Mylo (Pvt) Ltd v Zimbabwe Revenue Authority

The appellant was a company operating two separate business units: a fuel service station and a transportation service consisting of 21 fuel tankers and trucks. It entered into two agreements with a third party fuel supplier: (1) a contract for transportation of fuel dated 1 March 2010, and (2) a memorandum of agreement for supply of petroleum products dated 10 March 2010. Between July 2010 and September 2013, the appellant purchased petroleum products worth US$9,000,409.19 from the third party and provided transportation services valued at US$7,339,989.38, of which US$6,206,785.09 was used to offset fuel purchases. The appellant voluntarily registered its transport business for VAT but only paid VAT on the net cash receipts of US$1,133,204.29, treating the US$6,206,785.09 used as offset as "payment in kind" rather than a taxable supply. Following a tax review, the respondent issued 29 amended VAT assessments totaling US$809,580.66 for the understated VAT. The appellant objected, arguing the transportation services constituted payment, not supply, but the objection was disallowed.

• Whether fuel transportation services rendered in exchange for petroleum products constituted a 'supply of services' under s 6(1)(a) of the Value Added Tax Act [Chapter 23:12]
• Whether the appellant understated its sales in respect of transport services by not charging VAT on services used to offset fuel purchases
• Whether payment in kind for services falls within the definition of 'supply' for VAT purposes
• Whether the transportation services were supplied 'in the course or furtherance of' the appellant's trade

The appeal was dismissed with no order as to costs, as the court did not consider the grounds of appeal to have been frivolous under s 10 of the Fiscal Appeal Court Act [Chapter 23:05].

The binding legal principle is that transportation services provided in exchange for petroleum products, even when structured as payment in kind or set-off against fuel purchases, constitute a 'supply of services' within the meaning of s 6(1)(a) of the Value Added Tax Act [Chapter 23:12] and are subject to VAT. The legislative definition of 'supply' includes 'all forms of supply' and is deliberately wide, broad, deep, extensive and all-embracing. Payment in kind, barter transactions, and set-off arrangements all fall within this definition where the four conjunctive requirements of s 6(1)(a) are met: (1) supply by a registered operator; (2) of goods or services; (3) supplied after 1 January 2004; and (4) in the course or furtherance of any trade carried on by the supplier. The exemption of goods from VAT does not extend to exempt services used as payment for those goods.

The court observed that the arrangement between the parties resembled barter trade and that the appellant appeared to experience cash flow constraints which necessitated cash payments by the third party despite being owed larger amounts. The court noted that the appellant's own conduct in voluntarily registering the transport business for VAT, excluding VAT in mileage rates, and paying VAT on some transport services confirmed that the two business operations were distinct. The court also commented that treating the provision of transport services as payment in kind would be no different from treating cash payment as a supply, implicitly rejecting any meaningful distinction. The court expressed the view that there was no contradiction between the wide definition of 'supply' and 'consideration' and the various mechanisms in ss 3(2), 3(3) and 9(2) for determining open market value.

This case establishes important principles in Zimbabwean VAT law regarding the scope of 'supply' under the Value Added Tax Act. It clarifies that: (1) the definition of 'supply' is deliberately broad and all-embracing, encompassing all forms of supply; (2) payment in kind through services constitutes a taxable supply and does not escape VAT liability merely because it is used to offset debts; (3) barter transactions and set-off arrangements constitute taxable supplies; (4) separate business units operated by the same entity must be treated distinctly for VAT purposes; and (5) the fact that services are used to pay for exempt goods does not exempt those services from VAT. The case provides guidance on the interpretation of s 6(1)(a) of the Value Added Tax Act and the broad fiscal policy of capturing all forms of commercial supply within the VAT net.