REPORTABLE (114)

Judgment No S.C. 131\2002

Civil Appeal No 254\2000

THE COMMISSIONER OF TAXES v ASTRA HOLDINGS (PRIVATE) LIMITED t/a PUZEY & PAYNE

SUPREME COURT OF ZIMBABWE

CHIDYAUSIKU CJ, CHEDA JA & MALABA JA

HARARE MAY 23, 2002 & MARCH 28, 2003

L. Mazonde, for the appellant

A.P. de Bourbon S.C., for the respondent

MALABA JA: This is an appeal from a judgment of the Fiscal Appeals Court dated 10 February 2000, setting aside an assessment to tax raised on the respondent (“Astra Holdings”) by the appellant (“the Commissioner”) on 3 March 1997 in the amount of $681 724,81 for the period July 1995 to December 1996 and on 19 March 1997 in the amount of $377 493,18 for the period January to 3 March 1997 and directing that the said amounts be refunded to the respondent with interest at the rate of 25% per annum from the date the money was received by the appellant to the date of refund. There was no order as to costs.

Astra Holdings is a company incorporated in terms of the laws of Zimbabwe carrying on the business of selling motor vehicles to members of the public under the style Puzey & Payne. It is a registered operator for the purposes of the Sales Tax Act [Chapter 23:08] which provided under section 4(1) that:-

“4(1)Subject to this Act there shall be charged, levied and collected for the benefit of the Consolidated Revenue Fund a tax at such rate as may be fixed by Parliament on the sale value of __________

1. …

2. …

3. …

4. motor vehicles and other goods sold by motor dealers, whether on their own account or on behalf of other persons …”

The sale value of goods on which the tax was to be charged was defined in section 2(1) of the Act as:-

“the total sum payable by the purchaser or client under the agreement for the sale of the goods … and included

1. any amount that may be charged to the purchaser or client in respect of tax payable.”

Section 2(1) of the Act excluded from “sale value” “any sum payable outside Zimbabwe” in relation to a service supplied. “Service” was defined to exclude “goods” with the effect that no exemption from tax liability was granted or could be claimed under the provisions of the Act for the sale of motor vehicles in Zimbabwe.

Section 5(1) of the Act provided that:-

“5(1)The tax mentioned in section four shall be payable ____________

1. …

2. in the case of a motor vehicle or other goods sold by a motor dealer ______

1. where the motor dealer is the agent of the seller, by the motor dealer on behalf of the seller;

2. where the motor dealer is the seller, by the motor dealer.”

It is common cause that up to the end of June 1995 Astra Holdings, as a registered motor dealer, charged and collected sales tax on the purchase prices of motor vehicles it sold to members of the public in Zimbabwe and paid the money to the Consolidated Revenue Fund. From July 1995 to 3 March 1997 Astra Holdings did not charge and collect the tax on motor vehicles it sold to members of the public who paid the purchase prices in foreign currency. Astra Holdings said it was acting upon advice contained in a letter addressed by the Principal Tax Examiner to another motor dealer (Haddon Motors) on 1 July 1995. The letter read:-

“SALES TAX: EXEMPTION FROM TAX ON GOODS BOUGHT USING MONEY FROM A FOREIGN SERVICE

I refer to our telephone interview on 4 May 1995 concerning the above mentioned subject.

This is to confirm that goods or services bought using foreign funds (money from a foreign source) are exempt from sales tax.

‘Foreign source’ in this case means:

1. Payment using foreign bank drafts.

2. Payment using foreign cheques.

3. Payment using foreign credit cards

but does not include payment in Zimbabwe cash.

I hope this clarifies the issue.”

It was not disclosed to the court a quo how the letter which was a private communication between the revenue and another taxpayer came to be in the possession of Astra Holdings. The letter was taken to mean that motor vehicles sold in Zimbabwe and paid for locally in foreign currency were exempted from sales tax.

Astra Holdings made reference in its case to the court a quo to another letter addressed to AMTEC Motors by an Assistant Commissioner of Taxes on 8 February 1996. I shall consider later the question whether or not the learned President should have placed any weight at all on this letter in deciding upon the justification of the action of Astra Holdings in not charging and collecting sales tax on motor vehicles sold in Zimbabwe and paid for in foreign currency.

