[2025] KETAT 39 (KLR)

Anaj Warehousing Limited v Commissioner of Investigations & Enforcement (Tax Appeal E475 of 2024) [2025] KETAT 39 (KLR) (24 January 2025) (Judgment)

Neutral citation: [2025] KETAT 39 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E475 of 2024

RO Oluoch, Chair, G Ogaga, AK Kiprotich & Cynthia B. Mayaka, Members

January 24, 2025

Between

Anaj Warehousing Limited

Appellant

and

Commissioner of Investigations & Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company and a registered taxpayer.

2. The Respondent is a the principal officer appointed under Section 5 of the Kenya Revenue Authority Act, the Authority is an agent of the Government of Kenya for the purposes of receipt, collection, accounting of Government revenue, and enforcement of all the relevant tax laws.

3. The Respondent conducted tax investigations on the Appellant regarding 15 containers of 20 feet each imported and delivered to Kipevu ICD for clearance to Mabu Commodities in Uganda. Subsequently the Respondent issued its assessments dated 29th June 2022.

4. The Appellant lodged in iTax a late objection application on 14th September 2022 and vide a letter 20th September 2022. The Respondent replied on 20th September 2022 advising the Appellant to formally apply for extension of time to lodge an objection in accordance with Section 51(7) of the Tax Procedures Act.

5. Through a letter dated 23rd September 2022 and received by the Respondent on 26th September 2022, the Appellant applied for extension of time to lodge a late objection.

6. The Respondent on 13th October 2022 granted the Appellant extension of time to lodge the late objection within 7 days.

7. Through an email dated 29th December 2022 the Respondent informed the Appellant that it had not provided documents in support of the objection. The Respondent requested the Appellant to provide the documents within 7 days. The Appellant replied on 23rd January 2023.

8. The Respondent subsequently rendered its its objection decision on 24th January 2023.

9. The Appellant being dissatisfied with the Respondent’s objection decision filed at the Tribunal a Notice of Appeal dated 3rd May, 2024.

The Appeal 10. The Appellant has premised its appeal on the following grounds as stated in the Memorandum of Appeal dated and filed on the 7th May, 2024:-a.That the Respondent erred in law and fact when he purported to make a decision rejecting the Appellant's objection to a tax assessment outside the 60 days mandatory statutory period prescribed under Section 50(11) of the Tax Procedures Act;b.That the Respondent erred in law and fact when he purported to impose a Kshs.9,156,760. 00 tax obligation on the Appellant under the mistaken belief that the Appellant was the legal successor of Kipevu ICD, a totally different and distinct tax payer.c.That the Respondent erred in law and fact when he purported to impose a Kshs.9,156,760. 00 tax obligation on the Appellant arising out of goods that had never been imported by or been under the custody, control or responsibility of the Appellant.d.That the Respondent erred in law and fact when he purported to issue a tax demand for Kshs.9,156,760. 00 in enforcement of an illegal and invalid objection decision.e.That the Respondent erred in law and in fact in failing to appreciate sufficiently or at all the evidence and submissions made by the Appellant in support of its objection to the tax decision.

Appelant’s Case 11. The Appellant premised its case on the following documents filed before the Tribunal;a.Its Statement of Facts dated and filed on 7th May, 2024. b.Its written submissions dated 9th October 2024 and filed on 11th October 2024. c.Its rejoinder written submissions dated 6th November, 2024 and filed on 7th November, 2024.

12. The Appellant contended that at all material times, it was the registered proprietor of all that piece of land known as L.R. No. MN/VI/3603. That during the relevant period the Appellant leased the said piece of land to a separate and distinct legal entity known as Kipevu Inland Container Depot.

13. It submitted that Kipevu Inland Container Depot was licensed by the Commissioner of Customs to operate an inland port and receive imported goods from Mombasa Port to be cleared from its leased premises upon payment of appropriate taxes.

14. That on 15th January 2015, the Commissioner of Customs revoked the appointment of Kipevu Inland Container Depot through Gazzette Notice No.380.

15. The Appellant added that during the years that Kipevu Inland Container Depot operated from its premises, the Appellant herein never had any responsibility for the goods held therein under customs control which were in the hands of Kipevu Inland Container Depot and who were responsible for accounting for taxes accruing from those goods.

16. That after Kipevu Inland Container Depot was degazetted, the goods held in their custody were never handed over to the Appellant who was not privy to the applicable protocols and neither took responsibility for security of the goods nor responsibility for any taxes owing therefrom.

17. That in the year 2022, 7 long years since Kipevu Inland Container Depot was degazetted, the Respondent purported to conduct an investigation into its operations and goods left under its custody on the date of de-gazettement.

