Ketua Pengarah Kastam Jabatan Kastam Diraja Malaysia v Hong Leong Yamaha Motors Sdn Bhd [2025] 6 MLJ 245

Federal Court (Putrajaya)

Customs and Excise — Sales tax — Exemption

1. Yamaha Motors is a company involved in the import of motorcycle components and the assembly of motorcycles in Malaysia. Under the Sales Tax Act 2018 (“Act 806”), Yamaha Motors is recognised as a registered manufacturer only in respect of motorcycles above 250cc, which are categorised as taxable finished goods. At the same time, Yamaha Motors is also a franchise holder of locally assembled manufacturers for Yamaha motorcycles (below 250cc and above 250cc). Franchise holders are not covered by Act 806 and PU(A) 210).
2. In August 2018, Yamaha Motors generated an Exemption Certificate dated 30 August 2018 through the SST online system under Item 1, Schedule C of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 (P.U.(A) 210). This certificate expressly stated, under Condition 3, that any raw materials and components imported using the certificate must be used solely for the manufacturing of “finished taxable goods” belonging to a registered manufacturer. Despite this clear condition, Yamaha Motors repeatedly used the certificate to import taxable motorcycle components for assembling motorcycles below 250cc, which were not taxable finished goods.
3. Between September 2018 and July 2019, Yamaha made numerous Customs Declarations relying on this certificate to obtain tax-free importation of components used specifically for the assembly of its tax-exempt motorcycles. Following an audit of Yamaha’s declarations and sales tax returns, the Director General of Customs determined that Yamaha had wrongly claimed exemptions. Consequently, three Bills of Demand were issued under section 38 of Act 806, seeking payment of sales tax on the components that had been imported or purchased for use in the assembly of the tax-exempt motorcycles.
4. Yamaha Motors then filed three consolidated Judicial Review applications in the High Court seeking, among others, orders of certiorari to quash the Bills of Demand. Yamaha argued that it had fulfilled all conditions under the exemption regime, including approvals from Customs and ministerial letters extending similar tax relief to franchise holders and contended that the phrase “finished goods” in Item 1, Schedule C should include not only taxable goods but also tax-exempt goods.
5. The High Court rejected Yamaha’s arguments and dismissed all three applications. Yamaha appealed, and the Court of Appeal subsequently allowed the appeal, holding that “finished goods” was broad enough to include both taxable and tax-exempt products. The Director General of Customs then obtained leave to appeal to the Federal Court, resulting in the present appeal.

1. Whether Yamaha Motors, being a ‘registered manufacturer’ only for motorcycles above 250cc, is 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 has been exempted at sale level)?
2. Whether such an interpretation would result in an impermissible double tax exemption, contrary to the single-stage nature of sales tax under Act 806?

Ratios

(1)  Whether Yamaha Motors, being a ‘registered manufacturer’ only for motorcycles above 250cc, is 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 has been exempted at sale level)?

(2)  Whether such an interpretation would result in an impermissible double tax exemption, contrary to the single-stage nature of sales tax under Act 806?

(a) The Federal Court addressed the issues together, as both turned on the proper interpretation of the exemption provision within the statutory framework of the Sales Tax Act 2018.

(b) The Federal Court first clarified the applicable approach to the interpretation of tax exemption provisions. It explained that exemption provisions are not construed in the same manner as charging provisions. While charging provisions are construed strictly against the taxing authority, the burden lies on the taxpayer to bring itself clearly within the scope of an exemption. If, after a fair reading, doubt remains as to whether the taxpayer falls within the exemption, the claim must fail. This principle was confined by the Court to exemption provisions and was not stated as a general rule of statutory interpretation.

(c)  The Court then examined the statutory meaning of “registered manufacturer” and its relevance to Item 1 of Schedule C to P.U.(A) 210. Reading sections 2, 12 and 13 of the Sales Tax Act 2018 together, the Court observed that registration under the Act is premised on the manufacture of taxable goods. A person who manufactures goods that are exempted from sales tax does not fall within the statutory conception of a registered manufacturer in respect of those goods (paras 50–52).

(d) Against this statutory background, the Federal Court considered the phrase “finished goods” in Item 1 of Schedule C. The Court rejected the proposition that the phrase could be read in isolation or given a purely literal meaning. When construed in its proper statutory context, the exemption was directed at raw materials used in the manufacture of finished goods that are subject to sales tax. The Court reasoned that Item 1 of Schedule C operates to avoid multiple taxation within the sales tax system, not to confer a blanket exemption regardless of the tax status of the finished product.

(e)  The Federal Court further explained that this interpretation accords with the nature of sales tax under the Sales Tax Act 2018 as a single-stage tax. Sales tax is imposed either at the stage of manufacture or at the stage of sale, but not both. Where finished goods are already exempted from sales tax at the sale stage, the rationale for exempting raw materials at the manufacturing stage does not arise. Allowing exemption at both stages would result in a double exemption, which is inconsistent with the structure and purpose of the Act.

(f)   Applying these principles to the facts, the Court found that the Respondent manufactured both taxable motorcycles exceeding 250cc and motorcycles below 250cc that were exempted from sales tax at the sale stage. Although the Respondent was a registered manufacturer in respect of the taxable motorcycles, the raw materials in dispute were used in the manufacture of motorcycles below 250cc. In respect of those goods, the Respondent did not satisfy the statutory conditions for exemption under Item 1 of Schedule C (paras 64–66).

(g) The Federal Court also considered the Respondent’s reliance on an auto-generated exemption certificate issued under the SST self-assessment regime. The Court held that such a certificate is not determinative of entitlement to exemption. Responsibility remains with the taxpayer to ensure compliance with statutory requirements. In this case, the exemption certificate expressly limited its application to raw materials used in the manufacture of finished taxable goods. The Respondent, having generated and relied on the certificate, was bound by that condition (paras 68–71).

(h)  Finally, the Federal Court stated that the Court of Appeal had erred in adopting a literal interpretation of “finished goods” without sufficient regard to the statutory context, the distinction between charging and exemption provisions, and the single-stage nature of sales tax. That approach led to an impermissible outcome whereby raw materials and finished goods would both escape taxation, contrary to legislative intent (paras 78–80).

1. The Federal Court allowed the appeal, set aside the decision of the Court of Appeal, and restored the decision of the High Court. The Bills of Demand issued by the Director General of Customs were held to be lawful. No order as to costs was made.

1. Tax exemption provisions are construed strictly, and the burden lies on the taxpayer to prove entitlement.
2. Under Act 806, Item 1, Schedule C of P.U.(A) 210 applies only to the manufacture of finished taxable goods.
3. Court must interpret exemption provisions within the broader statutory and fiscal framework, not in isolation.