[2023] KETAT 256 (KLR)

Ashleys (Kenya) Limited v Commissioner of Legal Services & Board Co-ordination (Appeal 137 of 2022) [2023] KETAT 256 (KLR) (Commercial and Tax) (26 May 2023) (Judgment)

Neutral citation: [2023] KETAT 256 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Appeal 137 of 2022

RM Mutuma, Chair, EN Njeru, RO Oluoch, D.K Ngala & EK Cheluget, Members

May 26, 2023

Between

Ashleys (Kenya) Limited

Appellant

and

Commissioner of Legal Services & Board Co-ordination

Respondent

Judgment

Background 1. The Appellant is a limited liability Appellant duly registered under the Companies Act and is a registered taxpayer. Its principal business is in providing beauty treatment services.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent carried out investigations into the Appellant’s tax affairs for January 2018 to May 2018 and informed the Appellant to amend its VAT returns.

4. The Respondent later issued additional assessments on November 15, 2019 for taxes totaling Kshs 7,302,234. 60.

5. In response, the Appellant lodged an objection to the assessments online on December 12, 2019.

6. The Respondent vide an email dated May 28, 2021 requested documents in support of the Objection.

7. The Respondent consequently issued its Objection decision on December 21, 2021 for VAT totaling Kshs 3,141,756. 31.

8. On receiving the Respondent’s objection decision, the Appellant filed a Notice of Appeal filed on February 11, 2022.

The Appeal 9. In its Memorandum of Appeal dated February 1, 2022 and filed on February 11, 2022, the Appellant premised its Appeal on the following grounds;-a.The Appellant begun by stating that the Respondent misplaced the first set of documents and the Appellant should be allowed to provide documents and other information for the inconsistent invoices identified as it has now secured the invoices and other information necessary to address the inconsistencies raised.b.The Respondent issued demand for the sum of Kshs 3,141,756. 32 being VAT Additional Assessment for the periods January 2018 to May 2018. c.The Appellant is allowed to provide further evidence in the form of the invoice and other information on the identified inconsistencies.d.This Appeal by the Appellant is to be allowed by the Respondent to provide the supporting documents and the information is not provided, the Appellant will be compelled to settle the demand as made by the Respondent.e.The Appellant seeks orders that the tax demand of Kshs 3,141,756. 31 be stayed and an expansion of time to submit the inconsistent invoices be allowed.

The Appellant’s Case 10. In its Statement of Facts dated February 1, 2022 and filed on February 11, 2022, the Appellant reiterated the background of the case as hereunder:-a.On or about November 15, 2019 the Appellant received notices for additional VAT assessments due to VAA inconsistencies totaling Kshs 7,302,234. 60. b.The Appellant raised its Objection to the said VAT additional assessment by the Respondent vide correspondence dated December 11, 2019. c.On May 28, 2021, the Respondent sent an email notifying the Appellant of an email sent subsequent to the Objections of December 11, 2019 requesting the provision of records for review.d.The Appellant’s Tax Agent communicated with the Respondent and stated that the documents requested had already been provided.e.The Appellant resubmitted the supporting records on October 12, 2021. f.On December 21, 2021, the Respondent issued its decision and made a demand for the sum of Kshs 3,141,756. 00 being VAT additional assessments for the period January 2018 to May 2018.

The Appellant’s Prayers 11. Given that the Appellant did not specifically pray for any reliefs and the fact that an Appeal before the Tribunal is an appeal against the Respondent’s objection decision, the Tribunal surmises the Appellant’s prayer to be the vacation of the said Objection decision so as to present the Respondent with information it now has in support of its Objection.

The Respondent’s Case 12. The Respondent’s case is premised on its Statement of Facts dated and filed on March 4, 2022 where it narrated the chronology of events as hereunder.

13. The Respondent stated that the i-Tax system was able to compare the declarations of the taxpayer and the declarations by its suppliers and various inconsistencies were noticed in the taxpayer’s purchases declarations.

14. It averred that due to these inconsistencies, the Appellant received a notification to amend its VAT returns within the specified timelines for the month of January 2018 through to May 2018.

15. It further averred that it issued additional assessments (under VAT Automated Audit- VAA Assessments) on November 15, 2019 totaling Kshs 7,302,234. 74.

16. It asserted that the Appellant objected to the entire amount on the KRA portal on December 12, 2019 and the Appellant did not provide all the relevant records to support the VAA adjusted inputs notwithstanding numerous requests.

17. It stated that on failing to honor the agreed time to provide the required additional records, it worked with only the records provided and issued the Objection decision on December 21, 2021.

18. The Respondent relied on Section 17(3) of the VATAct, 2013; Section 31(1) of the Tax Procedures Act, Section 51(3) of the Tax Procedures Act; and Section 51(4) of the Tax Procedures Act.

19. It reiterated that the Respondent issued assessments based on inconsistent information between VAT returns of the Appellant’s suppliers and input VAT claimed by the Appellant.

