1

THE GOODS AND SERVICES TAX APPEAL TRIBUNAL OF

MALAYSIA

CASE NO. 14 OF 2015, GOODS AND SERVICES TAX APPEAL TRIBUNAL

BETWEEN

BPCL ….. APPELLANT

AND

DIRECTOR GENERAL OF CUSTOMS ….. RESPONDENT

Before : PUAN ASLINA JONED ….. CHAIRMAN

( SITTING ALONE )

Venue : THE CUSTOMS APPEAL TRIBUNAL COURT OF MALAYSIA,

PUTRAJAYA

Dates of Mention : 30.09.2015, 19.01.2016, 13.04.2016 and 09.05.2016

Dates of Hearing : 13.06.2016, 14.06.2016, 26.08.2016, 14.09.2016 and

14.10.2016

THE APPEAL

This was an appeal made under subsection 126(1) of the Goods and Services

Tax Act 2014 [Act 762] by BPCL hereinafter referred to as the Appellant against

the decision of the Honourable Director General of Customs dated 10th August 2015

hereinafter referred to as the Respondent.

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THE FACTS

The Appellant is a company engaged in supplying engine oil to the independent

Distributor, who in turn supply the engine oil to the Consumer. Due to various

market conditions and commercial reasons, the Appellant undertakes market

promotions to either protect or increase the market share of the engine oil.

The Appellant has various types of promotions including (a) tied in promotion, (b)

ad-hoc promotion or non tied-in promotion. Both of the promotions involve the

Appellant giving the BP branded free gift through the participating Distributor to the

Consumer. This appeal involves the GST treatment of free gifts handed over by the

Appellant to the Distributor during ad-hoc promotions.

This appeal was filed against the decision of the Director General of Customs (DG)

dated 10th August 2015 ( the disputed decision ) as follows :

“2.1 supply of BP branded goods for no additional consideration where

supplied for brand advertising”

This is a situation where BPM supplied goods such as “BP Engine Oil” to

distributors, after some time BPM decided to do promotion on goods. BPM will fix

the promotion period and also will deliver his branded goods such as BP T-shirt and

BP Umbrella in bulk to his distributors to be given for free to any customer who buys

BP product such as BP engine oil : i.e. the branded goods will be tied in to the goods

purchased by customers. However the branded goods are supplied to distributors

not all at the same time as the principal goods. The principal good have been

supplied earlier.

Sector VI of the GST Division, DGOC has decided that the gift rule applies. The

decision was later taken up to the Technical Paper which decided as follows :

“DG’s Decision 1/2015 on gift rule applies.”

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Note : The decision was made after taking into account that almost all sectors

including other oil companies have similar transaction and the controlling

mechanism of such transaction.

It is the Respondent’s contention that the decision is correct and ought to be upheld.

THE LAW

The position of law with regards to the gift rule is sufficiently laid down in Act 762 as

follows :

Section 2 Act 762

“taxable person” means any person who is or is liable to be registered under this Act;

“supply” has the meaning assigned to it in section 4;

“taxable supply” means a supply of goods or services which are standard-rated supply and zero-rated supply and does not include an exempt supply;

Section 4(1) and 4(2) Act 762

4. (1) subject to subsections (2) and (3), “supply” means all forms of supply, including

supply of imported services, done for a consideration and anything which is not a

supply of goods but is done for a consideration is a supply of services.

(2) Matters to be treated as a supply of goods or a supply of services shall be as

specified in the First schedule.

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Para 5(1) and Para 5(2) First Schedule, Act 762

5. (1) Subject to subparagraph (2), where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, the transfer or disposal is a supply of goods by the person.

(2) Subparagraph (1) does not apply where the transfer or disposal is—

(a) a gift of goods made in the course or furtherance of the business made to the same person in the same year where the total cost to the donor is not more than five hundred ringgit; or

(b) a gift, to an actual or potential customer of the business, of an industrial or commercial sample in a form not ordinarily available for sale to the public.

Section 36(1) First Schedule (a)(b)(c) Act 762

36. (1) Every taxable person shall keep full and true records written up to date of all transactions which affect or may affect his liability to tax, including the following records:

(a) all records of goods and services supplied by or to that taxable person including tax invoices, invoices, receipts, debit note, credit note and export declaration forms;

(b) all records of importations of goods; and

(c) all other records as the Director General may determine.

