[2024] KETAT 158 (KLR)

Bhat v Commissioner of Domestic Taxes (Tax Appeal 1383 of 2022) [2024] KETAT 158 (KLR) (9 February 2024) (Judgment)

Neutral citation: [2024] KETAT 158 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1383 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, T Vikiru & G Ogaga, Members

February 9, 2024

Between

Jayantilal Ramniklal Bhat

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a sole proprietor carrying out business of selling potato crisps in Thika within the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the said Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue.

3. The Respondent assessed the Appellant for VAT of Kshs. 412,044. 00 inclusive of penalties and interest for the period February 2017 to June 2017, and issued as assessment on 16th December 2020.

4. The Appellant objected to the assessments on 8th January 2021.

5. The Respondent issued its objection decision on 21st October 2022 rejecting the Appellant’s objection on the ground that no documents were provided.

6. Aggrieved by the Respondent’s objection decision, the Appellant lodged the instant appeal via Notice of Appeal dated 15th November 2022 and filed on the same date.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal dated 16th November 2022 and filed on 21st November 2022 stating the following grounds: -a.That the demand notice is erroneous as the Commissioner did not take into consideration that the Appellant’s turnover was below the registrable threshold and did not charge nor claim VAT.b.That the Respondent erred in fact and in law by registering the Appellant for VAT whereas his turnover was below the registrable threshold.c.That the Commissioner failed in fact and in law in demanding for VAT from the Appellant and failing to appreciate that the Appellant did not charge VAT in his business thereby the VAT demanded is illegitimate and not payable.d.That the Respondent failed to consider issues raised in the many working meetings it had with the Appellant not appreciate the workings, accounts, invoices, audited financial statements, general ledgers, bank statements, reconciliations of the turnover and other related documents provided to it by the Appellant.e.That the Respondent erred in its decision by demanding VAT of Kshs. 441, 862. 26 for the periods February to June 2017.

The Appellant’s Case 8. The Appellant’s case is premised on the Appellant’s Statement of Facts dated 16th November 2022 and filed on 21st November 2022, together with annexures thereto.

9. The Appellant averred that sometime in 2017, the Respondent added VAT obligation to Appellant’s PIN without taking note that his sales fell under registrable threshold

10. That on 20th March 2017, the Appellant wrote to the Respondent noting out the anomaly and the Respondent replied vide its correspondence of 30th April 2017 promising to cancel the VAT obligation.

11. That on 26th March 2018, the Respondent issued the Appellant with an assessment order, which the Appellant objected to.

12. That two years later 16th December 2020, the Respondent issued the Appellant with a tax decision demanding VAT of Kshs. 412,044. 00 which again the Appellant objected to.

13. That the Respondent went to bed and not until 21st October, 2022, which again is after two years that the Respondent issued an objection decision contrary to the law.

14. That the Respondent has failed to communicate to the Appellant its source of the VAT demanded by it even upon issuing correspondences to it.

15. That the Respondent did not comply with the provisions of the Tax Procedures Act when issuing the assessments and tax decision, and are therefore null and void.

16. That the Respondent’s demand for the said taxes is unfounded, unreasonable, unjustified, and not based on any material facts.

Appellant’s prayers 17. The Appellant prayed to the Tribunal for the Order that the Tribunal do find the Appellant is not liable to pay any VAT taxes with the regard to the months of income and tax periods under review.

The Respondent’s Case 18. The Respondent’s case is premised on the following documents filed before the Tribunal: -a.The Respondent’s Statement of Facts dated 20th December 2022 and filed on the same date, together with the documents annexed thereto.b.The Respondent’s written submissions dated 20th June 2023, and filed on 21st June 2023.

19. The Respondent averred that it reviewed the Appellant’s filed VAT returns for the tax period February 2017 to June 2017 after establishing that the taxpayer made sales and the customers claimed input tax in their VAT returns.

20. That the Appellant registered for VAT on 22nd February 2017, which thereafter attracted VAT obligation.

21. That the iTax system detected inconsistencies in filing of VAT for the tax period under review.

22. That the Appellant was notified via VAT additional assessment notice.

23. That on 8th February 2021, the Appellant lodged an objection to the additional VAT assessments on iTax.

24. That the Appellant failed to avail the documents in support of his objection despite constant email reminders.

25. That Appellant failed to avail documents in support of his objection and thus the Respondent issued its objection decision on 21st October 2022.

26. That Section 24 of the Tax Procedures Act 2015 allows the taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, but the Respondent is not bound by the information provided therein and can assess for additional taxes based on available information.

27. That the Appellant failed to file self-assessment VAT 3 returns for the period February to June 2017.

28. That the Appellant’s objection was invalidated on the basis that the documentation in support of the objection were not availed despite having been sought for.

29. That the Respondent’s objection decision dated 21st October 2022 is proper.

Respondent’s prayers 30. The Respondent prayed to the Tribunal for the following orders: -a.That the Respondent’s assessments in the objection decision dated 21st October, 2022 be upheld.b.That the Appeal be dismissed with costs to the Respondent.

Issues for Determination 31. The Tribunal, having carefully reviewed the pleadings and filings made by the parties, the supporting documentation, and the submissions by both parties, is of the view that the following issues fall for its determination: -a.Whether the Respondent’s Objection Decision dated 21st October 2022 is proper and lawful.b.Whether the Respondent erred in issuing the Appellant with VAT Assessment.

Analysis and Findings 32. Having established the issues for determination, the Tribunal will proceed to analyse them as herein under.

a. Whether the Respondent’s Objection Decision dated 21st October 2022 is proper and lawful. 33. The Tribunal notes that the gist of dispute between the Appellant and the Respondent relates to VAT assessment for the period February to June 2017.

34. The Appellant’s case is primarily built on the fact that he is a sole proprietor and his sales volumes is below Kshs. 5 million per annum, and therefore does not qualify for VAT obligation. Indeed, it is the Appellant’s contention that he did not register for VAT and that the Respondent registered him without his knowledge.

35. The Respondent, on the other hand, submitted that the Appellant registered for VAT on 22nd February 2017, and therefore the Appellant has VAT obligations which triggered the assessments.

36. From the evidence on record, the Tribunal notes that the Respondent issued an assessment order against the Appellant for VAT on 26th March 2018, which both parties submit that the Appellant objected to.

37. The Tribunal further notes that the Respondent issued a demand notice on 16th December 2020 against the Appellant for Kshs. 412,044. 00 for the same periods identified in the assessment order. The presumption is that the Respondent rejected the Appellant’s objection.

38. Both parties submitted that the Appellant objected to the demand notice, and indeed evidence on record indicate that the same was lodged on 8th January 2021. Thereafter there was limited intermittent communication between the parties in the intervening period.

39. Subsequently, the Respondent then issued its objection decision on 21st October 2022, which the Appellant averred is two years later and thus out of time, being more than 60 days from the date of filing its objection.

40. Section 51 (11) of the Tax Procedures Act 2015 provides as follows regarding rendering of objection decisions.“…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.”

41. The Tribunal notes that this factual position of the objection decision having been rendered outside the statutory timelines is not contested by the Respondent.

42. The Respondent, instead, submitted extensively on the validity of the late objection application as filed by the Appellant.

43. The Tribunal, however, further noted that the Respondent having allowed Appellant’s late objection application, proceeded to render an objection decision as envisaged under Section 51 (11) of the TPA.

44. The Tribunal finds that having opted to render an objection decision, the Respondent was bound by the mandatory provisions of Section 51(11) of the TPA including timelines embedded therein.

45. The question of statutory timelines in tax matters is now settled and reiterated in Equity Group Holdings Limited vs Commissioner of Domestic Taxes [2021] eKLR, where in the High Court, Mativo J. stated that:“60. Section 51(11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d). First, there was no decision at all. The decision had ceased to exist by the operation of the law. Second, the provisions of section 51 (11)(b) had kicked in. The Objection had by dint of the said provision been deemed as allowed. Third, the TAT had no discretion to either extent time or to entertain the matter further. Fourth, discretion follows the law and a Tribunal cannot purport to exercise discretion in clear breach of the Law.63. The TAT manifestly erred in law by confusing substantive with procedural law. Article 159(2)(d) of the Constitution in clear terms talks about procedural technicality. A Statutory edict is not procedural technicality. It is a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided the consequence of failing to render a decision within 60 days. The Objection is deemed to be allowed. That being the law, the Appellant’s Objection stood allowed as a matter of law the moment the Commissioner of Domestic Taxes failed to render his decision within the 60days. This being the correct legal position, it is my finding that the 1st appeal succeeds.”

46. Accordingly, the Tribunal finds that the Respondent, having rendered its objection decision, more than 60 days from the date of the Appellant’s objection, was outside time and the Appellant’s objection stood allowed by operation of the law.

b. Whether the Respondent erred in Confirming Appellant’s Additional Tax Assessments 47. Having found that the Appellant’s objection was deemed allowed by operation of the law, the Tribunal holds that the second issue for determination is rendered moot.

Final Decision 48. On the basis of the foregoing analysis, the Tribunal finds the Appeal to be merited and accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 21st October 2022, be and is hereby set aside.c.Each party to bear its own costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF FEBRUARY, 2024GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBERGLORIA OGAGA - MEMBER