Suffice to say that when revenue officers inspected Astra Holdings’ books and monthly statements submitted to the office relating to all sales of motor vehicles transacted, they discovered that the motor dealer had failed to pay sales tax on motor vehicles sold locally and paid for in foreign currency.

The Principal Tax Examiner caused the assessment to be made for the amounts on which tax was payable. As a result of the assessment the two amounts mentioned in the order of the court a quo were found payable by Astra Holdings. The assessment was made in the exercise of the power conferred upon revenue officers by section 18(1) of the Act. It is provided therein that a revenue officer who has reason to believe that a registered operator has failed to pay tax in respect of motor vehicles sold, may cause an assessment to be made of the amount upon which tax is payable, unless the sale in respect to which the assessment is to be made was transacted more than three years before the date of the proposed assessment.

On 17 April 1997 Astra Holdings lodged with the Controlling Officer a written objection to the assessment. The grounds for the objection were that Astra Holdings failed to charge and collect sales tax on motor vehicles sold by it and paid for locally in foreign currency because it reasonably believed that the letter of 1 July 1995 represented the policy of the Department of Taxes towards motor dealers. It was pointed out that during the relevant period external auditors and inspectors from the Department of Taxes examined Astra Holdings’ books on two occasions. It was not indicated to it that failure to raise sales tax on motor vehicles sold locally and paid for in foreign currency was unlawful. The authenticity of the letter of 1 July 1995 was not questioned.

It was also pointed out that the monthly tax returns sent to the Department of Taxes on behalf of Astra Holdings had annexed to them schedules indicating the types of motor vehicles sold, names of purchasers, amounts paid in foreign currency and “exemption” from tax. The argument was that the reason why revenue officers who received the monthly returns failed to query the fact that sales tax was not being charged and collected on motor vehicles paid for locally in foreign currency was that it was the policy of the Department of Taxes not to have sales tax levied on motor vehicles paid for in foreign currency.

The paragraph in which the letter of 8 February 1996, addressed to AMTEC Motors was referred to reads:-

“It would appear that subsequently the Department of Sales Tax Branch Harare advised our client that Annexure “A” (letter of 1 July 1995) contained an error in that it should have related to “services” only.

However, on the 8^th of February 1996, the Inspector of Taxes addressed AMTEC MOTORS (PVT) LIMITED a dealer in motor vehicles whose business is very similar to our client and a copy of that letter is annexed hereto as Annexure “B”. It is clear that the policy adopted by the Sales Tax Department, would relate to all dealers and not simply to AMTEC MOTORS (PVT) LIMITED.”

It seems to me that the letter of 8 February 1996 was referred to by Astra Holdings’ legal practitioners to prove the existence of an alleged policy of the Department of Taxes not to demand payment of sales tax from motor dealers on motor vehicles sold and paid for locally in foreign currency. It was not referred to as proof of what influenced Astra Holdings’ decision not to charge and collect the tax from purchasers of motor vehicles who paid in foreign currency as the learned President found in the reasons for judgment.

After considering the objection the Commissioner disallowed it. The reasons given for the disallowance were that the letter of 1 July 1995 contained an error of law in that the exemption from liability to pay tax on sales of motor vehicles paid for locally in foreign currency was unlawful. There was no provision in the Act which granted an exemption from tax in respect of motor vehicles sold locally by registered operators. He pointed out that the letter was a ruling on questions asked by the addressee on a specific matter and for that registered operator’s interest. There was no intention that the letter should be used by the whole motor trade industry. It was pointed out that before relying on the letter as representing the policy of the Department of Taxes not to demand payment of sales tax in respect of motor vehicles sold in Zimbabwe and paid for locally in foreign currency Astra Holdings should have sought its own ruling from the department.

On 19 September 1997 Astra Holdings appealed to the Fiscal Appeals Court. Its case was stated in these terms:-

“6. The said assessments arise out of a failure on the part of the appellant to charge sales tax on vehicles that were paid for locally in foreign currency.

7. The failure to levy sales tax arises out of a direction by the respondent made under reference number ST/NRO/LM/705. A copy of that direction is annexed hereto and marked Annexure “A” (letter of 1 July 1995).

7. Appellant has since established that respondent wrote to AMTEC Motors (Private) Limited on 8 February 1996 expressing a similar view.

7. …

7. …

7. …

7. …

7. Further and/or in the alternative by issuing Annexure “A” the respondent is now precluded from claiming sales tax from the appellant.”

The Commissioner responded in these terms:-

“2. Ad paragraph 7

The contents of this paragraph are denied. The direction in question was not made to appellant and cannot be utilised by it. Respondent avers that the failure to levy sales tax in fact arose out of a misconception of the law by appellant.

3. Ad paragraph 8

Save for saying that the contents of this paragraph are irrelevant and that the view expressed was wrong, the contents hereof are not denied.

6. Ad paragraph 13

Respondent avers that the grounds relied upon are bad in law in that respondent cannot be estopped from collecting tax lawfully due to it; respondent has not waived any rights it may have against appellant; finally Annexure “A” was not issued to appellant and so cannot be relied upon by it.”

Astra Holdings called its Financial Manager Mr Edmore Ndudzo to give evidence. He confirmed that the decision not to charge sales tax in motor vehicles paid for in foreign currency was taken on the basis of the letter of 1 July 1995. After saying Astra Holdings used to send to the Department of Taxes monthly tax returns to which were attached schedules with details on the cars sold, names of purchasers and amounts paid in foreign currency on which sales tax was not charged he was asked:-

“Q. Mr Ndudzo can you just explain to the court what the attitude of Puzey and Payne is in this matter?

1. Our attitude in this matter is, to start off with our role in this whole aspect is that we are not the tax payers, we are merely collecting tax on behalf of the Commissioner of Taxes. The taxpayers are our customers. We had it in writing that we shouldn’t collect this tax if the transactions were paid for in foreign currency and I am told although this was before my time with Puzey and Payne that at the time there was also a check with the officials at the Tax Department whether that letter that we relied on was really authentic or not and the answer was it is an authentic letter. So we had it in writing that we shouldn’t collect tax if the money was paid in foreign currency and we didn’t collect tax and for now the Tax Department to claim that tax from us when we are clearly in a position where we cannot recover from the customers is putting us in a very injudicious situation. So we feel that we have really be unjustifiably treated …”

The case submitted to the Fiscal Appeals Court on behalf of Astra Holdings was, therefore, that it was not the person liable to pay the sales tax but was merely obliged in terms of the legislation to collect tax on behalf of revenue. The argument was that as a collector of tax, Astra Holdings could not have acted contrary to the ruling of the revenue officer to the effect that it was not necessary in the particular circumstances for it to collect the sales tax. It was unfair for the revenue to change its mind and issue a retrospective order for the payment of such taxes against Astra Holdings as a collector who had acted upon the ruling of the revenue officer that the tax should not be collected.

The learned President did not decide the question whether or not Astra Holdings was a taxpayer in terms of the relevant legislation. He found that the advice given by the revenue officer in the letter of 1 July 1995 represented as the policy of the revenue department that tax should not be levied on sales of motor vehicles the purchase prices of which were paid in foreign currency. It was the learned President’s view that Astra Holdings acted in terms of the advice contained in the letter of 1 July 1995. He held that it was an abuse of statutory power for the Commissioner to change policy on the levy and collection of tax on motor vehicles paid for in foreign currency without prior notice to Astra Holdings of the intended change and to demand from it the unpaid tax retrospectively.

He said:-

“In this case it is clear that officials of the Department advised motor dealers that in the case of vehicles bought using funds from a foreign source, the sales were exempt from sales tax. The appellant acted on this advice and did not collect the tax from those purchasers of vehicles who used funds from a foreign source. Prior to getting the advice from officials of the Department, the appellant collected sales tax from all purchasers of vehicles, including those who used funds from a foreign source. It was only after obtaining the advice from the officials that it changed its practice. … In respect of the demand for unpaid sales tax, I consider that it would be unfair if the Department, having advised that the sales in question were exempt from sales tax, were to be permitted to demand the sales tax. It is not as though the appellant has collected the extra money from the buyers of the vehicles and thereby gained greater profits. The buyers were advised that the sales tax element was not payable. The change of policy and demand for sales tax that was not collected is, in my view, equivalent to a breach of contract or a breach of representation.”