20. It averred that the Objection lodged by the Appellant did not include relevant supporting documents required by law and that the Appellant was notified of the invalidity of the Objection but did not avail all the documents requested within the timelines specified, thus the partial allowance of the Objection in accordance with the documents availed.

The Respondent’s Prayers 21. The Respondent, therefore, prayed for the Tribunal to make a judgment against the Appellant for orders that:a.The Objection decision dated December 21, 2021 be upheld as a true reflection of the Appellant’s tax liabilities.b.The Appeal herein be dismissed with costs to the Respondent.

Parties’ Submissions 22. The Appellant submitted that the Tribunal is empowered under Section 29 (3) (ii) to set aside the decision under review and give directions for reconsideration to the Respondent.

23. The Appellant argued that it resubmitted the supporting records in protest of the first decision. It reiterated that following the submission of the said documents, the Respondent reviewed the decision and made a partial acceptance of the Objection.

24. It further urged the Tribunal to expand time within which it could submit the said documents. It added that the relief sought is one that is discretionary and based on the facts before this Tribunal, the Appellant has demonstrated that the discretion should be exercised in its favour.

25. The Respondent quoted Section 17(1), (2), and (3) of the VATAct which provides a follows:-“Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person in a return for the period, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)— (a) the person does not hold the documentation referred to in subsection (3)... the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.(3)The documentation for the purposes of subsection (2) shall be— (a) an original tax invoice issued for the supply or a certified copy;”

26. The Respondent submitted that the invoices availed by the Appellant to support its purchase declarations in the VAT returns did not fully support the claim, and the Appellant was not able to avail any evidence to rebut the same.

27. It argued that the documentation must be provided for input VAT to be deductible and, as per Section 56(1) of the Tax Procedures Act 2015, the burden of proof is on the Appellant who has not produced any evidence to support the averments in its Statement of Facts.

28. It relied on the case of HCITA No 19 of 2017 Primarosa Flowers Limited v Respondent of Domestic Taxes where it was held that:-“In Mulherin vs Respondent of Taxation [2013] FCAFC 115 the Federal Court of Australia held that in tax disputes, the tax payer must satisfy the burden of proof to successfully challenge income tax assessments. The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.”

29. It asserted that the Appellant failed to prove that the input VAT was lawfully due as it did not produce invoices for consideration by the Respondent.

Issues for Determination 30. The Tribunal puts forth the following issue for determination:a.Whether the Appellant is liable to pay the Assessed VAT as per the Respondent’s Objection Decision dated December 21, 2021.

Analysis And Findings 31. The Tribunal wishes to analyse the issues identified as herein-under.a.Whether the Appellant is liable to pay the Assessed VAT as per the Respondent’s Objection Decision dated December 21, 2021.

32. The Respondent reiterated that the Appellant filed its Objection without any documentary evidence to support its position and after numerous requests, it only provided part of the documentation prompting it to partially allow the objection with the unproven parts of the objection upheld.

33. The Appellant contended that the Respondent lost or misplaced its first set of documents that it provided to support its objection, a fact that forced it to send the documents again on October 12, 2021. It added that it should be allowed an extension of time to provide the documents it now has to the Respondent.

34. It is not in contention that the documents the Respondent reviewed in arriving at the Objection decision that adjusted the assessment from Kshs 7,302,234. 74 to Kshs 3,141,756. 31 were an incomplete set.

35. The Respondent’s assessment of the amount due and payable by the Appellant was founded on the absence of unsupported input invoices which the Appellant has pleaded that at the time of the review of the objection, it did not have but had since found copies which it attached to its bundle of documents.

36. The Tribunal has had occasion to review the bundle of documents that the Appellant alleges would satisfy the Respondent’s quest for supporting documentation and noted that the same consist largely of supplier invoices for the time period under review by the Respondent.

37. The Appellant having provided these documents, and the fact that the Respondent has neither disputed the same nor has it disputed the Appellant’s claims of it having lost the aforementioned documents, the Tribunal finds that it would be punitive to ask the Appellant to pay the taxes assessed without the Respondent appropriately reviewing the available documents.

Final Decision 38. The upshot to the foregoing is that the Appeal has merit and the Tribunal consequently makes the following Orders;-a.The Appeal be and is hereby allowed.b.The Objection Decision dated December 21, 2021 be and is hereby set aside;c.The Respondent is at liberty to reconsider the Appellant’s notice of objection together with the documents that have since been made available and to accordingly issue an appropriate objection decision within 60 days from the date of delivery of this Judgment.d.Each party to bear its own costs.

39. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF MAY, 2023…………..……………….ROBERT M. MUTUMACHAIRMAN……………………….ELISHAH N. NJERUMEMBER…………….……………..RODNEY O. OLUOCHMEMBER…………………………DELILAH K. NGALAMEMBER………………………….EDWIN K. CHELUGETMEMBER