18. That on 5th May 2022, the Respondent wrote to the Appellant communicating its investigation findings on 15 containers of salt imported and delivered to Kipevu ICD for clearance. That the Respondent concluded that there was no proper accountability for the cargo which was in the hands of Kipevu Inland Container Depot.

19. The Appellant averred that the Respondent then purported to impose a tax obligation on the Appellant for taxes arising from goods that were in the hands of Kipevu Inland Container Depot and raised assessments for various taxes including the impugned assessment.

20. That through letters dated 14th September 2022 and 23rd September 2022, the Appellant objected to the tax assessment setting out its grounds for objection and also through the online iTax system. It stated that the main ground for the objection was that the taxes could not be claimed from the Appellant for the reasons that:i.The goods were always in the hands of a totally different legal entity known as Kipevu Inland Container Depot.ii.The goods had never come into the custody or control of the Appellant and were never formally deposited into the Appellant's custody.iii.Responsibility for taxes accruing from the goods had never been assumed by the Appellant.iv.In any event, the goods had been condemned as unfit for human consumption and ordered to be destroyed while in the hands of Kipevu Inland Container Depot.

21. The Appellant posited that on 24th January 2023 (120 days after the Appellant's objection), the Respondent purported to make its objection decision way outside the 60 days window allowed under Section 51(11)of the Tax Procedures Act.

22. That owing to the fact that the impugned objection decision was not made within the mandatory 60 days statutory timeline, the Appellant had the legitimate expectation that its objection had been allowed upon the expiry of the 60 days pursuant to Section 51(11) of the Tax Procedures Act and hence did not lodge an appeal at this Tribunal.

23. That however, following the demand for taxes dated 9th November 2023, the Appellant first approached the High Court in J.R. No. E192 of 2023 seeking to quash the Respondent's purported objection decision, inter alia, for being ultra vires and contrary to Section 51(11) of the Tax Procedures Act.

24. That following a preliminary objection on jurisdiction filed by the Respondent, the High Court on 30th April 2024 ruled that the Appellant should seek redress from this Tribunal first and hence this application and appeal.“Pursuant to the provisions of Section 26 of the EACCMA, the responsibility for payment of duty for goods meant for destruction, (which destruction has not been done), lies with the owner of a bonded ware house, in this case the taxpayer herein Anaj Warehousing (Formerly Kipevu ICD)".

25. That it is not true that the Appellant is the legal successor of Kipevu ICD but the two are distinct legal entities who existed at the same time with a relationship of landlord and tenant.

26. That on 9th November 2023, the Respondent issued a demand for payment of Kshs.9,156,760. 00 on account of income taxes and gave a 14 days deadline for payment after which they have threatened to resort to enforcement measures against the Appellant.

27. The Appellant stated that on 21st November 2023, it responded to the demand reiterating its ground for objection and the fact that the taxes cannot owe from it and pleading that the assessment and demand be vacated but the Respondent has ignored those pleas.

28. That pursuant to Section 51(11) of the Tax Procedures Act, the Respondent is deemed to have allowed the Appellant's objection decision on 14th November 2022 when he failed to make an objection decision by that date.

29. That consequently, the Respondent's purported decision dated 24th January 2023 was not a valid objection decision, is of no legal effect and is null and void ab initio.

30. The Appellant stated that it faces imminent execution and enforcement action by the Respondent in pursuit of undue taxes and in furtherance of its illegal, high handed, unreasonable and unconscionable decisions.

31. The Appellant contended that the Respondent's actions amount to threatened illegal conversion of its property without just cause in violation of the Appellant's right to property enshrined under Article 40 of the Constitution.

32. The Appellant averred that it was apprehensive that if this Tribunal does not intervene and issue the orders sought in the instant Appeal, the Respondent will persist in its illegal actions thereby exposing the Appellant to very adverse and unwarranted monetary loss, penalties and penal sanctions.

Appellant’s Prayers 33. The Appellant prayed to the Tribunal for the following orders:-a.That this Appeal is allowed and the Respondent's tax assessment dated 29th June 2022, objection decision dated 24th January 2023 and tax demand dated 9th November 2023 be set aside in their entirety;b.A declaration that the Appellant's objection received by the Respondent through letters dated 14th September 2022 and 23rd September 2022 was effectively allowed by the Respondent on 14th November 2022 upon expiry of the 60 days statutory period.c.Costs of this Appeal

Respondent’s Case 34. The Respondent relied on its written submissions dated and filed on 20th October 2024.

35. The Respondent stated that the Appellant was selected for investigations following an investigation conducted on 15 Containers: 20 Feet each imported under bill of lading number SSPHALX46890,SSPHALX46521 and SSPHALX46889.

36. From the investigations, it was noted that the said containers contained a total of 7,950 50 kg bags of salt were imported and delivered to Kipevu ICD for clearance to Mabu Commodities in Uganda.

