Real Estate Firm Successfully Appeals Against FIRS VAT Regime

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By Bennett Oghifo

A real estate firm, Ess-ay Holdings Limited, has successfully appealed against an order of Value Added Tax (VAT) re-assessment by the Federal Inland Revenue Service (FIRS).
The Judgement in the Tax Appeal Tribunal in the Lagos Zone, holden at Lagos Appeal No: TAT/LZ/VAT/029/2019

between: Ess-Ay Holdings Limited and Federal Inland Revenue Service was held by the Chairman, O.M. Lassise-Phillips, Esq; Hon. Commissioners, M. A. C. Dike; Mrs. T. Akibayo; and R.A Quadri. Temitope Adewale Esq appeared for the Appellant (Ess-ay Holdings Limited) and Folashade Kalesaro for the Respondent (FIRS).

The judgement dated 10th September 2020 reads, “This is an Appeal by the Appellant against the decision of the Respondent in respect of the Appellant’s alleged tax liability for the 2014-2016 accounting years as set out in the Respondent’s VAT Re-Assessment Notice dated July 9, 2019 (the “VAT Re-Assessment”).

“In the final analysis, the Tribunal finds merit in this Appeal, which is accordingly upheld. The assessed VAT liability of the Appellant together with the interest and penalties is hereby set aside,” said the judgement, which Certified True Copy, dated 11/09/2020, was sighted by THISDAY.

Background stated in the judgement

The Appellant invests and engages in the development of real properties which are rented or leased to tenants. The said properties are put to both commercial and residential purposes. On the other hand, the Respondent is an agency of the Federal Government. It is responsible for the assessment, collection and general administration of federal taxes on behalf of the Federal Government of Nigeria including the Value Added Tax Act (VAT Act).

Following a tax audit, the Respondent by a letter dated October 19, 2018 informed the Appellant of its intention to assess the Appellant to additional taxes particularly with respect to Value Added Tax (VAT) on incomes derived from letting out its properties for the 2014 -2016 accounting years. As a result of this letter, a series of meetings was held between the parties to reconcile the issues and correspondences were exchanged. The bundle of documents evidencing the correspondences and meetings is before this Tribunal.

Ostensibly, these meetings did not yield any positive outcome because by July 9, 2018, the Appellant was served amongst others, the Respondent’s VAT Assessment Notice in relation

to v AT on incomes derived from its commercial tenants. The Appellant objected to the said VAT Assessment Notice via its objection letter dated July 15, 2019.

On the 26th of July 2019, the Respondent served its Notice of Refusal to Amend (NORA) dated July 22, 2019 on the Appellant. Dissatisfied with the Respondent’s action, the Appellant filed this Appeal, the subject-matter of this Judgment before the Tax Appeal Tribunal on August 22. 2019.The Appellan1 filed three (3) Grounds of Appeal to wit:

Ground 1

The VAT assessment in the sum of NS4. 263. 899 .SO (Fifty-four Million, Two Hundred and Sixty-Three Thousand, Eighth Hundred and Ninety-Nine Neira. Fifty Kobo) as Value Added Tax (“VAT”) on rental income earned by the Appellant in the period 2014 to 2016 thereby unlawfully subjecting the rental income of the Appellant to VAT contrary to the provisions of

the Value Added Tax Act as amended and currently compiled as Cap Vl, Laws of the Federation of Nigeria 2004.

Particulars of error

l. Section 2 of the VAT Act provides that VAT shall be charged and payable on the supply of goods and services (referred to as taxable goods and services) other than those goods and services listed in the First Schedule to the VAT Act.

2. VAT is not a tax on returns on investments such as rent dividends and interests.

3. Rental incomes are not derived from a supply of goods and services.

4. Rental income cannot be subjected to VAT solely on the premise that it is not exempt from VAT under the First Schedule to the VAT Act.