On appeal, Mr Mazonde, for the Commissioner argued that the learned President misdirected himself in holding that the letter of 1 July 1995 represented as a policy of the Department of Taxes not to claim sales tax on motor vehicles in respect to which the purchase prices were paid in foreign currency on the ground that such sales were by law exempted from tax. He said it was clear from the recorded evidence that Astra Holdings had not in its individual capacity inquired from the Commissioner whether the sales in question were at law exempted from sales tax. Reliance by Astra Holdings in a letter addressed to another motor dealer, not in any way related to it and without evidence as to what sales the questions of exemption had been raised by that motor dealer in its private communication with revenue was not sufficient for the purposes of establishing a relationship between revenue and Astra Holdings the violation of which would be equivalent to breach of contract or breach of representation giving rise to estoppel at private law.

Mr de Bourbon, for Astra Holdings, conceded that the Commissioner had a statutory duty to collect tax to which revenue had a right. He, however, argued that in exercising statutory powers in the discharge of his statutory duty, the Commissioner was required to act fairly towards the taxpayer. It was his contention that having advised Astra Holdings that sales of motor vehicles for which the purchase prices were paid in foreign currency did not attract tax and the latter having acted upon the advice, it was unfair for the Commissioner to change “policy" without prior notice of its intention to do so and then backdate the claim for the unpaid tax. He also said the Commissioner was guilty of a breach of the principle of fairness in that he claimed the unpaid tax from Astra Holdings which in terms of the Act was not a taxpayer but a mere collector of taxes.

I consider the point that Astra Holdings was not a taxpayer. It appears to me that section 5(1)(b) imposes upon a motor dealer the obligation to pay the tax charged and collected on the sale value of the motor vehicles he would have sold to members of the public. The tax is payable by him when the purchase price on which it is levied is in his possession after the sale transaction has been completed.

Nowhere does the Act provide that the sales tax is payable by the purchaser of the motor vehicle. Whilst the motor dealer has to charge and collect the tax in order to be able to pay it to revenue he is the taxpayer for the purposes of the Act.

I turn to consider the question whether the learned President was correct in holding that the decision by the Commissioner to retrospectively assess Astra Holdings to the unpaid sales tax and claim its payment was an abuse of power. The Commissioner’s fundamental duty under the Act is to collect the tax created and imposed on the taxpayer by Parliament for the benefit of the fiscus.

In exercising the powers conferred upon him for the proper discharge of the statutory duty the Commissioner is required, by public law, to act fairly towards taxpayers as a body or as individuals. He also has a duty to act fairly to the fiscus.

The unfairness complained of in this case arose from the error of law committed by the revenue officer who wrote the letter of 1 July 1995 upon which Astra Holdings acted when it stopped charging and collecting sales tax which on the proper construction of the statute was due to revenue. It appears to me that acting on the letter of 1 July 1995 would not have been compatible with the proper discharge of the Commissioner’s statutory duty.

Section 18 of the Act gives the Commissioner the power, in appropriate circumstances, to assess a registered operator to tax retrospectively, provided that no such assessment can be made in respect of any sale which was transacted three years before the date of such proposed assessment. It would have savoured of unfairness to the fiscus had the Commissioner not put right the error of law and invoked the powers conferred upon him by section 18(1) of the Act.

In Preston v IRC [1985] 2 All ER 327, Lord TEMPLEMAN said at 339E-341a:-

“Counsel for the taxpayer submitted that is, as Lord SCARMAN announced in the Self Employed case ((1981) 2 All ER 91 at 112), the commissioners owe a duty of fairness to the general body of taxpayers the commissioners must equally owe a duty of fairness to each individual taxpayer. I agree, but a taxpayer cannot complain of unfairness merely because the commissioners decide to perform their statutory duties, including their duties under s 460 to make an assessment and to enforce a liability to tax. The commissioners may decide to abstain from exercising their powers and performing their duties on grounds of unfairness, but the commissioners themselves must bear in mind that their primary duty is to collect not to forgive taxes. And, if the commissioners decide to proceed the court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair …

The court can duly intervene … to direct the commissioners to abstain from performing their statutory duties or from exercising their statutory powers if the court is satisfied that ‘the unfairness’ of which the applicant complains renders the insistence by the commissioners on performing their duties or exercising their powers on abuse of power by the commissioners.”

