[2024] KETAT 1453 (KLR)

Boleyn Magic Panel Limited v Commissioner of Domestic Taxes (Appeal E866 of 2023) [2024] KETAT 1453 (KLR) (Commercial and Tax) (4 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1453 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Appeal E866 of 2023

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

October 4, 2024

Between

Boleyn Magic Panel Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company in the business of construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent issued the Appellant with VAT additional assessments for the periods of January 2021, January 2018, March 2018 and April 2018.

4. The Appellant objected to the VAT additional assessments for the periods of January 2018, March 2018 and April 2018 manually on 21st November 2019 and online on iTax on 22nd November 2019, and objected to the assessment for January 2021 online on iTax on 6th April 2021.

5. The Respondent issued an objection decision on 30th January 2023 rejecting the Appellant’s objection in its entirety.

6. The Appellant, being dissatisfied with the Respondent’s objection decision, filed its Notice of Appeal dated 28th November 2023, having been granted leave by the Tribunal to file the appeal out of time.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal dated 28th November 2023 and filed on 1st December 2023 which raised the following grounds: -a.That the Respondent misdirected itself in fact and in law by raising Value Added Tax Auto Assessments for the period of 2018 and 2021 arising from inconsistencies between the sales declared and the taxable sales declared in the VAT 3 returns.b.That the Respondent misguided itself in law and in fact by disregarding the Appellant’s valid invoices which were incurred wholly and exclusively in the production of business income, despite the Appellant producing invoices and documents in support of the same, in line with the provisions of Section 17 of the VAT Act as it read at the time.c.That the Respondent misguided itself in fact and in law by assessing and demanding from the Appellant the tax amounts in question, despite the taxes having already been paid previously, and the Appellant furnishing the Respondent with the payment slips and e-return acknowledgement receipts as proof of the payments.d.That the Respondent fell into serious error of fact by assessing and demanding from the Appellant taxes already paid despite being furnished with proof of payment, thus placing the Appellant in a precarious position of perpetuating double taxation.e.That the Respondent erred in fact and in law by confirming the VAT assessments upon the Appellant, despite there being no outstanding VAT obligation on the part of the Appellant, contrary to spirit of the provision in Articles 201 and 210 of the Constitution of Kenya.f.That the Respondent misdirected itself in law and in fact by exercising its powers arbitrarily and with reckless abandon, since it has failed to vacate the confirmation assessment notices issued upon the Appellant, despite the Appellant discharging its burden of proof and proving that the tax demanded is unreasonable since the Appellant has always complied with its tax obligation.g.That the Respondent erred in fact and in law by exercising its powers and mandate improperly, thus occasioning complications in the Appellant’s business operations, since the latter is required to furnish tax compliance certificates regularly in their dealings with their bankers and their industry-specific regulators, and this is not possible with the Respondent failing to revoke the assessment notices.h.That the Respondent erred in fact and in law by relying on estimates and not conducting proper audit and verification.i.That the Respondent erred in fact and in law by infringing upon the Appellant’s legitimate expectation, and therefore the latter’s Constitutional right to fair administrative action which is enshrined in Article 47 of the Constitution of Kenya as well as Section 4(1) of the Fair Administrative Action Act.

Appellant’s Case 8. The Appellant’s case is o premised on the following documents:a.The Appellant’s Statement of Facts dated 28th November 2023 and filed on 1st December 2023 and the documents attached to it; andb.The Appellant’s written submissions dated 20th August 2024 and filed on 22nd August 2024. c.The Appellant stated that the Respondent raised assessment orders and demanded the payment of Kshs. 4,047,673. 93 exclusive of penalties and interest which related to VAT for the periods of 2018 and 2021. d.That on 20th November 2019, in response, the Appellant issued a notice of objection to the Respondent’s assessment/tax demand and provided invoices and other evidence to that effect.e.The Appellant averred that on 29th, 30th and 31st May 2023, the Respondent sent an email to the Appellant and upheld its position by confirming the VAT assessments of Kshs. 4,037,673. 93 exclusive of penalties and interest totally disregarding the evidence adduced by the Appellant.f.The Appellant asserted that it has provided documentary evidence of receipts and invoices in support of this Appeal.

Appellant’s prayers 9. The Appellant prayed for the following:-a.That the Respondent’s confirmation of assessment and decision emailed to the Appellant on 29th, 30th and 31st May 2023 be set aside in its entirety.b.That an order be issued to the Commissioner to admit the Appellant’s notice of objection dated 20th November 2019 to the assessment since the 60 days period from when the objection was done by the Appellant was not communicated until May 2023, 4 years after the objection, in total disregard to the provisions of the Act.c.That an order be issued restraining the Respondent, its employees, agents, or other persons purporting to act on its behalf or under its instructions from enforcing and/or collecting the sum of Kshs. 4,037,673. 93 which related VAT for the periods of 2018 and 2021 exclusive of penalty and interest from the Appellant.d.That an order be issued that the Commissioner do admit the evidence adduced by the Appellant as per its objection.e.That the cost of this Appeal be borne by the Commissioner.f.That the Tribunal be at liberty to grant any other or further remedies that it deems just and reasonable to grant in the circumstances.

Respondent’s Case 10. The Respondent’s case is premised on the Respondent’s Statement of Facts dated 1st December 2023 and filed on 4th December 2023.

