[2024] KETAT 432 (KLR)

Ammo Tech Limited v Commissioner of Domestic Taxes (Tax Appeal 178 of 2023) [2024] KETAT 432 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 432 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 178 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, SS Ololchike & GA Kashindi, Members

March 22, 2024

Between

Ammo Tech Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a company incorporated in Kenya in 2009. Its principal activity is the construction of roads, buildings and supply of construction material.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of laws of Kenya. Under Section 5(1) of the Act, the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5(2) of the Act with respect to performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 1of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. The Respondent issued the Appellant with additional VAT assessment for the month of September 2020 vide Assessment Order number KRA202121189055 dated 10th November 2021 for Kshs 412, 729. 80.

4. The Appellant filed an objection on i-Tax on 10th December 2022 objecting to the whole assessment.

5. The Respondent considered the objection and vide its letter dated 1st February, 2023 issued the objection decision confirming the assessment tax of Kshs 412, 729. 80.

6. Aggrieved by the Respondent’s decision, the Appellant filed its Notice of Appeal dated 27th February, 2023 on 28th February, 2023.

The Appeal 7. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 27th February, 2023 and filed on28th February, 2023:a.The objection decision is not valid according to the provisions of Section 51(3) of the Tax Procedures Act No.29 of 2015 (hereinafter ‘TPA’).b.The Respondent erred in law (VAT Act, No. 35 of 2013) whereby the Respondent on his view there was sales invoice raised to Kiambu County which was not correct.c.The Respondent acted contrary to the provisions of Article 47 of the Kenya Constitution, 2010 (hereinafter ‘the Constitution’) by raising additional tax assessments and arriving at the objection decision without according the taxpayer a fair hearing.c.Such other, further additional and or incidental grounds as may emerge or be canvassed at the hearing of this Appeal.

Appellant’s Case 8. In its Statement of Facts dated 27th February, 2023 and filed on 28th February 2023, the Appellant stated that it is in the business of construction and that the Respondent issued VAT assessment for Kshs 412,729. 80 on 10th November 2021. The assessment was for the month of September 2020 and was exclusive of penalties and interest which it objected to through the i-tax online portal.

9. The Appellant asserted that it later wrote an objection letter dated 6th December, 2022 after receiving confirmation from Kiambu County Government on 22nd November 2022 where its account statement indicated that there was no such business. It argued therefore that the Respondent’s objection decision dated 1st February, 2023 was issued on contrary ground of not being accorded fair hearing.

Appellant’s Prayers 10. The Appellant prayed that: -a.The documents and subsequent confirmation of the Respondent to levy additional taxes upon the Appellant be set aside.b.The Respondent be compelled from effecting any enforcement actions against the Appellant.c.The cost of and incidental to this Appeal hereby awarded to the Appellant; andd.Such other, further incidental alternative and/ or consequential orders or reliefs as the Tribunal may deem just and expedient.

Respondent’s Case 11. In its Statement of Facts dated 26th March, 2023 and filed on 27th March,2023 the Respondent in response to the Appellant’s grounds of Appeal, raised three issues for determination which it analysed as hereunder.

i. Whether the objection decision was issued in line with Section 51 (3)(a) of the TPA. 12. In response to the Appellant’s allegation that the objection decision failed to meet the requirement set out in Section 51(3)(a) of the TPA, the Respondent stated that the said objection decision was issued in line with the TPA. Further the Respondent was not bound to accept the objection of the Appellant as it is as the law empowers the Respondent to disallow the objection upon considering it. In this case, the Respondent stated that it considered the objection however it failed to meet the threshold to warrant it to be allowed.

(ii) Whether the Appellant made sales to the Kiambu County Government 13. The Respondent averred that contrary to the Appellant’s allegation that it made no supply to the Kiambu County Government, information available to it showed that the Kiambu County Government had withheld taxes. Based on this information, the Respondent concluded that the Appellant had failed to declare the sale.

14. The Respondent asserted that Section 19(1) of the Value Added Tax ActNo. 35 of 2013 (hereinafter ‘VAT Act’) states that tax shall be due and payable at the time of supply. It contended that the Appellant was required to submit the due taxes at the time of supply but failed to do so. Hence the Respondent exercised its powers to bring the taxes due to charge.

iii. Whether the Respondent observed the Appellant’s right under Article 47 of the Constitution. 15. The Respondent stated that the additional assessment was issued in accordance with Section 31(1) of the TPA which empowers it to amend theAppellant’s self-assessment and issue an assessment order. The Appellant’s allegations that the Respondent’s actions were contrary to Article 47 of the Constitution are without merit.