The Commissioner’s decision to exercise the power to assess Astra Holdings to the unpaid tax was not driven by improper motives. Its purpose was to achieve the very objective for which the power was conferred upon him.

In HTV Ltd v Price [1976] 1 CR 170, cited in Preston’s case, supra at 339, the Price Commission misconstrued the counter inflation price code and changed its mind as to the treatment of Exchequer levy as an item in the costs of television companies allowable for the purpose of increasing their advertising charges within the limits prescribed by the code. The effect of the change of mind of the Price Commission was to deprive the companies of an increase of advertising charges which they were plainly intended to enjoy and which they badly needed in order to remain viable.

It was held that the decision by the Price Commission to rely upon an error of law in an attempt to enforce the code, was unfair to the television companies and amounted to an abuse of power. It appears to me on the authority of the HTV case, supra, that the error of law committed by the revenue officer who wrote the letter of 1 July 1995 had already brought about unfairness to the fiscus by depriving it of the sales tax which was due to it. Continued maintenance of the status quo would have resulted in further injustice.

The learned President did not, however, consider the case from the point of view of the unfairness suffered by the fiscus. He, instead, held that the decision by the Commissioner to correct the mistake and assess Astra Holdings to the tax it ought by law to have paid, amounted to an abuse of power. He was of the opinion that, if the Commissioner was not a public officer his conduct would have entitled Astra Holdings to an injunction or damages based on breach of contract or breach of representation giving rise to estoppel.

The Commissioner was found guilty of unfairness to Astra Holdings because his conduct of correcting the misconception of the law and assessing the latter to unpaid tax retrospectively without having given the company notice of the intended change of “policy” was said to be equivalent to a breach of contract or a breach of representation.

For the learned President to have arrived at the decision that the conduct of the Commissioner amounted to an abuse of power in the sense that it was equivalent to a breach of contract or a breach of representation, he ought, in my view, to have first decided whether or not the relationship between the revenue and Astra Holdings which admittedly could only have been based on the error of law contained in the letter of 1 July 1995, could pass for a contract or representation giving rise to estoppel. The learned President did not make that finding of fact which was a pre-condition to the correctness or otherwise of the decision he made.

The question must be stated and answered. Can it be said that in writing the letter of 1 July 1995 which contained the error of law the Commissioner, by the revenue officer, purported to contract with Astra Holdings or purported to represent to it that the statement was true and that thereafter he would not assess it to unpaid tax which was by law due to revenue. In other words did the Commissioner bind himself to accept as valid the actions of Astra Holdings regarding the non-payment of the sales tax based upon the error of law?

There is no doubt that the purported contract would have been born out of the mistake of the law requiring that sales tax be charged and collected by the motor dealer on all motor vehicles sold locally. Although unknown to the parties it would have been in contravention of the law for Astra Holdings not to charge and collect the sales tax which the statute required it to collect.

In my view such an arrangement would be null and void ab initio. It is a bargain the Commissioner could not make at law because it would have the effect of being in breach of his statutory duty to collect tax which is due to revenue. It is one thing for revenue to enter into an arrangement with a taxpayer on how, in the exercise of its managerial powers, it will collect tax, but it is another for it to seek to decide that a particular tax imposed by Parliament is not due from a taxpayer when in fact it is and in so doing disclaim the right to the tax and abandon the statutory power to collect it. In R v Board of Inland Revenue ex p. MFK Ltd [1997] 1 All ER 91 BINGHAM LJ said at 110d-j:-