11. The Respondent stated that it conducted a return review on the Appellant’s VAT account on the iTax portal and established that there were discrepancies between the Appellant’s income declared for income tax and the taxable income declared in the VAT returns for the periods January 2021, January 2018,March 2018 and April 2018.

12. The Respondent further stated that it subsequently issued the Appellant with VAT additional assessments for the periods of January 2021, January 2018, March 2018 and April 2018.

13. That the Appellant objected to the VAT additional assessments but failed to provide sufficient documents to prove that the assessments were wrong.

14. The Respondent averred that the Appellant failed to discharge its burden of proof to justify the discrepancies captured on the iTax portal despite being requested to provide documents.

15. The Respondent asserted that the Appellant did not provide any proof to show that the demanded taxes were already previously paid.

16. The Respondent further averred that it considered the objection and issued an objection decision on 30th January 2023 rejecting the Appellant’s objection in its entirety.

17. The Respondent submitted that it relied on Sections 17 and 18 of the VAT Act and Sections 52 to 57 of the Tax Procedures Act.

Respondent’s prayers 18. The Respondent prayed that the Tribunal: -a.Dismisses the Appeal with costs.b.Upholds the objection decision dated 30th January 2023.

Issues For Determination 19. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination as follows:a.Whether the Respondent’s objection decision was validly issued.b.Whether the Respondent was justified in issuing VAT additional assessments for the periods of January 2018, March 2018, June 2018 and January 2021.

Analysis And Findings 20. The Tribunal has analysed the issues that call for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned objection decision.

Whether the Respondent’s objection decision was validly issued. 21. The Respondent issued the Appellant with VAT additional assessments for the periods January 2021, January 2018, March 2018 and April 2018.

22. The Appellant objected to the VAT additional assessments for the periods January 2018, March 2018 and April 2018 manually on 21st November 2019 and online on iTax on 22nd November 2019, and objected to the assessment for January 2021 online on iTax on 6th April 2021.

23. The Respondent issued an objection decision on 30th January 2023 rejecting the Appellant’s objection in its entirety.

24. The Appellant, being dissatisfied with the Respondent’s objection decision, filed its Notice of Appeal on 1st December 2023, having been granted leave by the Tribunal to file the Appeal out of time.

25. The Respondent averred that the Appellant failed to discharge its burden of proof to justify the discrepancies captured on the iTax portal despite being requested to provide documents.

26. The Tribunal reviewed all the information and documents adduced by the Appellant and the Respondent in this matter, and finds that the Appellant provided evidence of the date it filed its objection. Based on the evidence before the Tribunal, the Respondent acknowledged receipt of the Appellant’s objection on 21st November 2019 and 6th April 2021.

27. The Tribunal also notes that the Respondent did not, in its objection decision nor its Statement of Facts, contest the validity of the Appellant’s objection to the VAT additional assessments charged for the periods of January 2018, March 2018, April 2018 and January 2021.

28. The Tribunal further observes that there is no evidence on record that the Respondent requested from the Appellant any further information between the time when the Appellant filed its objection and when the Respondent issued its objection decision.

29. It is the Tribunal’s considered view that the Appellant’s objection was allowed by operation of law in accordance with Section 51(11) of the Tax Procedures Act, which, as applicable in November 2019 and April 2021, when the Appellant lodged its objection provided as follows: -“(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

30. The Tribunal relies on the case of Equity Group Holdings Limited v Commissioner of Domestic Taxes [2021] eKLR in its analysis of the effect of an objection decision not issued within the mandatory timeline, where the Court stated that: -“…If the Commissioner did not render a decision within the stipulated period, the objection was deemed as allowed by operation of the law. The statute required that where the Commissioner had not made an objection decision within 60 days from the date the taxpayer lodged the notice of objection, the objection was to be allowed. That meant that the issues that the taxpayer had raised in the notice of objection would be accepted. In case of a tax assessment, it would be vacated.”

31. The Tribunal further buttresses the importance of adherence to timelines by referring to the judgment in Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) where the Court held as thus: -“... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

32. The Tribunal thus finds that the Respondent erred in law by failing to issue its objection decision within 60 days from the 21st November 2019 when it received the Appellant’s objection to the assessments for the periods of January 2018, March 2018 and June 2018.

33. The Tribunal also finds that the Respondent erred in law by failing to issue its objection decision within 60 days from 6th April 2021 when it received the objection to the assessment for the period of January 2021.

34. Moreover, the said objection decision does not meet the threshold of a valid objection decision as provided in Section 51(10) of the Tax Procedures Act which provides as follows:“An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

Whether the Respondent was justified in issuing VAT additional assessments for the periods of January 2018, March 2018, June 2018 and January 2021. 35. Having determined that the Respondent failed to validly issue its objection decision, the Tribunal did not delve into the second issue for determination as it has been rendered moot.

Final Decision 36. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is merited and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s objection decision dated 30th January 2023 be and is hereby set aside.c.Each party to bear its own costs.

37. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4THDAY OF OCTOBER, 2024. ERIC NYONGESA WAFULA - CHAIRMANGLORIA A. OGAGA -MEMBERDR. RODNEY O. OLUOCH MEMBERABRAHAM K. KIPROTICH - MEMBERCYNTHIA B. MAYAKA - MEMBER