Section 65(1) and 65(3) Act 762

65. (1) Where goods or services are supplied by an agent acting on behalf of a principal, the supply shall be deemed to be made by the principal and not by the agent.

(2) Where goods or services are supplied to an agent acting on behalf of a principal, the supply shall be deemed to be made to the principal and not to the agent.

(3) Where goods or services are supplied through an agent acting in his own name, the supply shall be treated as a supply to the agent and as a supply by the agent.

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THE STANDARD OF PROOF

Act 762 does not stipulate the standard of proof imposed on both parties in this

case. However subsection 149 of Act 762 empowers this Tribunal to adopt such

procedures as it thinks fit and proper. Since the issues at hand are civil in nature,

this Tribunal is of the view that standard of proof applied in the civil courts which is to

proof on the balance of probabilities should be adopted. This standard of proof is

lighter as compared to standard of proof imposed in a criminal case which is beyond

reasonable doubt.

Pursuant to regulation 11(2) Goods and Services (Review and Appeal)

Regulation 2014, the Appellant has to start its case first followed by the Respondent

which is similar to appeal procedures in the higher courts. The manner of sequence

laid down by regulation 11(2) implicitly imposes the burden of proof on the

Appellant to prove its case on the balance of probabilities. Furthermore it is the duty

of the Appellant to convince this Tribunal that the disputed decision of the DG is

wrong and ought to be varied or set aside and substituted with a decision in its

favour.

DECISIONS FROM OTHER JURISDICTION

In Tolley’s Vat Cases 2015, Thirtieth Edition by Rhianon Davies and David Ruddling

at pages 2026 to 2027 a plethora of cases discussed deemed supply in free gifts

and vouchers cases. For ease of reference three related cases are hereby

reproduced :

In McDonald’s Restaurants Ltd: LON/88/11904(VTD3884) under a sales

promotion scheme, a company (M) gave a free hamburgers to readers of a tabloid

newspaper. Customs issued an assessment on the basis that VAT was chargeable

on the supply of hamburgers. M appealed, contending that the hamburgers were

gifts. The tribunal rejected this contention, holding that the production of the

completed voucher was consideration for the hamburgers. [Mcdonald’s]

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In Chappel & Co LTD v Nestle Co Ltd, HL1959,[1960]AC87, where a

company manufacturing chocolate offered gramophone records at a reduced price

to members of the public who submitted three wrappers form packets of its milk

chocolate, it was held that the acquisition and delivery of the wrappers formed part

of the consideration for the records.[Chappel]

A company (G) which manufactured cigarettes operated a promotion scheme

whereby it supplied vouchers with packets of cigarettes. When customers had

collected a certain number of such vouchers, they could be exchanged for goods.

Customs issued a ruling that the company was liable to account for output tax on the

cost of the goods it supplied in this way, and G appealed. The tribunal dismissed

G’s appeal. Applying the ECJ decision in Kuwait Petroleum (GB) Ltd, the vouchers

were supplied free of charge for the purposes of Article 5(6) of the EC Sixth

Directive, so that G was required to account for output tax on the cost of the goods

for which the customers exchanged the vouchers - Gallagher Ltd, LON/96/1928

(VTD14827, VTD16395)[ Gallagher]

Remarks :

1. The cases discussed above are persuasive judicial precedents which may be

adopted as a guidance in Malaysia since the Malaysian GST Appeal Tribunal

was only recently set up on 1st April 2015.

2. Even though the principle of the cases are not directly on point, they could

serve as a guidance to show that Tribunals in other jurisdiction do recognize

the existence of deemed supply principle where free gifts are given.

3. The deemed supply principle may still apply even though the free gifts are

given with or without consideration. As such output tax on the cost of goods

must be accounted for.

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THE SUBMISSION

The learned Tax Agent for the Appellant submitted that there is no deemed supply

by BP to the Distributor and there is no deemed supply by BP to the Consumer,

under para 5(1) read together with para 5(2) of the First Schedule of Act 762,

and hence there is no requirement for BP to account for output tax on the free gifts.