“I am, however, of opinion that in assessing the meaning, weight and effect reasonably to be given to statements of the Revenue the factual context, including the position of the Revenue itself, is all important. Every ordinarily sophisticated taxpayer knows that the Revenue is a tax-collecting agency, not a tax-imposing authority. The taxpayer’s only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law (see R v A.G. ex p. Imperial Chemical Industries plc (1986) 60 TC 1 at 64 per Lord OLIVER). Such taxpayers would appreciate, if they could not so pithily express, the truth of WALTON J’s aphorism: ‘One should be taxed by law, and not be untaxed by concession’ (see Vestey v IRC (No 1) [1977] 3 All ER 1073 at 1098, [1979] Ch. 177 at 197). No doubt a statement formally published by the Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them. But where the approach to the Revenue is of a less formal nature a more detailed inquiry is, in my view, necessary. If it is to be successfully said that as a result of such an approach the Revenue has agreed to forego, or has represented that it will forego, tax which might arguably be payable on a proper construction of the relevant legislation it would, in any judgment, be ordinarily necessary for the taxpayer to show that certain conditions had been fulfilled. I say ‘ordinarily’ to allow for the exceptional case where different rules might be appropriate, but necessity in my view exists here. First, it is necessary that the taxpayer should have put all his cards face upwards on the table. This means that he must give full details of the specific transaction on which he seeks the Revenue’s ruling, unless it is the same as an earlier transaction on which a ruling has already been given. It means that he must indicate to the Revenue the ruling sought. It is one thing to ask an official of the Revenue whether he shares the taxpayer’s view of a legislative provision quite another to ask whether the Revenue will forego any claim to tax on any other basis. It means that the taxpayer must make plain that a fully considered ruling is sought. It means, I think, that the taxpayer should indicate the use he intends to make of any ruling given. This is not because the Revenue would wish to favour one class of taxpayers at the expense of another but because knowledge that a ruling is to be publicised in a large and important market could affect the person by whom and the level at which a problem is considered and, indeed, whether it is appropriate to give a ruling at all. Second, it is necessary that the ruling or statement relied on should be clear, unambiguous and devoid of relevant qualification.”

The onus was on Astra Holdings to prove the existence of a contract or representation on the terms of the contents of the letter of 1 July 1995. It was unable to give details of the circumstances in which the letter was written because it was a private communication between revenue and another taxpayer. It was not correct to say, as the learned President did, that Astra Holdings was advised by revenue not to charge and collect sales tax on such vehicles paid for in foreign currency.

It is not known whether the letter was intended to be circulated generally in the motor trade industry. The statement in the letter is far from being clear and unambiguous to found a contract or representation giving rise to estoppel. The purported definition of “foreign source” makes no sense.

I am of the opinion that the conclusion reached by the learned President that the Commissioner’s conduct was equivalent to a breach of contract or a breach of representation was influenced by some inaccurate findings of fact which he made.

At the beginning of the judgment he said failure by Astra Holdings to charge and collect the sales tax on motor vehicles paid for locally in foreign currency “started because of two letters that were written to two other motor dealers”. That statement of fact is not supported by evidence. The letter of objection to the assessment to tax dated 17 April 1997 alleged that the letter of 8 February 1996 had no bearing at all to the decision by Astra Holdings to stop charging and collecting sales tax on motor vehicles paid for locally in foreign currency.

When that letter of 8 February 1996 was written the decision had already been taken and implemented in July 1995. The case Astra Holdings submitted to the Fiscal Appeals Court clearly stated that it discovered after the assessment to tax that revenue officers had written a similar letter to AMTEC Motors on 8 February 1996. That caused the Commissioner in paragraph 3 of his case to say that reference to the letter of 8 February 1996 by Astra Holdings was irrelevant to the consideration of factors which influenced its decision to stop charging and collecting sales tax on motor vehicles paid for in foreign currency. The letter of 8 February 1996 would therefore have been irrelevant to the question whether the Commissioner purported to enter into a contract with Astra Holdings.

The learned President also based his conclusion on a finding that Astra Holdings received the “two letters”; checked with Revenue whether they were authentic and only after having been told that they were authentic did it proceed to act on them. In this regard he quoted Mr Ndudzo as having said:-

“In February 1996 the appellant was given copies of the letter written by an Assistant Commissioner of Taxes to another motor dealer, in which the dealer was advised that no sales tax was payable where payment was made in a foreign currency. When the appellant was given copies of the letters that had been written to the two other dealers, it checked with the Department and was told that the letters were authentic.”

A reading of the evidence recorded from Mr Ndudzo does not support the view that he said Astra Holdings received a copy of the letter to AMTEC Motors in February 1996. The only evidence he gave on the letter reads as follows:-

“Q. Now, I think in addition to the letter that you are holding which perhaps could be marked exhibit “A”. I think there was a letter written to AMTEC Motors which was also brought to your attention?

1. That’s correct.

17. This is a letter dated 8 February?

1. Correct.”

There was no allegation in the evidence that the letter was received by Astra Holdings on 8 February 1996 as the learned President found. That evidence would have contradicted the statement made by Astra Holdings in the letter of objection to the assessment to tax as well as in the case submitted to the court a quo.

In his testimony Mr Ndudzo alluded to hearsay evidence which he said was to the effect that a check was made with revenue whether the letter of 1 July 1995 was authentic. There was no reference in his evidence to a check on the authenticity of the letter of 8 February 1996. The hearsay evidence given by the witness did not indicate the form the inquiry on the authenticity of the letter of 1 July 1995 was said to have taken.

There was no hint from the learned President as to why reliance was placed on the evidence considering its nature. There had been no mention in the letter of objection to assessment of such checks having been made nor was there mention of such checks in the case stated for the court a quo.

Astra Holdings’ case had always been that it relied upon the letter of 1 July 1995 which it admitted had not been addressed to it. It said that it believed that the letter represented the policy of the Department of Taxes. It had not been Astra Holdings’ case that it relied on direct confirmation of the authenticity of the letter by revenue. Astra Holdings knew that the Commissioner’s case had always been that it should have sought its own ruling on the matter rather than act upon a letter not intended for its digestion.

In the light of all these facts it is clear to me that the learned President should not have relied upon the hearsay evidence as proving that Astra Holdings checked with revenue the authenticity of the letter of 1 July 1995. Without the reliance on the hearsay evidence there was no basis upon which the learned President could have assumed that the Commissioner purported to contract with or make a representation giving rise to estoppel to Astra Holdings. Finally, the learned President was of the opinion that the Commissioner was guilty of unfair treatment of Astra Holdings in that he failed to consider legitimate expectations which had been created in the mind of the latter that before change of “policy” was effected motor dealers who had acted on the letter of 1 July 1995 would be informed in advance and the change effected prospectively.

The question whether or not the principle of legitimate expectation is applicable to a decision of a public body depends upon the particular legislation in terms of which the decision was taken. It is clear in this case that the legislation required that sales tax be charged and collected by the motor dealer on all motor vehicles sold by him locally. The legitimate expectation created in Astra Holdings as a motor dealer would, in the circumstances, be that it should be taxed according to the law.

I cannot think of legitimate expectation arising out of an error of law to the effect that a tax which is due to revenue should not be collected. The expectation by Astra Holdings in that regard would be that it should remain untaxed by the mistake of law. That surely would not be a legitimate expectation.

As I said there was unfairness to the fiscus. There was no unfairness to Astra Holdings in acting upon the error of law contained in the letter of 1 July 1995. In ex p. MPK’s case, supra, Judge J said at 114b-c:-

“The correct approach to ‘legitimate expectation’ in any particular field of public law depends on the relevant legislation. In R v A.G. ex p. Imperial Chemical Industries plc (1986) 60 TC 1 the legitimate expectation of the taxpayer was held to be payment of the taxes actually due. No legitimate expectation could arise from an ultra vires relaxation of the relevant statute by the body responsible for enforcing it. There is, in addition, the clearest possible authority that the Revenue may not ‘dispense’ with relevant statutory provisions (see Vestey v IRC (No 1 and 2) [1979] 3 All ER 976).”

I agree with the observations.

The appeal, accordingly, succeeds with costs. The judgment of the court a quo is set aside and substituted with the following:

“The appeal is dismissed. There will be no order as to costs.”

CHIDYAUSIKU CJ: I agree

CHEDA JA: I agree

Civil Division of the Attorney-General’s Office, appellant's legal practitioners

Wintertons, respondent's legal practitioners