside the ruling of the appellate court on grounds that the lower court erred in ordering parties to maintain status quo after it earlier held that the application for joinder by Lagos State must be heard first before the motion for stay and interlocutory injunction by the FIRS.

The appellant maintained that the appellate court lacked the powers to set aside its own judgement which held that the Lagos application for joinder must be taken before any other application. They further argued that ordering status quo ante bellum amounts to granting the reliefs being sought by the FIRS when the main application has not been heard and determined.

The Rivers State Government, in the notice of appeal, claimed that the Justices of the appellate court erred in law when they relied on the provisions of Section 6(6) of the 1999 constitution and the inherent jurisdiction of the Court of Appeal to make an order to maintain status quo which they identified as restoring the parties to the position they were before the judgment of the Federal High Court in suit number: FHC/PH/CS/149/2020, was delivered on August 9, 2021.

The appellant stated that by doing so, the Justices of the Court of Appeal failed to appreciate that the inherent jurisdiction of the court cannot be applied in contravention of statutory provisions. They further alleged that the lower court failed to appreciate the nature of inherent jurisdiction and that it cannot be invoked to circumvent the clear provisions of statute as it was done with regards to order 6 rule 1 of the Court of Appeal rules 2016, in this case.

“That they failed to take into account the principle governing the exercise of inherent jurisdiction laid down by the Supreme Court in the case of Shugaba V Union Bank (1999) 11 NWRL (pt.627) 459 – to the effect that no court has Inherent Jurisdiction (except in extreme circumstances) to set aside the exercise of discretion of another court with regards to order made in respect of application for stay.

“That the Justices of the Court of Appeal erred in law when they wrongly assumed jurisdiction to entertain the oral application for maintenance of status quo made by counsel to the FIRS in spite of the fact that a condition precedent to the invocation of the jurisdiction of the Court of Appeal was not fulfilled by the FIRS”, the appellant submitted while adding that under order 6 rule 1 of the Court of Appeal rules, 2016, “every application shall be by notice of motion supported by affidavit and shall state the rule under which it is brought and the ground for the relief.”

Arguing further, the Rivers State Government claimed that the Court of Appeal erred in law and breached its right of fair hearing when they entertained a “vague oral application for maintenance of status quo and even went ahead to make far-reaching orders,” which according to it was aimed at maintaining status quo ante bellum.

Among the reliefs being sought include an order dismissing the oral application for interim injunction and another order excusing the panel which granted the status quo order from further hearing of the appeal.

Shortly after the court held that it would give priority to the Lagos motion and adjourned for its hearing, counsel to the FIRS, Mr. Mahmud Magaji (SAN) had made an oral application for interim injunction so as to preserve the res. Although this position was opposed by counsel to Rivers and Lagos States who was yet to be joined as a party, the three-member panel however in a unanimous decision held that parties must maintain status quo.

In the appeal filed by its lawyer, Mr. Emmanuel Ukala, (SAN), the Rivers State Government argued that the appellate court erred in law when it ordered maintenance of status quo on a case that is not perishable or have any evidence of being damaged or destroyed. The appellant further argued that the appellate court erred in law when it went outside the reliefs sought by the respondent in its motion on notice filed August 27. They further maintained that the court was wrong in ordering status quo ante bellum after the Rivers State had passed its VAT law, which was passed by the governor on August 19.

They therefore want the court to set aside the ruling of the Justice Tsammani led panel against the judgment of Justice Pam for being a nullity.

With the early stages of the litigations already at the Supreme Court, coupled with the accusation against the Appeal Court panel, the VAT battle will probably be so long-drawn that a political solution may be explored.