He further argued that the gift rule threshold of RM500/- per person per year is

unlikely to be exceeded for free gifts to Consumer. He pointed out para 5(1) read

with para 5(2) do not contain any express requirement to maintain tracking records

of the free gifts given to a person. Therefore he submitted that tracking system and

records are not required under para 5(1) read with para 5(2) in the Appellant’s

case. To support his argument, he relied on the foregoing persuasive authorities:

1. United Photographic Laboratories LTD v The Commissioners of Central

Excise – LON/92/S-27 (United Photographic Laboratories Case) [London

Vat Tribunal judgement dated 10 March 1993] [United Photographic]

2. West Herts College [UK Vat and Duties Tribunal, LNB News 24/08/2008

[West Herts College]

The learned Tribunal Officer for the Respondent submitted that the decision made

by the DG is not merely based on the practices followed by other oil companies or

other sectors.

He argued that based on the facts of this case the gift rule as mentioned in

para 5(1) First Schedule of Act 762 is applicable. The Appellant had only relied

upon a pamphlet (P1) to support its argument that the gift does not exceed RM500/-.

He also pointed out that the Appellant failed to prove that the transfer of the

free gift is not a supply within the meaning of para 5(1) First Schedule of Act 762.

He further mentioned that the Appellant failed to show records written on what

would happen to the balance of the branded goods after the promotion has ended.

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Finally the Tribunal Officer argued that the promotion goods supplied by the

Appellant to the Distributor is a supply of taxable goods and not merely as a

marketing costs. As such it is subject to be accounted for GST.

He fortified his argument on the strength of:

1. Section 2 and para 5(1) and (2) First Schedule of Act 762

2. Staatssecretaris van Financin v Shipping and Forwarding Enterprise

Safe BV [1991] STC 627 [Staatssecretaris]

3. 16733: West Herts College (VAT and Duties Tribunal (24 August 2000)

[West Herts College]

THE EVALUATION OF EVIDENCE AND FINDINGS

This Tribunal appreciates the in-depth research done by both learned Tax

Representative for the Appellant and learned Tribunal Officer for the Respondent

through their written submission. This Tribunal acknowledges that the undisputed

facts in this case are as follows :

The ad-hoc promotion is undertaken by the Appellant with the participating

Distributor. The cost for the free gifts namely BP branded umbrella and T-shirts is

borne solely by the Appellant. The free gifts are intended for the Consumer who are

individuals. The Appellant hands over the free gifts to the Distributor under the

Appellant’s instruction to the Distributor that the free gifts is to be given to the

Consumer who purchases the engine oil from the Distributor during the promotion

period. There is no supply of the free gifts by the Distributor to the Consumer.

Based on its letter dated 15th August 2015, the DG has decided that the free gifts

was a deemed supply and subject to gift rule under para 5(1) and 5(2) First

Schedule of Act 762.

It is also noted that the Appellant’s pleaded case is as per Appendix 2 which is

hereby reproduced:

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Appendix 2

’13. Grounds for appeal’

BP claims that the disputed decision inasmuch as, it relates to issue 2.1 is incorrect

on law and on facts based on (but not limited to) the following grounds:

The disputed decision does not consider the facts of the present case and is

based on the practices followed by other oil companies and companies of

other sectors.

The disputed decision is based on the incorrect understanding, that the

branded goods are being supplied by BP to the distributor; whereas actually

only the physical custody of the branded goods is given to the distributor so

that he may give them to the customer or end consumer who actually

purchases the BP products

The disputed decision assumes that the branded goods are supplied by BP

to the Distributor, whereas actually they are supplied by BP to the customer

or end customer

The ‘gift rule’ applies to the ‘transfer’ or ‘disposal’ of ‘goods forming part or

the assets of the business.’ In the present case, the branded goods like T-

shirts and umbrellas are not goods which are ‘forming’ part of the assets of

the business.’ In addition to the above, the goods are not ‘transferred’ or

‘disposed of’ in any manner when they are given by BP to the distributor.

The disputed decision fails to appreciate, that the ownership in the goods

continues to be with BP until they are given to the end user who buys the

BP product. The distributor merely has the physical custody of the goods

on behalf of BP.

The disputed decision fails to appreciate, that the purchase of branded

goods for promotion is nothing but a medium of advertisement to boost

sales which is akin to any other medium of advertisement like TV, radio,

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Newspaper etc. Consequently, such bought out branded goods should be

perceived as a genuine marketing expenses and not as a supply of taxable

goods.

