Written by Ng Shi Chen
A case study on the Federal Court case of Ketua Pengarah Kastam Jabatan Kastam Diraja Malaysia v Hong Leong Yamaha Motors Sdn Bhd
Coram: Zabariah Yusof, Harmindar Singh, Rhodzariah Bujang, Abu Bakar Jais and Hanipah Farikullah FCJJ
Brief Facts of the Case
The respondent was a registered manufacturer under the Sales Tax (Persons Exempted From Payment Of Tax) Order 2018 (‘PU(A) 210’). However, as a franchise holder of locally assembled manufacturer for motorcycles (both below and above 250cc), the respondent was not eligible to claim for the exemption under PU(A) 210.
The government extended the same tax relief to a franchise holder through three ministerial exemption letters (‘Minister’s exemption’). However, the respondent used an exemption certificate under item 1 Schedule C of PU(A) 210 (‘exemption order’) containing the express condition that the exemption was only meant for the import of components to produce taxable finished goods, to import components to assemble motorcycles below 250cc, which were tax exempted finished goods, i.e., sales tax at the sale stage were exempted under the Sales Tax (Goods Exempted from Tax) Order 2018 (‘PU(A) 219’) and the Sales Tax (Goods Exempted from Tax) (Amendment) Order 2018 (‘PU(A) 228’).
The appellant found that there was sales tax due and payable by the respondent on components imported and purchased for assembling motorcycles below 250cc. As the respondent was not entitled to tax exemption under item 1 Schedule C of PU(A) 210, the appellant issued the bills of demand to the respondent.
High Court Findings
The respondent applied for judicial review seeking for the following reliefs:
- a certiorari to quash the impugned bills of demand; and
- a declaration that the term “finished goods” in the exemption order shall not be limited to “taxable goods” only but should include “tax exempted goods”.
The respondent claimed that they had fulfilled all the conditions under the Minister’s exemption and that the appellant had failed to consider the purpose of the Minister’s exemption and exemption order in arriving at the decision. The High Court dismissed the judicial review application.
Court of Appeal Findings
Dissatisfied, the respondent appealed to the Court of Appeal, which allowed the appeal and set aside the High Court order.
Federal Court Findings
Dissatisfied, the appellant appealed to the Federal Court.
The issues to be determined by the Federal Court are as follows:
(i) Whether the respondent, being a ‘registered manufacturer’ only for motorcycles above 250cc, was nonetheless entitled to claim exemption under PU(A) 210 for tax payable for the import or purchase of taxable raw materials for the manufacturing of motorcycles below 250cc (for which sales tax had been exempted at sale stage)?
(ii) Whether motorcycles below 250cc were entitled to ‘double-tax exemption’, both at the production stage (under PU(A) 210) and at the sale stage (under PU(A) 219 and PU(A) 228)?
The answer to each of these questions are as follows:
The Federal Court answered issue (i) in the negative.
The underlying purpose of item 1 Schedule C of PU(A) 210 was to give effect to the concept that sales tax being a ‘single stage tax’, namely, sales tax was imposed at either the production stage, or at the sale stage. Item 1 Schedule C of PU(A) 210 was concerned only with ‘registered manufacturer’. The condition for eligibility under item 1 Schedule C of PU(A) 210 is that the ‘finished goods’ must be ‘taxable goods’. The respondent were deemed to be aware of the condition. The respondent was a ‘registered manufacturer’ manufacturing motorcycles above 250cc, which were ‘taxable finished goods’ under PU(A) 210. However, the respondent that manufactured motorcycles below 250cc, which were ‘tax exempted finished goods’, was not a ‘registered manufacturer’ that fell within the exemption order under item 1 Schedule C of PU(A) 210.
As the respondent used the exemption order, and not the Minister’s exemption, the respondent could not now seek to rely on the Minister’s exemption.
The Federal Court answered issue (ii) in the negative.
The Court of Appeal had erroneously interpreted Schedule C of the PU(A) 210 by failing to distinguish between a tax charging provision and a tax exemption provision. Item 1 Schedule C of PU(A) 210 ought not to be read in isolation of all other items of exemptions prescribed within the same exemption order.
The Court of Appeal had also erroneously interpreted that the term ‘finished goods’ under item 1 Schedule C of PU(A) 210 included both ‘taxable finished goods’ and ‘tax exempted goods, because the interpretation defeated the purpose of item 4 Schedule B of PU(A) 210, where production of exempted goods for local sale purpose was not entitled to the tax exemption for the import or purchase of raw materials; and item 1 Schedule C of PU(A) 210 applied only to a ‘registered manufacturer’, and not a ‘franchise holder’. The interpretation contradicted the concept of sales tax being a single stage tax. Motorcycles below 250cc had already been exempted from sales tax at the sale stage. The effect of the interpretation was that the respondent that manufactured motorcycles below 250cc was entitled to double-tax-exemption, both at the production stage and at the sale stage.
Conclusion
The appeal was allowed by the Federal Court. The Court of Appeal decision, including costs and the High Court decision was reinstated.
Published on 27 November 2025