National Transport Authority v Mauritius Secondary Industry Limited (Mauritius)

Whether a contractual price is inclusive or exclusive of VAT is determined by the contract. If the written contract is silent, the court must interpret it in light of the characteristics of the VAT charge and the subject matter of the agreement. The supplier is liable to the tax authority; the consumer bears the economic burden only because it cannot recover input tax. Unless the contract provides for VAT in addition, the stated total is the consideration, and the supplier must account for VAT from that amount. The taxable value is calculated backwards from the consideration under section 12(2).

National Transport Authority v Mauritius Secondary Industry Limited concerned a lease of office premises granted after a public tender. The lease stated the monthly rent but made no reference to VAT. The landlord later claimed an additional 10% for VAT under the Value Added Tax Act 1998. The trial judge dismissed the claim on the evidence, finding that VAT had not been discussed before the contract was made. The Court of Appeal of Mauritius reversed that decision, reasoning principally that VAT was ultimately borne by the end user. The issue before the Board was whether the contractual rent was inclusive or exclusive of VAT.

Lord Walker delivered the judgment of the Board. The appeal was allowed, the order of the Court of Appeal was set aside, and the order of Peeroo J dismissing the claim was restored.

1. Contractual construction. Whether a price includes or excludes VAT depends on the terms of the particular contract. The principle stated in Lancaster v Bird (1998) 73 Con LR 22 applies equally to a lease of immovable property. Where the written contract is silent, the court must examine the characteristics of the VAT charge and interpret the agreement in light of its subject matter, consistently with Article 1158 of the Code Civil. The approach in Hostgilt Ltd v Megahart Ltd [1999] STC 141 was consistent with that conclusion.
2. VAT liability and consideration. Under the Value Added Tax Act 1998, the person making the taxable supply is liable for VAT. The consumer bears the economic burden because it cannot obtain a credit under section 21, but it has no personal liability to the Commissioner. It is liable to the supplier only if the contractual consideration expressly excludes VAT or must be treated as including it.
3. Calculation. Section 12(2) determines the value of the taxable supply, not the amount of the consideration. If the total consideration is C and VAT is charged at 10%, the taxable value is 10/11 of C. The result is the same whether the contract states an inclusive price or a basic price plus VAT.
4. Application and order. The Court of Appeal’s five matters did not establish an agreement that VAT was payable in addition. The trial judge was entitled to find that VAT had not been discussed before the lease was signed, and there was no basis to disturb that finding. The respondent was ordered to pay the costs in the Court of Appeal and before the Board. A possible claim by the supplier against the Commissioner for recovery of excess VAT was left open because the Commissioner was not a party and no argument had been heard on it, with comparison made to Wynn Realisations Ltd (in administration) v Vogue Holdings Inc [1999] STC 524.

• Privy Council — Appeal allowed under [2010] UKPC 31; the Court of Appeal’s order was set aside and the first-instance order restored.
• Court of Appeal of Mauritius — Reserved judgment handed down on 5 June 2009; the trial decision was reversed.
• First instance — Peeroo J’s reserved judgment dated 3 March 2005 dismissed the claim with costs.