GOOD MARK INDUSTRIAL LTD v. COMMISSIONER OF INLAND REVENUE

HCAL 88/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 88 OF 2012

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D E C I S I O N

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Introduction

1. This is an application for leave to apply for judicial review taken out in July 2012.  In gist, it asked for orders of mandamus compelling the putative respondent (“the Commissioner”) to make his determination (pursuant to s 64(2), Inland Revenue Ordinance (Cap 112)) in relation to the years of assessment for 2002/03 to 2007/08.

2. This application came to be heard inter parties on 22 May 2013.  By then, the Commissioner has already made his determination save as regards the (original and additional) assessments for 2003/04.  It is the last-mentioned aspect which still requires the court’s determination.

Background

3. The background can be stated briefly.

4. The applicant was incorporated in 1992 and has been carrying on the business of plastic manufacturing (injection moulds and product parts).  The processing was carried out through factories in the Mainland.

5. Tax returns for 2002/03 to 2007/08 have been submitted to the Commissioner.  Because of the applicant’s failure to reply to the Commissioner’s enquiry, additional assessment for 2002/03 was made in March 2009.  Further, the Commissioner also made an additional assessment for 2003/04 in March 2010.

6. Between March 2010 and March 2012 (a period of about 2 years), there was correspondence passing between the applicant and the Commissioner concerning the said additional assessments.

7. On 15 April 2010, the applicant notified the assessor to correct the assessments for 2003/04.

Issues in the leave application

8. The applicant’s original contentions were:

(1)  the Commissioner has failed to properly make a determination in respect of the applicant’s objections to the said additional assessments;

(2)  in failing to do so, the assessors have made prolonged, repeated and/or irrelevant enquiries;

(3)  further to the above, Commissioner has failed to correct the assessments despite the applicant’s notice to correct the assessments for 2003/04.

9. Subsequent to July 2012 (the time of the Form 86), the Commissioner has made a determination on 15 October 2012 in respect of 5 out of the 6 of the applicant’s earlier objections to assessment.

10. As stated in para 2 above, by the time of the inter partes hearing on 22 May, the only issue which requires my decision is the alleged failure to correct the said assessments for 2003/04.

11. It is the applicant’s case that the assessor was obliged under s 70A, Cap 112 to decide on the notice to correct.  On the other hand, the Commissioner’s stance is that the purported notice to correct was served out of time; for that reason, there was no jurisdiction to deal with it (the issue depends on whether the prescribed time period is intended to be mandatory (the Commissioner’s stance) or directory (the applicant’s stance)).

Relevant provisions of Cap 112

12. The power of an assessor to make tax assessments is contained in s 59, Cap 112.

13. Any person aggrieved by an assessment may by written notice object to the assessment; but (subject to certain exceptions) the notice must be received by the Commissioner within 1 month after the date of the assessment: s 64, Cap 112.

14. Any person who has so objected may give notice of appeal to the board of review: s 66, Cap 112; a further or alternative appeal avenue lies with the High Court on a case-stated: ss 67 and 69, Cap 112.

15. The “finality” principle (that is, an assessment shall become “final and conclusive”) applies where there has been no valid objection or appeal: s 70, Cap 112.  The proviso to s 70, Cap 112 reads:

“Provided that nothing in this Part shall prevent an assessor from making an assessment or additional assessment for any year of assessment which does not involve re-opening any matter which has been determined on objection or appeal for the year”.

16. Further to s 70, Cap 112, s 70A confers a power for the assessor to correct an assessment:

“… if, upon application made within 6 years after the end of a year of assessment or within 6 months after the date on which the relative notice of assessment was served, whichever is the later, it is established to the satisfaction of an assessor that the tax charged for that year of assessment is excessive by reason of an error or omission in any return or statement submitted in respect thereof, or by reason of any arithmetical error or omission in the calculation of the amount of the net assessable value (within the meaning of section 5(1A)), assessable income or profits assessed or in the amount of the tax charged, the assessor shall correct such assessment: ... ” (emphasis supplied).

17. A taxpayer who has been notified of the assessor’s refusal to correct has the same rights of objection and appeal as if the refusal were an assessment: s 70A(2), Cap 112.