16. The Respondent averred that it communicated the assessment to the Appellant on 10th November 2021and that Section 51(2) of the TPA granted the Appellant 30 days in which to file an objection which was received by the Respondent on 10th December 2022. Thereafter it considered the Appellant’s objection and issued the objection decision on the 1st of February 2023 which was within the statutory sixty (60) days. This is proof that theAppellant’s right under Article 47 of the Constitution was observed as the process it undertook was sound both in fact and in law. Furthermore, theAppellant enjoyed the Respondent’s discretion in lodging the late objection hence it cannot be faulted for contravening the Appellant’s right to fair administration action.

Respondent’s Prayers 17. The Respondent prayed that the Tribunal would find:a.That the objection decision dated 1st February2023 was correctly issuedb.That the assessed principal amount of Kshs 412, 729. 80 and the resultant interest and penalties is due and payable.c.That this Appeal be dismissed with costs.

Parties’ Submissions 18. As at the time of hearing of this Appeal on 6th February, 2024, the Appellant had not filed its written submissions. The Tribunal thereforedirected that the Appellant’s case would be based on its pleadings and would adopt the Respondent’s written submissions dated 4th October 2023 and filed on 9th October, 2023 wherein it raised two issues for determination as analysed below:

A i. Whether the Appellant’s Notice of objection dated 10th December 2022 was valid. 19. The Respondent submitted that any notice of objection lodged by a taxpayer is subject to legal requirements stipulated under Section 51(8) of the TPA where it states as follows:“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection in whole or in part, or disallow it, and the Commissioners decision shall be referred to as an objection decision.”

20. The Respondent submitted that as per Section 51 of the TPA, a notice of objection ought to be lodged within 30 days of receiving the assessment. In this case, the Respondent averred that the Appellant s notice of objection was lodged outside the statutory period of thirty (30) days. The Respondent invited the Tribunal to note that the additional assessment was issued on 10th November, 2021 whereas the Appellant’s notice of objection was lodged on 10th December 2022 therefore invalid having been filed one year later and without seeking leave to do so as provided for under Section 51(7) of the TPA; hence the notice of objection is fatally defective.

21. The Respondent submitted that the Appellant failed to meet the threshold encapsulated under Section 51(3) of the TPA as the Appellant did not indicate the grounds of objection, corrections required and the reasons of the amendment. It stated that the Appellant only lodged an objection on i-Tax which failed to meet these requirements.

22. The Respondent placed reliance on the holding in TAT No.55 of 2018 Boleyn International Limited vs Commissioner of Domestic Taxes where it was held as follows:“…on 8th March 2018, the Appellant lodged an objection with Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellants objection as the same did not place itself within the parameters of section 51 (3) of the Tax Procedures Act”.

23. The Respondent therefore asserted that without prejudice to the foregoing it considered the Appellant’s objection dated 10th December 2022 and ultimately upholding the assessment vide the objection decision dated 1st February 2023. The Respondent therefore submitted that its objection decision was issued in line with the provisions of Section 51(11) of the TPA.

ii. Whether the Appellant discharged their burden of proof. 24. The Respondent submitted that it issued the additional assessments for VAT based on information from IFMIS which demonstrated that Kiambu County Government withheld taxes. Therefore, based on this information, the Respondent concluded that the Appellant had failed to declare the sale.

25. The Respondent submitted that the Appellant was required to submit the due taxes at the time of supply as provided for by Section 19(1) of the VAT Act but failed to do so. Further, that nothing stopped the Appellant from adducing documents challenging the assessments dated 10th November 2021 at the objection stage. The Respondent relied on Section 62 of the VAT Act which provides as follows:“In any proceeding under this Act, the burden of proving that any tax has been paid or that any goods or services are exempt from payment of tax shall lie on the person liable to pay the tax or claiming that the tax has been paid or that the goods or services are exempt from payment of tax”.

26. The Respondent relied on the case of Grace Njeri Githua vs Commissioner of Investigation & Enforcement (TATNo.102 of 2018) where the Tribunal emphasized the fact that the burden is on the Appellant to prove the assessment was wrong by stating as thus:“In this Appeal, the Appellant has not provided the Tribunal with enough evidence to show that the net income the Respondent has based the tax assessment was not income or is subject to further cost deduction in arriving at a `net profit. It is trite law that the burden of proof is on the taxpayer to show that the tax so assessed is not due from her.”

