The Goods and Services Tax (GST) was a form of value-added tax in Malaysia. Under the GST regime, businesses could claim back the GST paid for business expenses through an input tax credit mechanism.  Regulation 46(1) of the GST Regulations allows businesses to claim GST incurred before registration as creditable input tax – this was termed as an “exceptional claim for input tax”.

Due to the repeal of the GST Act effective 1st September 2018 (“Repeal”), many taxable persons were not given the full amount of exceptional input tax claimed. This is because the Director General of Customs (“DGC”) had imposed an internal apportionment formula to calculate the exceptional input tax claimable based on the Repeal and the number of days the taxpayer was registered as a taxable person. 

This apportionment reduced the amount of exceptional input tax allowed, given that the days the taxpayer is registered as a taxable person was shortened due to the Repeal.  

The following questions arose:

  1. Can the DGC adopt a formula to apportion the exceptional input tax claimable when there was no such formula in the GST Act? 
  2. How would the repeal of the GST Act affect taxpayers’ exceptional claim for input tax? 

The above questions were addressed in what became the first decision about these issues in Nobuyasu Sdn Bhd v Tribunal Rayuan Kastam Diraja Malaysia & Anor [2020] 11 MLJ 182, where our firm represented the taxpayer.

In Nobuyasu, Customs apportioned/reduced taxpayer’s claim and only allowed approximately 3.4% of the total amount claimed by the taxpayer on the basis that the taxpayer was only a GST registered person from 1 May to 31 August 2018 (4 months). 

The taxpayer’s challenge was successful at the High Court.  The High Court held that since there were no express provisions under the law for the DGC to apportion or reduce the taxpayer’s input tax claim, nor was there any formula prescribed for the said reduction and apportionment of the input tax claim, the exceptional input tax claim must be allowed in full. The High Court also held that the repeal does not affect the taxpayer’s right to claim for exceptional input tax, as the claim was submitted prior to Repeal. 

Whilst the decision in Nobuyasu was later overturned by the Court of Appeal (albeit without a written judgment or grounds by the Court of Appeal), there are a string of cases that followed suit, filed in attempts to challenge the DGC’s apportionment formula. We assess below the decisions of these cases post-Nobuyasu

  • Primary Goldennet Sdn Bhd v. Ketua Pengarah Kastam dan Eksais dan Tribunal Rayuan Kastam:  The High Court affirmed Nobuyasu and held that since regulation 46 of the GST Regulation does not provide any formula which can be applied by the DGC, such that it does not have the power to determine the eligibility of the exceptional input tax claim without express powers under the law, rendering the apportionment of the exceptional input tax credit being wrong in law. The Court of Appeal later affirmed the High Court’s decision. 
  • Broadway Metal Sdn Bhd v Ketua Pengarah Kastam dan Eksais: The High Court in dealing with the same issue, held that taxing statutes must be construed strictly against the DGC. It is not up to the DGC to try to make equity by apportioning the GST burden to the taxpayer. The court went on to say that although Nobuyasu was overruled by the Court of Appeal, it is still good law because no written grounds were provided by the Court of Appeal. Only the ratio decidendi ascertained from a written judgment of a superior court, has binding or persuasive effect.  
  • Metrogold Commercial Sdn Bhd v Ketua Pengarah Kastam: The High Court held that a repealed law does not have retrospective effect i.e. the rights acquired and obligations imposed under a repealed statute are not extinguished when the statute is repealed. The taxpayers must not be ‘punished’ for something that is beyond their control. The taxpayer had incurred the GST amount before the repeal of the GST Act and therefore is legally entitled to exceptional input tax claim prior to the repeal of the GST Act. This decision is again, in line with Nobuyasu
  • JT Broadway Sdn Bhd v Ketua Pengarah Kastam & Anor: The High Court held that any assessment to tax can and should only be done in accordance to law, and cannot be subject to any other internal policies which do not have the force law. Customs cannot act ultra vires by using a formula which is not officially disclosed to the public or having the force of law to ascertain the amount of input tax credit to be refunded. 
  • Zillion Sunrise Sdn Bhd v Ketua Pengarah Kastam & Anor: The High Court held that the DGC’s decision to arbitrarily allow only a nominal portion of the taxpayer’s claim for exceptional Input Tax Claim is against the object and spirit of the GST Act, as it increases the cost for the Applicant’s business. Similarly, the court held that although Nobuyasu was overruled by the Court of Appeal, it is still good law because there are no written grounds from the Court of Appeal.
  • Ketua Pengarah Kastam v Tomoe Malaysia Sdn Bhd & Anor: The High Court held that based on the principles of fairness and justice, just as the taxpayer should not be disadvantaged by the GST Act’s repeal, Customs should not be given the advantage of procuring more tax than it is permitted to procure because of the repeal. Hence, the repeal of the GSTA is not an acceptable ground to reduce or apportion taxpayer’s Exceptional ITC for a refund.
  • Recently, the Court of Appeal in Ketua Pengarah Kastam v Metrogold Commercial Sdn Bhd held that the formula adopted by DGC in making the computation that arrived at the apportionment and reduction on the Input Tax Claim was not based on any legal provisions. There is no basis for any apportionment to be made as both Regulation 46 and Section 4 of the GST Repeal Act makes no mention of any apportionment or reduction because of the repeal. Furthermore, GST Repeal Act cannot be construed to in effect retrospectively impair the taxpayer’s right, already accrued, existing and vested, to be refunded with its claim for input tax credit given the conspicuous absence of any provisions authorising such apportionment. 

Despite Nobuyasu being overturned by the Court of Appeal, the Courts have been consistent post-Nobuyasu that the repeal of the GST Act does not affect taxpayer’s exceptional claim for input tax. The DGC is not empowered to apportion or reduce the amount of exceptional input tax claimable by the taxpayer by imposing its own internal formula which was not prescribed by law.  This reflects the true concept of GST, which is meant to be a tax on consumers and not a cost to businesses. 

The arbitral imposition of formula also does not reflect the true intention of the parliament. If the Parliament intention is to have the input tax reduce or apportion with a certain formula, it would have expressly provided it in the statute. 

These cases also concretely stem the principle that taxing statutes must be construed strictly. There is no equity nor room for interpretation in tax. Imposing a formula to reduce or apportion the exceptional input tax claim after the announcement of abolishment of GST was not only discriminatory, but can be construed as an afterthought.


This article was written by Lim Zi-Han (Partner) with assistance from Low Rui Thong (Pupil in Chambers) from Donovan & Ho’s employment law practice. 

Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations.  Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.

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