Merits of the applicant’s case

18. In its written final submissions dated 20 May 2013, the applicant argues that:

(1)  the Commissioner’s refusal to deal with the notice to correct will effectively deprive it of the rights to object and appeal;

(2)  such a refusal is wrong because an assessor has earlier (18 August 2010 and 28 July 2011), in exercise of his power under s 64(2), Cap 112, sought and obtained information to enable the Commissioner to make a determination;

(3)  further, the assessor has earlier refused to correct the assessment (30 April 2010);

(4)  a senior assessor has earlier (26 April 2012) informed the applicant:

“… further debate on the case would only serve to prolong the process in resolving the issue in dispute. I have therefore instructed the Assessor to proceed to refer the case to Appeals Section with a view to placing it before the Commissioner for an early determination on the basis of available information” (emphasis supplied).

19. In view of the above, the applicant submits that there are issues for which leave to apply for judicial review ought to be given even though the threshold for giving leave is the “reasonable arguability” test: Po Fun Chan v Winnie Cheung (2007) 10 HKCFAR 676, para 15.

20. The issues raised in the Form 86 have been overtaken by:

(1)  the Commissioner’s determination (para 2 and 9 above);

(2)  the senior assessor’s intimation that the applicant’s notice to correct was given out of time and cannot be dealt with by the Commissioner (para 11 above): her letters dated 14 August 2012 and 8 November 2012 and her affirmation dated 28 November 2012.

21. On the other hand, the affirmation dated 8 January 2013 sets out the following issues (some of which are also set out in the applicant’s written final submissions (para 18 above)):

(1)  the senior assessor’s construction of ss 64(1) and 70A(2), Cap 112 is wrong (see also para 11 above);

(2)  she overlooked the 2^nd additional assessment dated 17 March 2010 (which means the notice to correct dated 15 April 2010 was given within the prescribed time period);

(3)  the conduct of the assessor has extended the prescribed time period by seeking and obtaining information pursuant to s 64(2), Cap 112, and by indicating that the applicant’s case would be placed before the Commissioner for determination (see also para 18(2) and (4) above).

22. Further to para 11, 18 and 21 above, the applicant’s written final submissions dated 20 May 2013 says that the senior assessor omitted to mention the 2 matters set out in:

(1)  para 21(3) above;

(2)  para 21(2) above.

The said omissions, so the applicant contends, avoid the estoppel issue, and were caused by a wrong construction of s 70A(1), Cap 112.  Further, the applicant relies on the matters set out in para 18(1), para 18(3) and (4) and 21(3) above.

23. The Commissioner argues that the applicant’s construction of s 70A, Cap 112 is inconsistent with the “finality” principle (para 15 above).  Further, the prescribed time period cannot be “waived” by an assessor; such an act would be one unauthorized by the statute and hence unlawful.  Finally, there is no estoppel in public law where the act involved is unlawful.

24. The issue concerning the construction of the provisions of Cap 112 (especially s 70A) is one which requires a more detailed analysis.  Related to that issue is whether or not the assessor’s conduct can be regarded as having extended the prescribed time period (s 64(1)(a), Cap 112).

25. Accordingly, I agree with the applicant that the above issues are reasonably arguable.

Conclusion

26. Subject to the observations in para 30 and 31 below, I am inclined to give leave to the applicant to apply for judicial review.

Other matters

27. As stated above (in para 20), the matters set out in the Form 86 have been overtaken by events.  They therefore no longer constitute valid grounds of application.

28. RHC Ord 53 r 3(2)(a)(iii) stipulates:

“An application for leave must be made ex parte by filing in the Registry ... a notice in Form No. 86 in Appendix A containing a statement of ... the relief sought and the grounds on which it is sought … ” (emphasis supplied).

Further, Ord 53 r 6(1) provides:

“Copies of the statement in support of an application for leave under rule 3 must be served with the originating summons and, subject to paragraph (2), no grounds shall be relied upon or any relief sought at the hearing except the grounds and relief set out in the statement” (emphasis supplied).

29. The grounds contained in the Form 86 therefore can have a bearing on how an application for judicial review should proceed.

30. In view of the above, leave to apply can only be properly considered when the appropriate grounds have been set out by the applicant.  As I understand from the Commissioner during the hearing, no technical objection will be taken in relation to an application to amend the Form 86.

31. I will therefore direct that an amended Form 86 be filed and served within 21 days from today (among other things, the applicant will need to clarify which of the matters summarized in para 11, 18, 21 and 22 above are pursued).  There will be liberty for the Commissioner to lodge with court and serve written submissions in relation thereto (if so advised) within 21 days thereafter.