27. The Respondent submitted in conclusion that the Appellant has failed to prove that the Respondent’s tax decision was in any way inconsistent based on extraneous factors, excessive or incorrect before and that it has demonstrated before the Tribunal that what was considered in arriving at the assessment and subsequently the objection decision was well within the law. It submitted further that its assessment was hinged on the letter of the law and that it was upon the Appellant to provide evidence to support its assertions against the assessment at the objection stage, a fact which it admittedly did not consider. It submitted therefore that the Appellant’s Appeal lacked merit and prayed that the same be dismissed with costs.

Issues For Determination 28. The Tribunal has considered the parties pleadings documentation and the Respondent’s submissions and is of the considered view that this Appeal distils into two issues for determination namely:a.Whether the Appellant’s Notice of Objection was valid.b.Whether the additional assessment is due and payable.

Analysis And Findings 29. The Tribunal will proceed to analyse the issues identified for determination as follows:

a. Whether the Appellant’s Notice of Objection was valid. 30. Section 51(1) and (2) of the TPA stipulates the timelines within which the Appellant ought to object to the Respondent’s assessment. It provides as follows:“(1)(1) A taxpayer who wishes to dispute a tax decision shall first lodge an objection against the tax decision under this section before proceeding under any written law2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision…”

31. Section 51(3)(a) of the TPA also stipulates what is necessary for a notice of objection to be considered valid. The Section provides as follows:“(1)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if:a.The notice of objection states precisely the grounds of objection, the amendments required, and the reasons for the amendments.”

32. The Tribunal alludes to the holding in the case Equity Group HoldingsLimited vs Commissioner of Domestic Taxes (Civil Appeal E069 & E 025 of 2020(2021) KEHC 25 (KLR) which was as follows:“The word “shall” when used in a statutory provision import a form of command or mandate. The word shall in its ordinary meaning is a word of command which is normally given a compulsory meaning as it is intended to denote obligation….……. Substantive law was a statutory law that dealt with the legal relationship between people or the people and the State. Therefore, substantive law defined the rights and duties of the people, but procedural law lay down the rules with the help of which they were enforced. ………..

Article 159(2) (d) of the Constitution talked about procedural technicalities. A statutory edict was not a procedural technicality. It was a law which had to be complied with. Parliament in its wisdom expressly and in mandatory terms provided the consequences of failing to render a decision within 60 days. ……”

33. The Tribunal cites Section 51(6) of the TPA which would provide relief for a taxpayer who may be late in lodging its notice of objection to rectify its position by making an application to the Respondent for extension of time to do so. Section 51 (6) provides as follows:“A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.”

34. The Tribunal notes that the Respondent issued the assessment vide assessment order dated 10th November, 2021 while the Appellant objected to this demand through i-Tax on 10th December, 2022. The Tribunal has also reviewed a copy of the Appellant’s letter dated 6th December 2022 in which the Kiambu County Government stated that it only awarded the tender but failed to process payment so that the tender could be executed .The Tribunal observes that in both cases, the Appellant objected to the Respondent’s assessment , approximately after a year.

35. The Tribunal places reliance on the case of Bin Abdulrahim & Sons vs Kenya Revenue Authority (2017) eKLR where it was held as follows: -“Any objection which the Appellant may have had, as a result of the suit has been overtaken by time as an objection to a tax decision ought to be lodged within thirty days.”

36The Tribunal further notes that even though Section 51(6) of the TPA offers the Appellant relief by allowing it to apply to the Respondent for extension of time to file its objection, the Appellant did not adduce evidence that such an application was made. It is therefore evident that the Appellant in this case was not vigilant in seeking to prove its case within the statutory timelines. Indeed, equity only aids the vigilant and not those who slumber on their rights.

37. The Tribunal is further guided by the holding in the case of Speaker of the National Assembly vs James Njenga Karume (1992) eKLR where the Court of Appeal held as follows:“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures.”

38. Consequent to the above analysis the Tribunal finds that the Appellant’s notice of objection was issued outside the statutory timelines and was therefore invalid.(b)Whether the additional assessment is due and payable

39. Having held that the notice of objection was lodged outside the statutory timelines of thirty days it follows that the additional assessment is due and payable and the Tribunal finds as much.

Final Decision 40. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following orders:a.The Appeal be and is hereby dismissed.b.The respondent’s objection decision dated February 1, 2023 be and is hereby upheld.c.Each party to bear its own costs.

41. It so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERSPENCER S. OLOCHIKE - MEMBERGEORGE KASHINDI - MEMBER