Wakilii

Lubmarks Investments Ltd v Attorney General Anor (Originating Summons 12 of 2013)

High Court · [2014] UGCOMMC 77 · 2014 Application Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Originating summons for determination of contractual VAT liability between contractor and government ministries
Decision
First Defendant ordered to pay VAT directly to Second Defendant; injunctions granted restraining Second Defendant from enforcement actions against Plaintiff; nominal damages awarded to Plaintiff

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that where contracts between a taxable supplier and government ministries excluded VAT from the contract price and no tax invoices were issued, VAT liability remained with the government as the withholding agent. The First Defendant must pay outstanding VAT directly to the Second Defendant, not through the Plaintiff. The court granted injunctions restraining the Second Defendant from enforcement actions against the Plaintiff and awarded nominal damages for inconvenience caused by enforcement actions against a party not liable for the tax.

Outcome

First Defendant ordered to pay VAT directly to Second Defendant; injunctions granted restraining Second Defendant from enforcement actions against Plaintiff; nominal damages awarded to Plaintiff

Facts

The Plaintiff company entered into two construction contracts with government ministries through the Ministry of Local Government and the Ministry of Agriculture, Animal Industry and Fisheries. Both contracts provided for payment of the contract price exclusive of VAT, which was indicated to be independent of the contract price. The total VAT for the first contract and additional works was UGX 99,557,317, and for the second contract UGX 40,429,683. After contract execution, the First Defendant (government) failed to remit the VAT payments to the Second Defendant (URA). URA demanded VAT from the Plaintiff and took enforcement actions including closing the Plaintiff's premises, confiscating property, and advertising the Plaintiff's and its directors' properties for sale. The Plaintiff brought this Originating Summons seeking determination of who should pay the VAT and injunctive relief. The Ministry of Local Government wrote to URA in March 2014 requesting information about outstanding VAT amounts, and evidence showed the Ministry of Agriculture had paid VAT directly to URA for the second contract.

Issues

  1. Whether the First Defendant is entitled to pay the Plaintiff VAT in respect of the two contracts for remission to the URA (Second Defendant).
  2. Whether the suit was properly brought by way of Originating Summons.
  3. Whether the Plaintiff is entitled to injunctive relief restraining the Second Defendant from enforcement actions.
  4. Whether the Plaintiff is entitled to general and punitive damages for inconvenience suffered.

Orders

  • The VAT still due and owing to the Second Defendant to be remitted directly by the First Defendant together with penalties and interest accrued.
  • An injunction issued restraining the Second Defendant from issuing agency notices to the Applicant's clients who were not party to the contracts and to the Plaintiff's banking institutions.
  • The Second Defendant is further restrained from selling the Plaintiff's and its directors' properties since the VAT is to be paid by First Defendant.
  • The Plaintiff should not be denied tax clearance certificates in respect of this matter.
  • Nominal damages of UGX 2,000,000 granted to the Plaintiff.
  • Interest granted on the sum at court rate from the date of judgment until payment in full.
  • Half of the fixed costs of the suit granted to the Plaintiff.
  • Damages to be paid by the Second Defendant.

Rules and key headnotes

Civil Procedure — Originating Summons — Proper Procedure — Construction of Contracts
An Originating Summons is the proper procedure where the principal question to be determined concerns the construction of a contract and the rights of persons interested under that contract. The term 'other instruments' under Order 37 rule 6 of the Civil Procedure Rules, construed ejusdem generis, includes private documents such as contracts.
Tax Law — Value Added Tax — Liability for Payment — Taxable Supply by Taxable Person
Under section 5 of the Value Added Tax Act, in the case of a taxable supply, the tax is payable by the taxable person making the supply. Where a supplier of goods and services is a taxable person under section 6 of the VAT Act, that supplier bears the obligation to pay VAT on taxable supplies under section 18(d) of the Act.
Tax Law — Value Added Tax — Tax Invoice — Effect of Failure to Issue
Where contracts between parties exclude VAT from the contract price and no tax invoice is issued by the taxable person as required by section 29(1) and (8) of the VAT Act and the Fourth Schedule section 2, the tax liability remains the sole responsibility of the party that withheld the VAT as a withholding agent. It is the issue of a tax invoice which renders the person issuing it liable to pay tax.
Tax Law — Value Added Tax — Government Contracts — Direct Payment to Tax Authority
Where a government ministry acting as a withholding agent of VAT withholds VAT amounts from payments to a contractor under a contract that excluded VAT, the ministry must remit the outstanding VAT directly to the tax authority and not through the contractor.
Administrative Law — Tax Enforcement — Injunctions — Enforcement Against Non-Liable Party
Where a tax authority seeks to enforce tax liability against a party who is not legally liable for the tax because another party acted as a withholding agent, the court will grant injunctions restraining the tax authority from issuing agency notices, confiscating property, advertising property for sale, and denying tax clearance certificates to the non-liable party.
Damages & Quantum — General Damages — Inconvenience — Tax Authority Enforcement Against Non-Liable Party
Where a tax authority takes enforcement actions including business closure, property attachment, and advertisement for sale against a taxpayer who is not liable for the tax in question, and the failure to remit tax was not the taxpayer's fault, the taxpayer is entitled to nominal general damages for inconvenience suffered.

Legislation cited (8)

Cases cited (4)

  • Testimony Moths Ltd v Commissioner of Customs URA (Originating Summons No. 004 of 2011)
  • Pearl Impex Ltd v Attorney General (Originating Summons No. 3 of 2011)
  • Customs and Excise Commissioner v Wells [1982] 1 All ER 920
  • Strums v Hutchinson [1905] AC 515

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Lubmarks Investments Ltd v Attorney General Anor (Originating Summons 12 of 2013) [2014] UGCommC 77 (13 June 2014)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.