The gift rule in spirit applies to gifts or the supply of items without

consideration. In the present case, the branded goods will be given only to

a customer or end customer who purchases the BP products. From the

same, it is evident that the branded goods are not actually free but indeed

have an underlying consideration i.e. enhancing/maintaining brand image,

to clear out old stock or slow moving items, to launch a new product etc.

The disputed decision has not applied the gift rule in light of its spirit and

intended purpose.

The Appellant claims that the decision was erroneous as it merely took into account

that almost all sectors including other oil companies have similar transaction and the

controlling mechanism of such transaction. The learned Tax Representative argued

that the DG ought to have taken into account the peculiar facts of this case before

arriving at its decision. The learned Tribunal Officer argued that there was a supply

and the Appellant is obliged to account for GST and likewise is entitled to claim Input

Tax Credit.

The role of a GST Appeal Tribunal is to hear and make decision on any appeal

against the decision of the Director General of Customs (The Respondent) in

respect of goods and service tax as stipulated by section 127(1) of Act 762.

Based on the matrix of facts presented during the proceedings, this Tribunal warns

itself that in order to arrive to a fair decision, three (3) pertinent questions have to be

asked. The questions are namely :

1. Was there deemed supply made by the Appellant in respect of the free

gifts?

- para 5(1) and 5(2) First Schedule of Act 762

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2. Was the free gifts subject to be accounted for GST?

- para 5(2) First Schedule of Act 762

3. Was the DG’s decision dated 15th August 2015 correct in saying the free gift

rule applies?

1. Was there deemed supply made by the Appellant in respect of the free

gifts?

Section 2 of Act 762 defines supply as - “supply has the meaning assigned to it in

section 4.”

Section 4 (1)

1. Subject to subsections (2) and (3), supply means all forms of supply,

including supply of imported services, done for a consideration and anything

which is not a supply of goods but is done for a consideration is a supply of

services.

2. Matters to be treated as a supply of goods or a supply of services shall be a

specified in the First Schedule of Act 762.

In short to determine whether free gifts are a supply of goods, para 5(1) First

Schedule of Act 762 has laid down the following guidelines i.e. :

a. The gifts forms part of the assets of the business

b. The gifts are transferred or disposed of by or under directions of the person

carrying on the business

c. The goods was transferred with or without consideration.

Looking at the testimonies of the witnesses and documentary evidence presented at

this Tribunal, it is clear that the gifts are assets of the Appellant which are being

used for marketing the Company’s lubricant oil.

On one hand the Appellant maintains that the BP branded goods (t-shirt and

umbrella) were not part of its business assets and in the same breath it claims that

“……….. the purchase of branded goods for promotion is nothing but a medium of

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advertisement to boost sales which is akin to any other medium of advertisement

like TV, radio, newspaper etc…….”

As rightly pointed out by the Tribunal Officer for Respondent, if the branded

goods were not business assets of the Appellant, why were they used as a

promotion for the company? The branded goods bear the name and logo of the

Appellant’s company. The Appellant also purchased the branded goods from the

supplier and transferred them to the Appellant. The Appellant subsequently

transferred the branded goods to the distributor to be disposed off to the customer.

This Tribunal agrees with his argument that the branded goods given away as free

gifts are indeed assets of the Appellant for purpose of boosting sales. There was no

reasonable explanation given by the Appellant as to why they did not consider them

as the company assets.

RW1’s testimony sums the position correctly when she stated that the promoted

branded goods were provided by the Appellant. They were obtained through

purchases made from the supplier. That means, there is a cost borne by the

Appellant which must be entered into the company profit and loss statement.

Therefore the branded goods were assets of the Appellant.

The Tax Representative for the appellant invited this Tribunal to agree that the

disputed decision is based on the incorrect understanding that the branded goods

are being supplied by the Appellant for the distributor. He tried to convince this

Tribunal that actually only the physical custody of the branded goods was given to

the distributors so that he may give them to the customer who actually purchases

the BP products. He went on to add that there is no intended transfer of ownership

of the branded goods by the Appellant to the distributor since they were meant for

the customer.

The Tribunal Officer disagreed with his contention and posed this question : what is

the Appellant’s purpose in handing out the physical branded goods to the

Distributor? This question was actually answered by the Appellant “ so that he may

give them to the customer or end customer who actually purchases the BP products.

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Arguing on the strength of Section 2 and 4 of Act 762, the Tribunal Officer

concludes that once the branded goods were supplied by the Appellant to the

Distributor, there was transfer of ownership and the branded goods became the

possession of the Distributor to be distributed to the customer during promotion

period. He also relied on Guide On Supply (As at 24 May 2016), at item 11 and

12 Page 3;

‘’12. A supply of goods involve the transfer of ownership of the goods from

one person to another person, “goods” mean any kind of moveable and

immoveable property such as machinery, motor vehicle and house. For

example, a person is making a supply of goods if he transfers the title of

the goods to another person under a sale arrangement. A supply of goods

also includes any activity or transaction treated as a supply of goods under

hire purchase or finance lease agreement”

This Tribunal takes note that the term transferred and disposed that were stated in

para 5(1) were not defined by Act 762 or the Interpretation Act 1948 and 1967

[Act 388]. As such the terms transferred and disposed, ought to be given their

ordinary meaning [ please refer to Ketua Pengarah Hasil Dalam Negeri Success

Electronics & Transformer Manufacturer Sdn Bhd (2012) MSTC 30-039]

Oxford Advanced Learner’s Dictionary defines transfer as “to move something

from a place to another”. It defines disposal of as “to get rid of something that one

cannot keep”.

Section 2 of Act 762 defined “owner” as

(a) in respect of goods, includes any person or holding himself out to be

the owner, or person in possession of, or beneficially interested in or

having any control of, or power of disposition over the goods;

This Tribunal agrees with RW1’s observation that once the branded goods were

transferred to the distributor, the goods have been disposed of from the control of

the Appellant. The goods now become under the control of the Distributor. This is

where the issue lies i.e whether there was a supply when the goods were transferred

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from the Appellant to the Distributor. The goods were given free to the customer but

the Appellant failed to show proof in respect of their movement from the Distributor

to customer. The Respondent considered the goods have been disposed of upon

transfer from the Appellant to the Distributor. In other words the goods are no longer

the asset of the Appellant.

By the Appellant’s instruction, the gifts are transferred to the Distributors to be

disposed of as a free gifts to be given to the Appellant’s Customers when they buy

the BP’s product.

Having made a findings of facts which is moulded into the provision of law in Act

762, the Tribunal seeks guidance from the persuasive authority cited by the Tribunal

Officer in Staatssecretaris, supra as follows :

“It is clear from the wording of this provision that supply of goods does not

refer to the transfer of ownership in accordance with the procedures prescribed by

the applicable national law but covers any transfer of tangible property by one party

which empowers the other party actually to dispose of it as if he or she were the

owner.”

In West Herts College, where the provision in UK Value Added Tax Act 1994 in

respect of free gifts and deemed supply are in pari materia with Act 762, supra it

was held :

“In our view, the evidence shews clearly that the prospectuses were part of

the assets of the Appellant’s business. Those assets were transferred of disposed

of by or under the direction of the Appellant. The question then arises, whether the

prospectuses were disposed of to the recipients in such a way that the recipients

were empowered to dispose of them as owner (Staatssecretaris van Financin v

Shipping and Forwarding Enterprise Safe BV). In our view they were. It was not

suggested in evidence that they remained the property of the Appellant at all

times…”

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The cases of Mcdonald’s, Chappel, and Gallagher , supra which discussed

deemed supply principle in respect of free gifts are also referred to by the Tribunal.

As a conclusion, this Tribunal holds that the gifts are a business assets of the

Appellant who was carrying out the business which were transferred to the

Distributors for disposal to BP’s Customers when they buy the BP Product. The gifts

were given without consideration and were no longer assets of the Appellant when

given away at the Appellant’s instruction. In the absence of a tracking system, there

is no way the Appellant is able to monitor the movement of the free gifts. Therefore

the BP branded goods fulfill the criteria of a supply of goods under para 5(1), in that

they were assets of the company given away by way of transfer to the Distributor to

be disposed of to the Customer who purchased BP products. Since there is no

consideration given (being a free gift), it is therefore deemed a supply under para 5

(1). Deemed supply may apply in both situations where no consideration is received

for the supply of the goods as well as when consideration is received. The branded

goods do have a market value and when given away for free it is a deemed supply

and the Appellant must account the output tax based on the value of the goods.

2. Was the free gifts subject to be accounted for GST?

Since the free gifts are deemed supply by virtue of para 5(1) First Schedule of Act

762, the supply is subject to be accounted for GST. Likewise the Appellant is

entitled to claim input tax credit as opposed to the output tax which it incurs in

purchasing the free gifts. The entitlement for registered person to claim input tax is

sufficiently provided by Act 762 in the following discussion :

Section 2 of Act 762 defines input tax means –

a. Tax on any supply of goods or services to a taxable person; and

“output tax” – means tax on any taxable supply of goods and services made

by a taxable person in the course or furtherance of his business in Malaysia.

The Appellant is entitled to claim credit for input tax against output tax by

virtue of Section 38 of Act 762.

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Section 38(1) :

(1) Any taxable person is entitle to credit for so much of his input tax as is

allowable under section 39 to be deducted from any output tax that is due

from him

(3) Subject to subsections (4) and (5) where –

(c) the amount of the credit entitled by virtue of subsection (1) to the

taxable person exceeds the output tax,

the amount of the credit or the amount of credit that exceeds the output tax, as

the case may be, shall be refunded to the taxable person by the Director

General.

Section 39(1) :

(1) The amount of input tax for which any taxable person is entitled to credit in

any taxable period shall be so much of the input tax for the period that is

allowable and reasonable to be attributable, as may be prescribed, to the

following supplies made or to be made by the taxable person in the course or

furtherance of any business in Malaysia :

a) any taxable supply, including a taxable supply which is disregarded under this Act;

b) any supply made outside Malaysia which would be a taxable supply if made in Malaysia; or

c) any other supply as may be prescribed.

The free gifts given out by the Appellant has been proven as “any other supply”

prescribed by para 5(1) of the First Schedule of Act 762 in the foregoing

discussion.

In conclusion, the Appellant is obliged to account for the tax paid in purchasing the

free gifts that were used in furtherance of its business. The Appellant is in turn

entitled to claim input tax credit against his output such as for purchase of the BP

branded goods for free gifts purposes, rental and utilities.

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3. Was the DG’s decision dated 15th August 2015 correct?

The DG had decided that the gift rule applies in this case. It was further testified by

RW1 and RW2 that if the Appellant is able to prove that the amount of the gifts are

within para 5(2) First Schedule of Act 762, deemed supply under para 5(1) is not

applicable.

Para 5

(2) Subparagraph (1) does not apply where the transfer disposal is

(a) A gift of goods made in course of furtherance of the business made

to the same person in the same year where the total cost to the

donor is not more than five hundred ringgit; or …….

The DG had decided that para 5(2) would be applicable if there was a tracking

system to gauge the maximum amount of gifts given to the same person in the same

year does not exceed RM500. This Tribunal holds that it is a reasonable measure

as other oil and gas company has the same mechanism in place. It is insufficient for

the Appellant to say that it is unlikely that the amount will exceed RM500/- without

offering any proof to support its contention. The Respondent had given time to the

Appellant to prove this before the matter was taken up to the Technical Committee

Meeting. The Appellant had failed to submit any form of tracking system but instead

only provided slides to show internal communication of the disposal of the free gifts.

The Tax Representative for the Appellant argued that the disputed decision fails to

appreciate that the purchase of branded goods for promotion is nothing but a

medium of advertisement to boost sales which is akin to any other medium of

advertisement like TV, radio, newspaper etc. Consequently such bought out branded

goods should be perceived as a genuine marketing expenses and not as a supply of

taxable goods. With respect this Tribunal disagrees with his line of argument. The

branded goods were purchased from the supplier in bulk for purpose of promotion

and to boost sales. As such there was cost involved and they were obviously a

supply of taxable goods. In sum based on the foregoing discussion, the disputed

decision was based on the factual matrix of the Appellant’s case and not merely

based on the practices followed by other companies or other sectors.

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To conclude, this Tribunal finds that the Appellant has failed on the balance of

probabilities to prove that the DG had made a wrong decision in deciding that the gift

rule applies.

THE OTHER ISSUES

A pleadings ensures that the parties state their cases from the onset of hearing and

do not lose sight of the issues at hand throughout the trial. It also serves to prevent

surprises from being sprung upon the opposing side. Hence, the importance of the

principle that a party has to be bound by its own pleadings can never be stressed

enough. The Tribunal would be guided in making a decision within the confines of

pleadings of both parties.

