The ARC chooses substance over form in the Noodle Express case

On 5 September 2024, the Assessment Review Committee (ARC) ruled against the Mauritius Revenue Authority (MRA) in the Noodle Express case (ARC/VAT/08-19). 

Noodle Express Ltd (NEL), a subsidiary of Hyper Food Ltd (HFL) sold stir-fried noodles and fried rice in various commercial outlets across the island until 2016. Except for one outlet, the lease agreements for the rental of outlets were drawn in the name of HFL. The rent was settled by HFL and subsequently recharged to NEL. The corresponding Tax Deduction at Source (TDS) was withheld by HFL and remitted to the MRA.

Although VAT invoices were issued to HFL, no credit for input tax was claimed by HFL. Instead, NEL claimed input tax in respect of VAT paid by HFL to the lessors. Following an audit conducted into the tax affairs of NEL, the MRA disallowed the input tax claimed by NEL. The assessment raised was maintained at objection level and NEL made representations to the ARC.

NEL contended that:

1.  The leased spaces were used for the advancement of NEL’s business;

2.  IFL  acts merely as a conduit negotiating more favourable leasing terms for its subsidiaries;

3. The existing arrangement did not result in any loss of revenue for the state;

4. Although the invoices lack NEL’s name, they specify the portion of the rented space designated for NEL; and

5. Based on substance over form, NEL is the rightful claimant of the input tax on the lease which was used to make taxable supplies.

The MRA contended that:

1. Input tax credit is permissible only if VAT invoices are issued in NEL’s name.

2. NEL and HFL are separate and distinct legal entities, and the invoices were directed to HFL and not NEL; and

3. HFL had the opportunity to submit an amended VAT return but did not exercise this option.

The ARC highlighted the importance of recognising the substance of the transaction over its legal form. The ARC ruled that the input tax suffered must be allowed in line with the principle of VAT neutrality since the taxable supplies were made by NEL.

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