ATTORNEY GENERAL OF LAGOS STATE v EKO HOTELS LIMITED & ANOR (2017)

Citation: (2018) 36 TLRN 1

Supreme Court of Nigeria

Name of Justices:

Musa Dattijo Muhammad (Presided)

Kudirat Motonmori Olatokunbo Kekere-Ekun (Delivered the leading judgement)

John Inyang Okoro 

Amiru Sanusi

Ejembi Eko

Judgement delivered on December 8 2017

PARTIES INVOLVED

Attorney General of Lagos State (Appellant): The Chief Legal Officer of Lagos State representing the State Government, who was seeking to overturn the decision of the lower court.

Eko Hotels Limited (1st respondent): A major operator in the hospitality industry in Lagos. Also, collected tax from its customers on the sales of goods services supplied in its premises.

Federal Inland Revenue Service (2nd respondent): The principal revenue collection agency for the Federal Government.

FACTS

The Lagos State Sales Tax 1994 imposed a tax on the consumption of goods and service, particularly within the hospitality sector and the State Government demanded the remittance of this tax. This was done without regard to the already existing Value Added Tax Act 1993, enacted by the National Assembly, which also imposed tax on the supply of all goods and services within the federation.

Eko Hotels Limited, as a major operator in the hospitality industry in Lagos, was faced with conflicting demands from both the FIRS and the Lagos State Government for the remittance of the same tax proceeds. Eko Hotels argued that remitting the same tax funds to both the Federal and State Governments would amount to illegal double taxation, and that defying one authority while paying the other could lead to penalties and legal action from the unpaid authority.

To resolve this untenable position, Eko Hotels Limited initiated law suit at the Federal High Court via an Originating Summons (filed on the March 5 2004). The hotel essentially asked the court for judicial clarification, seeking a declaration that the hotel is only obligated to remit tax on its sales to a single body or agency and not to both simultaneously. They sought for an order directing the court to determine the rightful body authorized by law to collect the tax.

The Federal High Court ruled that the authority to collect the tax was vested in the FIRS pursuant to the VAT Act. The Lagos State Government appealed this decision, but the Court of Appel dismissed the appeal, upholding the Federal High Court’s decision on the basis that VAT Act covered the field. The Attorney General of Lagos State, still dissatisfied, appealed to the Supreme Court, which led to the 2017 final judgement. 

ISSUES FOR DETERMINATION

1. Whether the lower Court was right when it held that the Value Added Tax Act has covered the field of Sales Tax and its provision prevails over the Sales Tax Law of Lagos State. 
2. Whether the simultaneous imposition and collection of both the Federal Value Added Tax (VAT) and the Lagos State Sales Tax on the same goods and services would amount to an illegal imposition of double taxation on the taxpayer.

ARGUMENTS OF THE APPELLANTS (AG LAGOS STATE)

The Attorney General of Lagos state, on behalf of the Lagos State Government, argued for the validity and supremacy of its Sales Tax Law based on the following points:

1. Taxation on the sale or consumption of goods and services is not explicitly listed in the Exclusive Legislative List or the Concurrent Legislative List of the Constitution of the Federal Republic of Nigeria 1999. Therefore, by default, the power to legislate on sales or consumption tax falls into the Residual Legislative List which is an area exclusively reserved for the State Houses of Assembly by virtue of Section 4 (7) of the 1999 constitution.
2. The Lagos state Sales Tax was a local consumption tax imposed on the final consumer within the State’s territory, making it different from Value Added Tax, which is a broader, multi-staged tax designed to regulate trade and commerce across Nigeria. Therefore, VAT did not cover the field of the Sales Tax.

ARGUMENTS OF THE RESPONDENTS (FEDERAL INLAND REVENUE SERVICE AND EKO HOTELS Ltd)

The respondents based their arguments on the following points:

1. VAT, which imposes a tax on the supply of all goods and services, is an existing Federal law validly enacted by the National Assembly and has covered the field of sales or consumption tax across the Federation. Therefore, any similar State law (like the Lagos State Sales Tax Law) legislating on the same subject must remain in abeyance by virtue of Section 4(5) of the CFRN 1999, which provides that in the event of a conflict between the provisions of a Federal Act and that of a State law, the provisions of the Federal law shall prevail while that of the State law shall be declared null and void to the extent of its inconsistency.
2. Allowing the Lagos State Sales Tax Law and the VAT Act to operate simultaneously on the same tax base (sales/consumption of goods and services) would result to an illegal and oppressive imposition of double taxation on the customers of Eko Hotels, who are burden bearer of the tax.

JUDGEMENT

The Court affirmed the decision of the lower court, ruling that the Value Added Tax Act takes precedence over the Lagos State’s Tax law, and that the Lagos State Sales Tax is unconstitutional as the VAT Act has already covered the field. The Court further held that the imposition of VAT and Sales Tax on the same items would constitute illegal double taxation.

The Court gave an Order that the tax collected by Eko Hotels was to be remitted to the Federal Inland Revenue Service (FIRS).

RATIO DECIDENDI

Doctrine of Covering the Field: The primary reason for the Court’s decision is the doctrine of Covering the Field. This is because of the VAT Act has “covered the field” of sales tax or consumption tax on the supply of goods in Nigeria. This means that once the National Assembly has validly legislated exhaustively on a particular subject, any subsequent or concurrent law passed by a State House of Assembly, in this case, the Lagos State Sales tax, dealing with the same field shall be declared null and void. 

Supremacy of Federal Law: By virtue of Section 4(5) of the Constitution of the Federal Republic of Nigeria 1999 (as amended), where the provisions of a State Law conflicts with the provisions of a Federal Act on a matter, the Federal Act prevails, and the State law shall be declared null and void to the extent of its inconsistency. The Court cited the case of AG Ogun State v Aberugba (1985) 1 NWLR (Pt 3) 395, where the supreme Court also upheld the supremacy of the Federal law (the Sales Tax of 1962) over a State Tax Law

Prohibition of Double Taxation: The imposition of both the VAT and Sales Tax on the same transaction amounts to illegal and oppressive double taxation.

CONCLUSION

This case helped in temporally resolving the long-standing conflict over which tier of government has the authority to collect consumption tax on goods and services in Nigeria. It also provided a strong reinforcement of the judicial application of the “Covering the Field” doctrine in Nigeria. This principle limits the legislative autonomy of States on concurrent matters, ensuring that a comprehensive Federal law takes precedence to avoid chaos and inconsistency across the federation.

However, while this judgement favored the FIRS, it did not decide on the fundamental constitutionality of the VAT Act itself. The ruling intensified the debate, ultimately leading to a 2021 judgement by the Federal High Court in AG Rivers State v FIRS FHC/PH/CS/149/2020 (unreported) that directly challenged the National Assembly’s competence to enact the Vat Act in the first place, arguing that consumption tax is a residual matter belonging exclusively to the States.

In my humble opinion, I think the non – inclusion of consumption tax under any of the legislative list is a lacuna in the constitution. I, therefore, propose that the 1999 constitution be amended so as to include VAT under the Exclusive Legislative List and put an end to the ongoing “VAT War” in Nigeria.