To this end the Tribunal is bound by the decision of the Court of Appeal in another

Tribunal in Ranjit Kumar A/P S. Gopal v Hotel Excelsior (2011) 3 AMR 38

whereby his Lordship Arifin Zakaria CJ, Mohd Ghazali Mohd Yusof and Raus

Sharif, FCJ held :

“………. pleadings in the industrial court are as important as in the Civil

courts. Section 30(5) of the act could not be used to override or circumvent

the basic rules of pleadings. [Ranjit Kumar]

In the case of Ramachandran, R v Industrial Court of Malaysia and Anor (1997)

1 CLJ 147, the Court of Appeal has this to say :

“It is trite law that a party is bound by its pleadings. The industrial court must

scrutinize the pleading and identify the issues, take evidence, hear the parties

arguments and finally pronounce its judgement having strict regards to the

issues.” [Ramachandran]

Having the benefit of the foregoing principle, this Tribunal finds that several issues

ventilated in this proceedings were not stated in the Appellant’s pleadings namely :

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1. The Respondent never required the Appellant to furnish any evidence of

agency during the disputed period. As such all argument based on section 65

Act 762 are not taken into account in this judgement.

2. The alternative ground on application of concession in Customs GST Guide

as Retailing was not formed on the Appellant’s pleaded case and therefore

the issue is not discussed here.

3. Tied-in goods instead of promotional goods which were supplied later than

the main products was not a pleaded ground of appeal. Therefore it merits no

discussion here.

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THE CONCLUSION

In conclusion, without regard to formality and technicality as stipulated by section

142 Act 762, this Tribunal holds that the Appellant has failed to prove its case on the

balance of probabilities. Consequently the Appellant’s appeal against the decision of

the Director General Of Customs dated 10th August 2015 is hereby dismissed under

subsection 147(c) of Act 762. The decision of the Director General Of Customs

dated 10th August is hereby affirmed by virtue of subsection 144(2)(a) of Act 762.

HANDED DOWN AND DATED THIS 28th Day Of February 2017

ASLINA BINTI JONED

CHAIRMAN

GOODS AND SERVICES TAX APPEAL TRIBUNAL

Mr. Chandran Ramasamy (Mr. Jeet Oza with him), Tax Representative Delloitte Tax

Services Sdn Bhd for the Appellant.

Mr. Mohd Azawan Shah bin Amdan, Tribunal Officer for the Respondent

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Appendix 2

’13. Grounds for appeal’

BP claims that the disputed decision inasmuch as, it relates to issue 2.1 is incorrect

on law and on facts based on (but not limited to) the following grounds:

The disputed decision does not consider the facts of the present case and is

based on the practices followed by other oil companies and companies of

other sectors.

The disputed decision is based on the incorrect understanding, that the

branded goods are being supplied by BP to the distributor; whereas actually

only the physical custody of the branded goods is given to the distributor so

that he may give them to the customer or end consumer who actually

purchases the BP products

The disputed decision assumes that the branded goods are supplied by BP to

the Distributor, whereas actually they are supplied by BP to the customer or

end customer

The ‘gift rule’ applies to the ‘transfer’ or ‘disposal’ of ‘goods forming part or the

assets of the business.’ In the present case, the branded goods like T-shirts

and umbrellas are not goods which are ‘forming’ part of the assets of the

business.’ In addition to the above, the goods are not ‘transferred’ or

‘disposed of’ in any manner when they are given by BP to the distributor. The

disputed decision fails to appreciate, that the ownership in the goods

continues to be with BP until they are given to the end user who buys the BP

product. The distributor merely has the physical custody of the goods on

behalf of BP.

The disputed decision fails to appreciate, that the purchase of branded goods

for promotion is nothing but a medium of advertisement to boost sales which

is akin to any other medium of advertisement like TV, radio, Newspaper etc.

Consequently, such bought out branded goods should be perceived as a

genuine marketing expenses and not as a supply of taxable goods.

The gift rule in spirit applies to gifts or the supply of items without

consideration. In the present case, the branded goods will be given only to a

customer or end customer who purchases the BP products. From the same,

it is evident that the branded goods are not actually free but indeed have an

underlying consideration i.e. enhancing/maintaining brand image, to clear out

old stock or slow moving items, to launch a new product etc. The disputed

decision has not applied the gift rule in light of its spirit and intended purpose.