TNB is spared the additional RM1.8 billion in taxes as Appeal Court upholds High Court’s decision

TNB is spared the additional RM1.8 billion in taxes as Appeal Court upholds High Court’s decision


PUTRAJAYA: :On Thursday, a three-person Court of Appeal panel affirmed a ruling made two years prior by the High Court, which had denied a RM1.8 billion tax demand made by the Inland Revenue Board (IRB) against Tenaga Nasional Bhd

This comes after the bench determined that the electrical utility company, or TNB, is engaged in the energy manufacturing industry and that the amount requested includes a reinvestment allowance (RA) that ought to have been exempt.

The decision was made unanimously by the bench led by Datuk Seri Kamaludin Md Said, including Datuk See Mee Chun and Datuk Hashim Hamzah.

In rendering a unanimous ruling, See determined that the High Court erred in granting TNB’s request for judicial review. The bench also concurred that the company’s costs from 2003 to the assessment year of 2018 amounted to energy manufacturing, meaning that the RA was relevant.

The court made no order as to costs.

Senior revenue counsels Ashrina Ramzan Ali and Surani Che Ismail appeared on behalf of the director general of the IRB, while S Saravana Kumar and Amira Azhar from Rosli Dahlan Saravana Partnership represented TNB.

The case arose when, on July 3, 2020, the IRB, through a letter, informed TNB that the RA that it had claimed for the year of assessment 2018 was disallowed and then issued a notice of additional assessment on July 7, 2020, in the amount of RM1,812,506,384.64.

Subsequently, TNB filed judicial challenge that same year against the imposition of an additional assessment of RM1.812 billion that the national electricity company was required to pay.

The IRB, in its appeal, argued that TNB is not a manufacturing company and thus does not qualify for certain tax incentives under Schedule 7A of the Income Tax Act that would allow it for the RA.

“The RA applies only to manufacturing companies carrying out manufacturing activities that transform raw material into an end-product in a factory, and the capital expenditure incurred on the factory, plant, or machinery for a qualifying project is eligible for the RA,” the IRB said in its submissions.

TNB, however, cited certain Commonwealth cases and a Federal Court case that support its stance that electricity generation is considered manufacturing activity globally in the form of its expenditure on transmission lines, substations, and transponders.

In the High Court two years ago, judge Datuk Noorin Badaruddin ruled in favour of TNB when she said that TNB’s business relates to the manufacturing of electrical energy and that the generation of electricity is considered a manufacturing activity.

“TNB has particularised its project to be a transmission project consisting of the installation of new lines and reinforcement of existing lines to facilitate the increase in transmission of electricity to new development areas, as well as increasing efficiency and reducing interruption during the transmission. The distribution project consists of the installation of new lines and substations to increase the capacity for distribution to new areas.

“TNB cannot be said to be a utility or service provider company per se. It has expanded and diversified its business activity into manufacturing because it has to. Otherwise, the distribution of electrical supply in this country will never attain efficiency,” said Noorin.

In arriving at her decision, Noorin quoted the case of Canada (Deputy Minister of National Revenue, Customs, and Excise—MNR) v. Quebec (Hydro-Electric Commission).

The court added that since TNB claimed the RA in 2003, it is entitled to claim it again 15 years later, in 2018, as it is the company’s vested right.

“In balancing the need of the government to realise taxes and the need for taxpayers to be protected from incorrect assessments, and in light of the above view and interpretation of the laws, this court finds that the balance tilts towards the applicant (TNB),” Noorin said in allowing TNB’s judicial review application.

In civil cases, the burden of proof lies on the balance of probabilities, where an applicant or plaintiff needs only to convince the court more than 50% to prove its case.

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