he decision in Fuelex Vs Uganda Revenue Authority (URA) – Constitutional Petition No.3 of 2009, delivered on 24th July 2020, is testimony that as our society evolves and membership of the Bench changes, widely held beliefs, including our constitutional law, may change and new information may become available, rendering precedent obsolete. What happens, however, when both evolve to the point where the validity of prior precedent from our highest court is called into question?
The majority of the Justices in this petition disagreed with a Supreme Court precedent and gave reasons in support of their desire to strike down Section 15 of the Tax Appeals Tribunal Act, despite the precedent that affirmed a previous constitutional court decision and upheld the constitutionality of the requirement to pay 30% of the tax assessed by URA prior to filing an appeal before the Tribunal.
The Constitutional Court Justices offered their views regarding the precedent’s validity but could not, however, overrule the Supreme Court precedent due to the binding effect of vertical precedent and the constitutional compulsion to apply the Supreme Court ratio to any analogous case over which they preside. Judges are required to follow the decisions of applicable prior cases and are not to overrule or revisit issues of law that have already been settled.
Moreover, the Supreme Court decision superseded the determination of this petition since it was delivered before this petition could be heard. Only the Supreme Court can overrule its own precedent that settled the issue of law and created the binding precedent in the first place.
Nonetheless, the Justices deemed it fit to make their decision in spite of the fact that it had been overtaken by events, and accordingly proceeded to establish a legitimate justification for departing from the Supreme Court precedent by revisiting it, rather than overruling it. Departing from precedent, it is contended, is not something to be taken lightly, absent special justification.
From the ruling, one gets the impression that the Justices got a sense that the Supreme Court may have erred or been misled in the earlier decision. They therefore followed a different approach by relying on an interpretation of constitutional provisions that fundamentally shifted the parameters of the debate and justified departure from the binding precedent; ultimately arriving at the conclusion that the Supreme Court precedent was made per incuriam, thus permitting a revision.
Taxpayers are required to pay a portion of a tax debt (30%) before an appeal can be filed before the Tax Appeals Tribunal. This is premised on the “pay-now, argue-later” principle. Accordingly, the obligation to pay tax, which arises upon the issue of an assessment, is not ‘‘automatically’’ suspended by an appeal. The disadvantage to taxpayers of applying this principle is obvious but also inevitable in certain cases. Moreover, the disadvantage is outweighed by public interest.
The constitutionality of the requirement to pay 30% of the tax assessed before lodging an application with the Tax Appeals Tribunal was previously challenged as being unconstitutional on the ground that it violated the fundamental right to a fair hearing. The legal position in this regard was challenged in the Constitutional Court and subsequently settled by the decision of the Supreme Court which affirmed the decision of the Constitutional Court in support of the constitutionality of the tax law requirement for the payment of 30% of the tax in dispute before seeking redress in a court of law.
The Court held that the principle of “pay now, argue later” is consistent with constitutional imperatives of public purpose which relate to economic development since taxes fund government initiatives. The court reasoned that ensuring prompt payment of taxes assessed to be due is clearly an important public purpose. Taxes must not only be paid but they must be paid promptly for the public good; and that the disadvantage occasioned to aggrieved taxpayers is outweighed by public interests. The “pay now, argue later” principle helps to reduce the number of frivolous objections, thereby guarding against the prejudice the treasury would suffer through delays in obtaining finality of liability.
In South Africa, where this principle was adopted, the Constitutional Court recognised that many open and democratic countries adopted the “pay now, argue later” principle, and that this suggested the principle was acceptable in open and democratic societies based on freedom, dignity and equality as required by the Constitution.
THE FUELEX DECISION
The Fuelex decision (delivered on 24th July 2020) on the constitutionality of section 15 of the Tax Appeals Tribunals Act which requires a taxpayer who has lodged a notice of objection to an assessment, to pay 30% of the tax assessed or that part of the tax assessed not in dispute, whichever is the greater, pending resolution of the objection, has declared the circumstances under which the 30% is payable, and the circumstances where it is not.
While recognising the protection of rights provided for under Articles 21 (1) and 44 (c) of the Constitution (i.e. equality of treatment before the law, and the non-derogable right to be accorded a fair hearing in any dispute, respectively), and being cognisant of the binding precedent set by the Supreme Court in a similar matter, the Justices nonetheless reasoned that the Legislature has no power to deny access to Court to anyone who is aggrieved by a provision in any legislation or act of a person or institution, to enforce such person’s fundamental rights and freedoms, as to do so would be in breach of the Constitution to which Acts of Parliament are subordinate.
That the TAT Act provision infringes on the fundamental rights and freedoms enshrined in the Constitution, since it has the grave effect of not merely restricting or fettering, but altogether barring, or serving as an absolute impediment to access to Courts of justice by an aggrieved person who desires to be accorded the protection of the law.
The Justices also recognised that while Courts have no power to strike down an Act of Parliament on the ground only that the enactment is unjust, a Court of law can, owing to the supremacy of the Constitution in our legal dispensation, intervene and strike down a legislation, or a provision thereof, where it finds that the legislation or an impugned provision thereof is inconsistent with, or is in contravention of, some provision of the Constitution.
As regards the TAT provision that requires prior payment of 30% of the assessed tax to URA before an appeal can be heard, the Justices observed that it is an impediment, barrier, obstacle or obstruction to the exercise of right of access to Court and negates the enjoyment of the right of access to justice for the protection of the law.
In reaching their decision to revisit the precedent, the Justices departed from the Supreme Court decision that confirmed as constitutional, the payment of 30% of the tax assessed by URA before a taxpayer applies for review of the tax assessment, irrespective of the issues for determination. The Supreme Court had held that this requirement equally applied to a taxpayer who concedes liability to the tax assessment but only contests the quantum, and to a taxpayer who contends that its activities are not liable to being taxed at all.
They noted that in coming to this decision, the Supreme Court did not fully or adequately address itself to the issue of access to justice as a fundamental right; the denial of which would be unconstitutional. Accordingly, the Supreme Court decision was made per incuriam. However, since lower courts are bound by the decision of the Supreme Court which affirmed the constitutionality of the impugned provision, the Justices declared the following:
1) That the application of the 30% provision to a taxpayer whose objection was not challenging the amount of tax payable, is inconsistent with Article 44 of the Constitution and would therefore be unconstitutional. In other words, in order for the 30% tax payment rule to apply, the dispute before TAT must have arisen from a challenge to the amount of tax assessed and not from a challenge to the basis of assessment.
2) That where the dispute arises from the basis of the assessment, then TAT must first resolve or determine the contested issue and then the requirement to pay 30% of the tax assessed would apply if the question is resolved in favour of URA, but not before.
3) That the constitutionality of the requirement to pay 30% prior to appeal comes into question where its applicability is extended to taxpayers whose disputes are purely legal and/or technical; and where the issue for determination before TAT does not relate only to the amount of tax payable.
Overall, this decision is a big win for taxpayers aggrieved by the objection decisions of URA since the Justices, without outlawing the requirement to pay 30% of assessed tax prior to appeal as unconstitutional, adopted a fairer and just position out of the alternatives open to them. Payment of 30% of tax assessed prior to appeal is not automatic!