Ground 2

The Respondent erred in law when it issued a Notice of Refusal to Amend v AT Additional Assessments dated 22 July 2019 (“NORA”) where it stated that “income from commercial

rent is VAT-able income and the one from residential has administrative exemption.”

Particulars of error

l. There are no provisions in the VAT Act which designate rental income as a taxable good or service under the VAT Act in the circumstance that “rent” is neither a good nor service.

2. The VAT Act is devoid of any provisions which: (a) differentiates between commercial rental income and residential rental income; and /or (b) subjects commercial rental income to liability under VAT Act and exempts residential rental income from VAT.

3. The distinction between commercial rent and residential rent for VAT purposes is illegal, null and void.

Ground 3

The Information Circular No. 970 l issued by the Federal Inland Revenue Service dated l January 1997 and captioned “Detailed List of Items Exempted from Value Added Tax (the “Circular”) and upon which the Respondent based its decision to impose VAT on the rental incomes of the Appellant is ultra vires, null and void to the extent that it purports to subject commercial rents to VAT.

Particulars of error 1. The Circular cannot override or alter the provisions of the VAT Act. The Respondent does not have any statutory power to amend the VAT Act by purporting to subject to VAT, transactions not envisaged under the VAT Act.

The Appellant prayed the Tribunal to set aside the VAT Assessment issued by the Respondent against it as well as the penalties and interest imposed on the Appellant amongst other reliefs.

The Respondent joined issues with the Appellant on the 15th of November 2019 when it filed its Reply to the Notice of Appeal dated November 11, 2019 and other accompanying documents.

Testimonies by witnesses commenced on 18th November, 2019 and were concluded same day. Both parties called one witness each. Mr. Oyeyemi Oke, a Legal Practitioner and Tax

Consultant gave evidence on behalf of the Appellant and tendered 6 documents as Exhibits. Mr. Shittu-Gbeko Afees Lanre, Deputy Manager Tax testified for the Respondent. He tendered one document in evidence. Both witnesses were duly cross-examined.

Parties then closed their cases, following which the Tribunal ordered the filing of Final Written Addresses. The Parties’ Final Written Addresses and Respondent’s Reply on Point of Law were adopted on the 2nd of March 2020. Judqment in the Appeal which was initially reserved for May 6, 2020 could not be delivered as a result of the lockdown occasioned by Covid-19 pandemic and was further reserved for today being the 10th day of September 2020.

Issues for Determination

The Respondent formulated two issues for determination, to wit:

1. Whether or not the Federal Inland Revenue Service Information Circular No. 9701 dated 1st January 1997 is valid? (Distilled from Ground 3 of the Notice of Appeal).

2. Whether rent on commercial real properties is vatable by the combined reading of Sections 2 and 46 of the Value Added Tax Act CAP VI LFN 2004? (Distilled from Grounds 1 and 2 of the Notice of Appeal).

The Appellant also formulated two issues for determination as follows: 1. Whether rental incomes are subject to Value Added Tax (VAT} under the Value Added Tax Act CAP VI LFN 2004 (as amended- VAT Act); and

2. Whether the provisions of the Federal Inland Revenue Service Information Circular No. 9701 dated 1st January, 1997 seeking to exempt only rents from residential properties is not ultra vires the Respondent?

We are of the view that having regards to the grounds of appeal and the arguments of Counsel, the issues formulated by Emeka lhebie, Esq for the Appellant best represent the issues calling for determination in this Appeal and should be preferred to those formulated by learned Counsel for the Respondent. It should however be noted that our preference of the issues formulated by Counsel for Appellant results from their being more compact.

Otherwise, the issues are essentially the same.

In arguing issue No.1, Mr. Ujah Malachy, the Respondent’s Counsel disagreed with the Appellant’s position that rent is return on investment. He referred to the definition of rent as contained in section 47 Tenancy Law of Lagos State2 and the case of Oduye Vs Nigeria

Airways Limited.

Counsel drew the attention of the Tribunal to the provisions of sections 46 and 2 of VAT Act and submitted that rents on commercial real properties amounts to supply of goods for the purpose of VAT in Nigeria same not being exempt by the provisions of sections 2 and 46 of VAT Act. Relying on section 3 of VAT Act, he asserted that while letting out of taxable goods

on hire or leasing is vatable, the letting of commercial property, unlike residential property, was not exempted in the First Schedule to the Act.

He further submitted that the development of land into habitable and commercial properties as admitted by the Appellant’s witness ur .der cross examination is the value added by the Appellant to the land by the Appellant and that the letting of the taxable development on the land is vatable and captured under the definition of “supply of goods” in sections 2 and 46 of VAT Act.

Counsel cited a number of judicial authorities to the effect that in construing tax statutes, it is trite that words should be given their ordinary meaning. He also contended that where a

statute mentions specific things. those not mentioned are excluded . He called in aid the case of Buhari & Anor Vs Yusuf & Anor4amongst others. He raised three questions to wit:

does the rent received by the Appellant fall within the exempted goods and services listed in the 1st Schedule to the VAT Act and Exhibit EHL 6? Does the Appellant ‘s business amount to any concern in the nature of trade commerce or manufacture’? Is the payment of Input VAT a condition precedent for the charge and collection of Output v AT?

He asserted that the Appellant whose business is development of real properties supplied and or rented such real properties to tenants for residential and commercial purposes. He argued further that payment of Input VAT is not necessary for the charge of Output VAT and cited Federal Board of lnland Revenue Vs Ibile Holdings in support.

Counsel submitted that VAT Act, the VAT Order and Exhibit EHL 6 have sufficiently shown intention to charge VAT on commercial rent obtained from lease, hire or rent of real estates

and that the Appellant’s obligation was to collect and remit same to the Respondent with.in the time prescribed by the VAT Act.

He dumped a number of statutory and judicial authorities on the Tribunal without attempting to show their relevance to his argument finally, he enjoined the Tribunal to refuse the declaratory reliefs sought by the Appellant for failing to establish its entitlement to the reliefs in law und facts. He cited Chukwumah Vs Shell Petroleum (Nig.) Ltd6 and Ogolo & Ors Vs Ogolo & Ors7 and urged the Tribunal to discountenance the Appellant’s case.

Submitting that rental incomes, residential or commercial, are not subject to VAT as the transactions giving rise to them do not constitute supply of goods and services under the VAT Act, the Appellant’s Counsel, Mr. Emeka lhebie asserted that taxation is statutory therefore the words of the statute are given their literal meaning. He cited the English case of Cape Brandy Vs IRC8 which according to him was adopted by Nigerian courts in a

number of cases including SA Authority Vs Regional Tax Board9, Ahmadu Vs. Gov., Kogi State.

He argued that since there can be no taxation without representation, there must be a direct link between the taxpayer and the liability sought to be imposed on a person. Therefore, no person should be subject to any tax if the taxing statute does not

expressly do so. He cited Coltness Iron Company Vs Black. He maintained that the tax liability of the Appellant being demanded by the Respondent must be determined by clear

prescriptions of the VAT Act. He argued that the lawmakers had this in mind when it was provided in section l of VAT Act that VAT shall be administered as prescribed by the VAT Act.

Relying on section 2 of the VAT Act, he contended that the tax created therein is charged on the supply of taxable goods and services and that whatever is supplied must be either a good or service before its taxability is determined. He pointed out that the words, “goods” and “services” were not defined under the VAT Act.

He said that goods are tangible or moveable personal properties other than money. He relied on the Black’s Law Dictionary12, Berende Vs Usman 13 and CNOOC Exploration and

Production Nigeria Umited Vs AG, Federation & Ors14. He submitted that rent does not involve supply of goods on the authority of Junghenn Vs Wood.

On the meaning of service, he again placed reliance on the Black’s Law Dictionar116, and stated that it is the act of doing something useful for a person or company for a fee or an intangible commodity in the form of human effort such as labour skill or advice. He cited the case of Revesby Credit Union Cooperative Umited Vs Commissioner of Taxation. He submitted that the letting or leasing of property does not constitute service to make the rent collected liable to VAT. Learned Counsel then attempted to differentiate amongst supply of goods, services and rent by reference to a foreign authority, Dwyer Vs Hunter1B. He insisted that rental incomes are not earned from transfer of goods or services but from grant of licence or lease, a form of transfer of interest in the property leased as opposed to the transfer of ownership under a supply of goods. He claimed that supply of services involves an active use of skills and not passive as is the case under a leasehold.

While espousing on the meaning of lease, he cited the case of Germains (Earl) Vs Williams

He submitted that what is transferred in a lease is the right of exclusive possession or possessory interest. He submitted further that the transfer of interest in properties is neither a supply of goods nor services under the v AT Act. He cited CNOOC Exploration and Production Nigeria Umited Vs AG Fedn & Ors20. He urged this position on the Tribunal.

Replying on Points of Law, Mr. Malachy Ujah for the Respondent mostly restated his previous argument. He submitted that the development of land into habitable and commercial properties as admitted by the Appellant’s witness is the value added by the Appellant to the land by the Appellant and the letting of the taxable development on the land is

vatable and captured under the definition of “supply of goods” in sections 2 and 46 of the VAT Act.

It was submitted that the supply of real estate properties to tenants for both residential and commercial purposes is captured under the definition of goods as contained in the VAT Act which means “any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing and any disposal of taxable goods.

Counsel also stated that rent on real estate properties is not in the list of exempted items in section 3 and 1st Schedule to the VAT Act and as such vatable as captured under the charging provisions of Sections 2 and 46 of the VAT Act. He then debunked the Appellant Counsel’s reliance on the CNOOC Exploration and Production Nigeria Limited Vs AG Fed &

Ors which according to learned Counsel was inapplicable to the present Appeal. He maintained that the Federal High Court, like the Appellant, construed the supply of goods and services outside the confines and context of the AT Act. He referenced section J of the Interpretation Act22 and Shettima Vs Gonnf. He submitted that the ratio in CNOOC Exploration and Production Nigeria Limited Vs AG Fed & Ors24does not apply. He urged the Tribunal to hold that rents on buildings or real properties of the Appellant is subject to VAT not being exempted under sections 2, 3, 46 and 1st Schedule to the VAT Act. He cited

Federal Board oflnland Revenue Vs lbile Holdings, as well as Vodacom Business Nigeria Ltd Vs FIRS26 issue one centres on whether VAT is chargeable in respect of lease or letting of real

property. Put differently, the Tribunal is called to determine whether letting or lease of real property is within the scope of the VAT Act such that the rent paid by a Tenant in consideration for the lease or tenancy is subject to VAT. The challenge with the determination of this issue can be traced to the language employed by the law makers in drafting the Act. to be chargeable to VAT the transaction in question must amount to a taxable supply of goods or service. While VAT Act defines supply of goods and supply of service, see section 46 VAT Act, it is silent on what goods or services are. This silence is part of the reasons there are ambiguities in the construction of the Act.

By way of a restatement, the Appellant in this Appeal argued that VAT is not chargeable on the rent paid by a tenant irrespective of the property involved (whether residential or commercial). The Appellant’s contention was premised on the ground that payment of rent does not amount to supply of goods or services. The Respondent on the other hand argued that VAT was chargeable on the rent paid by a tenant of a commercial property. The Respondent’s argument was premised on the notion that rental incomes in respect of commercial properties are not excluded under the v AT Act and Circular No. 9701 made by FIRS dated 1st January 1997 which Circular expressly excluded VAT on the rent for residential properties.

It is important to point out that both the Appellant and the Respondent laid more emphasis on VAT not being charged or being charged on rent paid by a tenant, and this approach, we observe, is unhelpful in the effective determination of the issue at hand. By virtue of section 2 of VAT Act, VAT shall be charged and payable on the supply of all goods and services (in this Act referred to as “taxable goods and services”) other than those goods and services listed in the First Schedule to this Act.

The above provision of the VAT Act shows VAT is charged and payable on the transaction itself and not on the consideration paid for the transaction. The consideration paid for the transaction (in this Appeal, the rent) is only relevant to determine the actual amount to be paid as VAT. Thus, in determining whether or not VAT is payable, it is the nature of the transaction that should be looked into and not the consideration paid for the transaction.

Under the VAT Act, VAT is payable only in respect of supply of goods or services. Thus, for VAT to be chargeable on a transaction, the transaction must qualify as a transaction for supply of goods or services.

The implication is that in order to determine the Appeal at hand, we must embark on a voyage of discovery to determine whether a lease or tenancy is a transaction for supply of goods or services.

By section 46 of the VAT Act, “supplies” means any transaction whether it is the sale of goods or the performances of a service for a consideration, that is, for money or money’s worth.

Also, in the same section, “supply of goods” means any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing, and any disposal of taxable goods.

The VAT Act also provides that “supply of services” means any service provided for a consideration.

However, as stated earlier, the definition of goods and services is not provided under the Act. Yet, the determination of the meaning of these words is sine qua non to a meaningful and effective adjudication of the issue. Therefore, recourse shall be made to other relevant external sources. In doing this, we must bear in mind that it is a fundamental rule of interpretation that words used in a statute must be given their natural meanings, and that a judge is not at liberty to add to or subtract from the revisions of a statute as was held in Gana Vs SDP & Ors; 0gbunyiya Vs Okudo2sand Abegunde Vs Ondo State House of Assembly.

Although, a court or tribunal is not at liberty to add to or subtract from the provisions of a statu1e, however, the court or tribunal is at liberty to consult relevant ma1erials to determine the natural meanings of the words used in a statute. Since the VAT Act does not define the terms “goods” and “services”, for our purpose, we have relied on other sources for guidance. The Blacks’ Law Dictionary defines goods as; “tangible or moveable property other than money, especially articles of trade or items of merchandise.”

Section 62 of the Sale of Goods Act1893 (a Statute of General Application enforced in England as at 1st January 1990 adopted into Nigeria) defines goods to include all chattels personal other than things and money and including emblements, industrial growing crops and things attached to or forming part of the land which are agreed 1o t:e severed before sale or under the contract of Sale. The Sale of Goods Law of Lagos also defines “goods” as all chattels personal, other than things in action and money and includes emblements, industrial growing crops and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sale.

Similarly, under section 61 of the United Kingdom’s Sale of Goods Ad of 1979, “goods” are defined as: all personal chattels other than things in action and money al1 corporeal

moveables except money; and in particular includes emblements, industrial growing crops and things attached to and forming part of the land which are agreed to be severed before sale or under the contract of sate.

These definitions are helpful as they separate things which are permanently attached to land from those that can be detached from the land. Consequently, for things attached to

land to qualify as goods, there must exist an agreement to sever them from land either before sale or under a contract of sale and they must be moveable. It is said that before a thing can be regarded as a “good”, it must be moveable and where it is on a land it must be severable from the land.

Service, on its part is defined by the same Black’s Law Dictionary as an intangible commodity in the form of human effort, such as labour, skill or advice. “That being the case,

it is doubtful, indeed it is impossible to regard real properties as an intangible commodity.

Granted that human efforts may have been applied ir developing property, the end result of the efforts which is the building cannot be regarded as intangible.

Both Parties agreed that the Appellant is in the business of developing real properties amongst others some of which are leased or let out to tenants for commercial or residential

purposes. Their point of divergence is to the nature of the transaction. The Respondent is convinced that the letting of the taxable development on the land to tenants for commercial or residential use is vatable. However, residential lease or tenancy is exempted under the VAT ACT (Modification) Order of 2018. In this wise, Respondent ‘s Counsel submitted that the Appellant’s obligation “under VAT Act is to collect VAT from whichever entity to whom it supplies, lets out and or lease its taxable goods (real properties) (emphasis supplied) for commercial purposes and remit same to the Respondent within the time stated by the law.” The inference here is that the Respondent considers Appellant’s real properties as taxable goods.

In Federal Board of Inland Revenue Vs Ibile Holdings in an appeal decided by the VAT Tribunal, the predecessor of this Tribunal, the tax authority filed an action against lbile

Holdings for its failure to remit VAT arising from its business of building, selling, and leasing properties for commercial purpose, it was held that lbile Holdings’ transactions were taxable

because they constituted supply of goods under the Act. Reason being that section 42 (now 46), defined “supply of goods” as “any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing, and any disposal of taxable goods.”

However, in Momotato Nigeria Limited Vs UACN Property Development Company Plc, the Federal High Court held that sale of land, in itself, does not constitute a supply of goods,

and therefore, is not liable to VAT. However, the court stated that services rendered in developing the land, such as sand filling, tarred road network, electricity supply and so on, should qualify as supply of services, and therefore liable to VAT. In that case, the Defendant sold a parcel of land to the Plaintiff within its estate and sought to charge VAT. The Plaintiff

refused to pay the VAT on grounds that the sale of the property does not constitute goods or services under the VAT Act.

The decision in Federal Board of Inland Revenue Vs lbile Holdings in our view proceeded on the footing that real properties could be classified as goods. We think not. We have seen through the eyes of statutory authorities that an important attribute of goods is that they must be moveable. Unfortunately, that is not true of real properties which by their nature are immoveable. In any event, the decision of the Federal High Court in the case of

CNOOC Exploration and Production Nigeria Limited Vs Attorney General of the Federation & Ors marked a watershed in the administration of VAT Act. In that case, which does not involve transfer of title in land, the third Defendant transferred its rights in an oil mining lease (“OML”) to the Plaintiff and sought to charge VAT in respect of the sale. The tax authority

took the view that such an assignment of right qualifies as a “supply of goods and services” and therefore, liable to VAT. The Federal High Court agreed with Plaintiff that the item assigned was a right and neither good nor services but a chose in action and, accordingly, the transaction was not liable to VAT. The court noted that in the United Kingdom statutory intention accounted for the reason assignment of a right constituted senesces, the supply of which is vatable.

This case clearly shows that certain transactions may not fit into the traditional classification as goods and services. Those transactions would be outside the province of VAT Act.

From the submission by the Respondent’s Counsel, it is clear that the Appellant develops and lets or leases its properties for commercial as well as residential purposes. The Appellant is a landlord while the persons who take the lease of the properties are its tenants or lessees. Under this type of arrangement, the tenant/lessee is generally considered to be entitled to exclusive possession of the let or leased property for a defined period in exchange for the payment of rent. The rent payment guarantees the right of the tenant to the use and occupation of the property for the agreed period with a reversionary interest in the landlord.

What the tenant acquires and what the landlord conveys in exchange for the rent paid for the lease or letting of the property is a bundle of rights including a right to exclusive possession to the property for the period of lease or tenancy. In the case of Ekebelu & Ors Vs Ejidike & Ors it was held that a lease is defined in Black’s Law Dictionary 9th edition page 970 as a “contract by which a rightful possessor of real property conveys the right to use and occupy the property in exchange for consideration”. See also Star Finance & Property & Anor Vs NDIC.

The expression “the letting out of taxable goods on hire or leasing, and any disposal of taxable goods” used in the Act must be construed by reference to goods properly so called, that is goods that are moveable or capable of being severed.

We find it difficult to agree with the Respondent that the lease in this appeal amounts to a supply of goods. Our disagreement stems from the fact that the lease in this appeal is a lease in respect of real properties. Real property is best characterized as property that does not move, or that is attached to the land. See Federal Republic of Nigeria Vs Yakubu & Ors. Because of their nature, real properties cannot be regarded as goods. They are not

severable or moveable. Thus, if real properties do not qualify as goods it follows that any transaction relating to real properties cannot qualify as a supply of goods.

However, can we then say that the transaction amounted to a supply of services? As we have stated earlier, service is an intangible commodity in the form of human effort such as

labour skill or advice. In an ordinary lease or tenancy arrangement, beyond providing the vacant property, what other amenity is the landlord expected to provide? In our opinion none. Once the key is handed over to the tenant interest in the leased property passes to the tenant.

One question that may agitate our minds is. what is the position with respect to the provision of short-term leases? Do they not amount to supply of services? We must note that the provision of short-term leases in a hotel, inn and other places with similar characteristics to hotels, inns and boarding houses and any premises, in which furnished sleeping accommodation is provided, that are used by or held out as being suitable for use by visitors or travellers including motels, guesthouses, bed and breakfast establishments, private residential clubs, hostels, and serviced flats (other than those for permanent residential use). does not create a landlord-tenant arrangement.

Usually, these places provide lodging with furnished sleeping accommodation and possibly meals and other facilities such as laundry services shared TV or rest rooms and phone services for guests and visitors. These will amount to the provision of facilities which qualify as a supply of services. Thus, they would be subject to VAT.

Let us illustrate the situation by reference to food consumed at home and in a restaurant.

Unarguably, foodstuffs are exempt from VAT. Thus, if a person buys rice from the market for example and goes home to consume same, he consumes it free of VAT. However, if the

same man goes to a restaurant to consume the same his consumption is charged to VAT.

Why? after all, rice is part of the foodstuff exempted from VAT. The answer is no~far-fetched, the restaurant has provided additional facilities to the consumer. The food is prepared and served by the restaurant, entertainment facility like cable TV is provided, the consumption takes place in good ambience with air conditioning system working effectively.

In the illustration above, the facilities provided by the restaurant cannot be separated from the consumption of the rice. So it is with short-term lease in hotels and other places of temporary lodging. The hoteliers provide additional facilities to the lodger including bed and breakfast, cleaning, laundry, cable network, internet service. Therein lies the difference between a lease and short-term accommodation.

Clearly therefore, the lessor or a landlord in a lease or tenancy is not rendering any service to the lessee/tenant. He only transfers his right in the property to the lessee/tenant and nothing more for the period of the arrangement. In our opinion, the transfer of interest in real properties does not amount to rendering a service. The Tribunal finds wisdom in the case of CNOOC Exploration Production Nigeria Limited Vs AG Fed & Ors.

We believe this wisdom may have also accounted for the recent amendment introduced into the VAT Act via the Finance Act 2019. The court had enjoined the country to borrow a leaf from the UK VAT Act if it is desired to charge VAT on incorporeal properties like the grant, assignment or surrender of any right.

Interestingly, the Respondent did not argue before this Tribunal that the Appellant’s business amounted to a supply of services. The Respondent’s position is that the Appellant was engaged in the supply of goods. Regrettably, that argument does not find favour with the Tribunal for the reason that real properties by their nature are immoveable and incapable of being severed. This defining feature of goods is lacking as an attribute of real properties.

The Tribunal is of the firm opinion that a lease of real property is a distinct transaction in its own. It is different and distinct from a transaction for supply of goods or services. This 1s so because a lease of real property is a transaction for transfer of an interest or a right (possessory) in the property. The right so transferred, assigned or granted to the tenant is an incorporeal right. Incorporeal rights are cognisable by law though such rights cannot be seen or touched.

We therefore find that the Appellant’s lease or letting of its real properties does not amount to a supply of goods or services. ·

We hold that the lease of real properties does not amount to supply of goods or services and therefore VAT is not chargeable or payable on the transaction. A transaction for lease of real property is not one of the transactions to which the VAT Act applies. The application of the VAT Act is limited to transactions for supply of goods or service and nothing more. It is trite that where a statute mentions specific things. Those things not mentioned are not intended to be included.