37. That it was also noted that the said consignments were abandoned by the owner and condemned for destruction by the relevant agencies. That however, the goods were never destroyed as was expected and no salt was sighted at the yard during a verification visit by the assessing team.

38. That in the circumstances, it was established that there was no proper accountability for the cargo which was in the warehouse.

39. It averred that pursuant to the provisions of Section 122 of the EACCMA as read with the Fourth Schedule thereto, the goods have been valued at an F.O.B of Usd 0. 40/kg and the taxes due were computed and assessed.

40. The Respondent stated that the Appellant lodged a late objection application through a letter dated 14th September 2022. That the Appellant was notified that the application ought to comply with the requirements of Section 51(7) of the Tax Procedures Act.

41. It averred that subsequently, the Appellant was allowed to file a late objection on 11th October 2022 and the position was communicated to the Appellant on 13th October 2022.

42. The Respondent submitted that the Appellant was requested to file an objection pursuant to Section 51(3) of the Tax Procedures Act and a reminder to provide the documents which was done on 22nd December 2022 however, there was no communication from the Appellant.

43. That the objection was validated on 22nd December 2022 and the 60 days envisaged in Section 51 of the Tax Procedures Act started running on that date.

44. That the Appellant contended that the goods stored in their warehouse belonged to Mabu Commodities Limited -Uganda as indicated in the Customs Entry documents. That it was the Appellant's position that the Company did not own the goods and they provided the relevant customs entries to prove the position.

45. The Respondent averred that the goods were stored in a bonded warehouse that had been de-gazetted and no notice of seizure was issued. That in support of this position the Appellant provided a copy of Gazette Notice number 380 dated 23rd January 2015.

46. The Respondent averred that the goods were condemned for destruction and destroyed by the Authorized agent Messrs Runyu Agencies on 15th July 2015 and they availed a destruction order in support of the position advanced.

47. That pursuant to the provisions of Section 26 of the EACCMA, the responsibility for payment of duty for goods meant for destruction for which destruction has not been done lies with the owner of a bonded warehouse, in this case, the Appellant herein.

48. The Respondent stated that an inspection conducted by the Respondent at the Appellant's premises, revealed that the goods that were subject to the destruction order were still at the premises contrary to clear provisions of the law.

49. That in the circumstances, the Appellant being the proprietor of the warehouse wherein the goods were deposited under bond in 2009, is liable for duty as per the provisions of Section 26(2) and (3) of the EACCMA.

50. That in view of the above the Respondent fully rejected the Appellant’s objection application and confirmed principal taxes amounting to Kes 29,972,444. 00 as per the notice of assessments issued to the Appellant together with resultant penalty and interest.

51. Regarding compliance to the provisions of Section 51(11) of the TPA, the respondent stated that the Appellant lodged a late objection application through a letter dated 14th September 2022.

52. That the Appellant was notified that the application ought to comply with the requirements of Section 51(7) of the Tax Procedures Act.

53. That subsequently, the Appellant was allowed to file a late objection on 11th October 2022 and the position was communicated to the Appellant on 13th October 2022.

54. That the Appellant was requested to file an objection pursuant to Section 51(3) of the Tax Procedures Act and a reminder to provide the documents which was done on 22nd December 2022 however, there was no communication from the Appellant.

55. That the objection was validated on 22nd December 2022 and the 60 days envisaged in Section 51 of the Tax Procedures Act started running on that date. That therefore, the objection decision dated 24th January 2024 was timeously issued.

56. On the legal successor of Kipevu ICD, the Respondent averred that pursuant to the provisions of Section 26 of the EACCMA, 2004, the responsibility for payment of duty for goods meant for destruction (where destruction has not been done) lies with the owner of the bonded warehouse, the Appellant herein (formerly Kipevu ICD).

57. The Respondent asserted that the Appellant could not provide evidence of destruction of the goods.

58. The Respondent submitted that Section 56 of the TPA stipulates that the burden shall be on the taxpayer to prove that a tax decision is incorrect. That the Commissioner requested the taxpayer to provide supporting documentation when the Appellant rejected the assessments. The Respondent stated that it reviewed the documents provided and the evidence was deemed to be insufficient to make any changes.

Respondent’s Prayers 59. The Respondent's prayed to the Tribunal were for orders that: -i.Upholds and affirms the Respondent's Objection Decision dated 24January 2024. ii.Dismisses the appeal with costs to the Respondent

Issues For Determination 60. The Tribunal upon due consideration of the pleadings, documents and written submissions separately filed by the parties is of the view that the following issues precipitate its determination: -a.Whether the Appellant’s objection was allowed by operation of the law.b.Whether the Respondent was justified in confirming the assessments.

Analysis And Determination 61. The Tribunal having ascertained the issues that crystallize for its determination shall proceed to analyse the identified issues separately as hereunder:-

Whether the Appellant’s objection was allowed by operation of the law. 62. The Tribunal notes that the Appellant made an application to the Tribunal to file an Appeal out of time. The Tribunal rendered its Ruling on 26th July 2024 allowing the Appellant to file its Appeal out of time. The Appellant was directed to serve the Respondent with its Appeal documents within 14 days. The Respondent was on the other hand required to file its response within the statutory timelines upon being served or upon expiry of the 14 days given to the Appellant.

63. It follows from the orders of the Tribunal that the Respondent ought to have filed its Statement of Facts on or before 9th August 2024. However, the Tribunal notes that the Respondent filed its Statement of Facts on 30th October 2024 without leave from the Tribunal. The Tribunal therefore proceeds to analyse the case without considering the pleadings filed on 30th October 2024 by the Respondent.

64. It was the Appellant’s contention that through letters dated 14th September 2022 and 23rd September 2022, the Appellant objected to the tax assessment setting out its grounds for objection and also through the online iTax system.

65. It added that on 24th January 2023 (120 days after the Appellant's objection), the Respondent purported to make its objection decision way outside the 60 days window allowed under Section 51(11)of the Tax Procedures Act.

66. That owing to the fact that the impugned objection decision was not made within the mandatory 60 days statutory timeline, the Appellant had the legitimate expectation that its objection had been allowed upon the expiry of the 60 days pursuant to Section 51(11) of the Tax Procedures Act and hence did not lodge an appeal at this Tribunal.

67. The Tribunal notes the following chronology of relevant events in this issue;i.The Respondent issued its assessments dated 29th June 2022. ii.The Appellant lodged in iTax a late objection application on 14th September 2022iii.The Appellant’s Application for late objection was dated 23rd September 2022 and received by the Respondent on 26th September 2022. iv.The Respondent on 13th October 2022 granted the Appellant extension of time to lodge the late objection within 7 days.v.Through an email dated 29th December 2022 the Respondent informed the Appellant that it had not provided documents in support of the objection.vi.The Appellant replied on 23rd January 2023. vii.The Respondent rendered its objection decision on 24th January 2023.

68. Section 51(11) of the Tax Procedures Act provides as follows regarding issuance of an objection decision by the Respondent;“The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.”

69. The Tribunal perused through the documents presented and notes that in the letter dated 13th October 2022 while approving the extension of time to lodge an objection, the Respondent had allowed the Appellant 7 days to lodge the late objection.

70. The Tribunal notes that although the parties neither cited or attached any communication between the parties within the 7 days subsequent to the letter of 13th October 2022, the parties agree that there was an objection from the Appellant. Indeed in its email communication of 29th December 2022, the Respondent stated in part as follows;“…We note that you are yet to provide documents in support of your objection. Kindly do so within 7 days to enable the commissioner to review it,…”

71. Additionally, subsequent to the letter of 13th October 2022, the Tribunal notes that there was no other correspondence from the Respondent until 29th December, 2022 through the email, when it indicated to the Appellant that no documents had been provided in support of the objection.

72. Further from the letter of 13th October 2022 while approving extension of time to lodge a late objection, the Respondent did not request for any documents. In the circumstances the Tribunal took the position that the 60 days envisaged under Section 51(11) of the Tax Procedures Act started running from 20th October 2022 when the 7 days given by the Respondent to the Appellant lapsed.

73. Furthermore, Section 51(4) states as follows regarding cases where an objection is considered by the Commissioner to be invalid;“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.”

74. It follows therefore that if the Respondent had considered the Appellant’s objection to be invalid for lack of supporting documents, it ought to have notified the Appellant within 14 days which was not the case herein.

75. The Tribunal having determined that the 60 days started running on 20th October 2022, the last day the Respondent ought to have issued its objection decision is 19th December 2022.

76. The email Notification to the Appellant on 29th December 2022 and any other subsequent correspondences were thus non-consequential as the 60 days window allowed by law for the Respondent to render its objection decision had since lapsed.

77. Going by the above analysis the Tribunal finds and holds that the Appellant’s objection was allowed by operation of the law in particular the provisions of Section 51(11) of the Tax Procedures Act.

Whether the Respondent was justified in confirming the assessments. 78. Having determined that the Appellant’s Objection was allowed by operation of the law the Tribunal will not discuss this issue as it has been rendered moot.

Final Decision 79. The upshot of the foregoing analysis is that the Appeal is meritorious and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent's objection decision dated 24th January, 2024 be and is hereby set aside.c.Each party is to bear its own costs

80. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF JANUARY, 2025RODNEY O. OLUOCH - CHAIRPERSONGLORIA A. OGAGA - MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBER