[2024] KETAT 595 (KLR)

Bsk Global Technologies Limited v Commissioner of Domestic Taxes (Appeal E132 of 2023) [2024] KETAT 595 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 595 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E132 of 2023

RM Mutuma, Chair, B Gitari, M Makau, AM Diriye & EN Njeru, Members

April 5, 2024

Between

Bsk Global Technologies Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a company registered for tax in Kenya and whose principal activity is that of provision of Information technology products and services.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act and the Kenya Revenue Authority is responsible for the administration and enforcement of various revenue laws among them the Income Tax and the Tax Procedures Act

3. The Appellant was served with various assessment orders on 28th November 2022, all culminating to a tax liability of Kshs. 16,718,890. 65 as the principal taxes, penalty of Kshs. 873,967. 36 and interest of Kshs. 7,053,345. 88, all adding up to a total of Kshs. 25,406,660. 38.

4. The Appellant filed a notice of objection dated 16th December 2022 against the said assessments.

5. After review of the notice of objection and the documents attached. the Respondent issued its Objection decision on 16th February 2023, confirming the assessment.

6. The Appellant aggrieved by the Respondent confirmation of the assessment filed an Appeal against the objection decision on 6th April 2023.

The Appeal 7. The Appeal is premised on the following grounds as stated in the undated Memorandum of Appeal filed on 6th April 2023. a.That the additional assessment (Output VAT} and (Input VAT) is excessive by reason of some error or mistake of fact in the ''supply."b.That while the Respondent was raising Additional Assessment he made a substantial error or defect in the procedure provided by the Vat Act, 2013 Section 17 and the Rules made thereunder which may have produced error or defect in the decision of the case upon the meritc.That while the Respondent was rising additional assessment, it made the decision being contrary to law or to some usage having ignored or not taken into account the credit for input tax against output tax in the decision having failed to determine some material issue of law or usage having the force of law.d.That the aforesaid additional assessment being based on the variance brought forth from the Income as per the Company’s income tax return (IT2C) for 2019 was reported more than Income reported by VAT3 returns is erroneous.e.That no fair hearing by the Respondent. The Respondent erred in law and fact for giving fair hearing more specifically to hear on the Appellant grounds and consider the substance of the matter and further untrue assessments and dishonest reason for rising assessment. No hearing was accorded to the Appellant before the decision was made, the Respondent over looked Section 50 of the Constitution of Kenya 2010. f.That the Respondent erred in law and fact in finding that the difference between the VAT returns and income tax returns were brought to charge without finding out the reasons behind the reconciliation.g.That the contention made by the Respondent in the demand letter and the confirmation notice are inconsistent.h.That the Respondent erred in law by failing to take into account all the documents furnished to him relevant to the matter and without due regard to either the information and documents adduced by the Appellant or the information and records of the Appellant held by the Respondent.i.That the tax assessment vide assessment numbers :KRA 202208899989, KRA202208898226, KRA 202208895860, KRA 20221458 and KRA201806761333 dated 31st August 2022, 14th May 2018, 28th November, 2022 all of Kshs.16,718,890. 65 received on 15th December, 2022 and objected on 16th December 2022 and objection application acknowledgement receipt on 22nd December, 2022 and objection decision made on 16th February, 2023 are ultra-vires, arbitrary, excessive and erroneous and have been levied on the Appellant in a manner that contravenes the law.

Appellant’s Case 8. The Appellant’s case is premised on the following documents: -a)Statement of Facts filed on 6th April 2023 together with the documents attached thereto; and,b)Written Submissions dated and filed on 8th February 2024

9. The Appellant stated that the Respondent carried out the verification of the taxes, tax reconciliation in the iTax of the company for the purpose of obtaining full information in respect of a person or class of persons chargeable to tax/or the years of Income 2017, 2018, 2019, 2020 and 2022 of which the allegations of tax due of Kshs. 16,718,890. 00 principal tax were as under.

10. The Appellant posited that the Respondent alleged that the reconciliation on the established Income tax declared and declared sales VAT reveals that there were variance and also disallowed outputs.

11. That following the allegation by the Respondent the additional estimated assessments were issued on 28th November, 2022, and 14th May 2018. The objection notice was served on 15th December, 2022, objection application acknowledgement receipt dated on 22nd December, 2022.

12. That the Appellant dissatisfied with the Respondent’s objection on which the Commissioner confirmed additional assessments totaling to Kshs. 16, 718,890. 60 on 28th November 2022 and the 14th May 2018 and pursuant to Section 12 and 13 (2) of Tax Appeal Tribunal Act, 2013, the Appellant notified to appeal against the said decision through Notice of Appeal dated 22nd March 2023.

13. Further the Appellant stated that the estimated additional assessment is excessive by reasons of some errors or mistakes of fact in the income estimated and assessed.

14. The Appellant averred that the Respondent while raising additional assessment (Output tax and Input tax) of Kshs. 16,718,890. 60 principal tax he made substantial error or defect in the procedure provided by the VAT Act 2013, Section 17 and Rules made thereunder which may possibly have produced error or defect in the decision of the case upon the merits

15. The Appellant stated that the Respondent while raising the additional assessment (Input VAT/ Output VAT) it made a substantial error on the decision being contrary to law, the decision having failed to determine some material issues of law or usage having the force of law.

16. The Appellant submitted that while raising additional assessment the Respondent made substantial error on the decision contrary to law, the decision being having failed to determine some material issue of law or usage having the force of law is the provision of Article 47 of the Constitution of Kenya 2010. No fair administrative action on the Respondent.

17. Further the Appellant submitted that the Respondent’s action to demand additional assessments is arbitrary, capricious, unreasonable, unfair to the administration of justice and legitimate expectation of Appellant, despite fulfilling Section 30 of Tax Appeal Tribunal Act, 2013 as read together with Section 62 of VAT Act, 2013.

18. The Appellant stated that the Respondent was given all the documents as requested. Hence the Respondent erred in proceeding to confirm the assessments.

19. The Appellant submitted that from the onset, it raised a few questions of law pertaining to the process upon which the assessments were raised.

20. The Appellant stated that it operates under a regime of self-assessment. Section 28 of the Tax Procedures Act sets out how self-assessment is undertaken.

21. The Appellant posited that if the Commissioner is dissatisfied with a taxpayer’s self-assessment, the Commissioner is empowered under Section 31 of the Tax Procedures Act to amend a taxpayer’s returns, under the imperative that the Commissioner will “make alterations or additions, from the available information that said, the application of Section 31 of the Tax Procedures Act does not operate in a vacuum but under the guidance of Article 47 of the Constitution of Kenya on the right to fair administrative action.

22. Further the Appellant submitted that, the application of Section 31 of the Tax Procedures Act does not operate in a vacuum but under the guidance of Article 47 of the Constitution of Kenya on the right to fair administrative action.

23. The Appellant averred that this simply meant that, while the Commissioner is amending the taxpayer’s returns, it is incumbent upon him to inform the taxpayer of the reasons as to why the taxpayer’s self-assessment is being amended.

24. The Appellant cited the case of Samura Engineering Limited and Other vs. Kenya Revenue Authority, Nairobi Petition No. 54 of 2011 [2012] eKLR, the learned Majanja J held as follows:“I wish to emphasize that Kenya Revenue Authority as the State Agency charged with the collection of taxes is bound by the provisions of the Bill of Rights to the fullest extent in the manner in which it administers the laws concerning the collection of taxes.”

25. Further, the Appellant cited the case of Republic vs. Kenya Revenue Authority Ex Parte Jaffer Mujtab Mohamed [205] eKLR where the Court held that: -“…Therefore, whereas this Court is to entitled to question the merits of the decision of the taxing authority, that authority must exercise its powers fairly and there ought to be a basis for the exercise of such powers. A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith. It would be an unreasonable exercise for power and discretion and that would justify the Court in intervening...” and to the best of the Commissioner’s judgment.”

26. The Appellant submitted that it would like to invite this Honourable Tribunal to look at the assessments dated 28th November 2022. It is the Appellant’s submission that;a)The Respondent did not explain the basis of the assessments and as such the said assessments offend Article 47 of the Constitution of Kenya and as such the resultant objection decision is a product of an un-procedural process and ought to be quashed.b)Secondly, the Appellant submitted that the process leading up to the issuance of the Objection decision offended Section 51 of the Tax Procedures Act. Section 51 (4) of the Tax Procedures Act mandates the Respondent to notify the taxpayer whether the Objection has been validly lodged as required by Section 51(3).

27. In the present case, the Appellant stated that there is no evidence that the Respondent ever informed the Appellant that the Objection was not validly lodged. As such, the Respondent cannot claim that the Appellant failed to furnish it with documents.

28. The Appellant further stated that the Respondent misapplied the provisions of Section 17 of the VAT Act in arriving at the additional assessments. Section 17 (3) of the VAT Act lists the necessary documents that a taxpayer is supposed to hold in order to validate its inputs. These include an original tax invoice issued for the supply or a certified copy. The Appellant stated that in the Objection decision, the Respondent correctly cited that the Appellant indicated in its Objection that it had all the invoices to support the purchases.

29. The Appellant humbly submitted that the Respondent bears the burden of demonstrating the basis of the additional assessment. The Appellant relied on the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) where the Court held that:-“…the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer…”

30. The Appellant therefore humbly invited the Honourable Tribunal to hold that the Respondent failed the test of raising valid assessments as guided by Section 31 of the Tax Procedures Act, Article 47 of the Constitution and as guided by the cases cited above and especially the case of Republic vs Kenya Revenue Authority Ex Parte Jaffer Mujtab Mohamed [2015] eKLR.

Appellant’s Prayers 31. The Appellant prayed that:a.The Appeal be allowed and the assessment under review herein is set aside.b.The Tribunal finds the Appellant is not liable to pay any Additional Taxes.c.The Tribunal to order the Respondent to pay the Cost of this Appeal.d.The Tribunal Issues any other order favorable to the Appellant as it may find just and expedient.

Respondent’s Case 32. The Respondent’s case is premised on the documents set out hereunder; -a.Statement of Facts dated and filed on 5th March 2023 together with the documents attached thereto;b.Written submissions dated and filed 14th November 2023 together with the authorities thereby attached

33. The Respondent stated that the Appellant failed to provide the followinga)Feedback to the Respondent's assessing team's compliance check notice.b)To respond to the pre-assessment notices sent to it.

34. The Respondent stated that it issued a tabular representation of the Appellant’s tax liability amounting to Kshs. 16,718,890. 69 to the Appellant on 28th November 2022. The assessments were on account of disallowed input VAT and variances accrued from sales per account against sales as per VAT 3.

35. The Respondent stated that the Appellant lodged an Objection to the assessments on the 22nd December 2022, which was unsupported by relevant documents. Consequently, an Objection decision was issued by the Respondent on 16th February 2023 and to which the Appellant instituted this Appeal on 6th April 2023.

36. The Respondent stated that it relied on the following Sections of the TPA 2015: Section 51, Section 56 (1) and Section 31 Tax Procedures Act 2015.

37. The Respondent reiterated its position as stated in the decision communicated to the Appellant and responded to the Memorandum of Appeal and Statement of Facts as hereunder.

38. The Respondent contended that:-a.Only a Contract between Airtel Networks Kenya and the Appellant was provided with no further explanations. The Appellant therefore did not present to the Respondent a plausible justification for the discrepancies discovered in the VAT variances.b.The Respondent therefore could not adequately review the Appellant’s objection in the absence of supporting documents and consequently rejected the Appellant’s grounds of objection.c.No other substantiating documentation was brought forward to disprove the assessment despite email correspondences between the Appellant and the Respondent on 28th December 2022, 16th January 2023, 24th January 2023 and 27th January 2023 and a face to face meeting on 2nd February 2023 to produce the same.

39. The Respondent stated that in light of the Appellant’s default in providing the documentation as per the Respondent’s request on mail and failure to discharged its burden of proof as prescribed under Section 56 (1) of the Tax Procedures Act, the Objection was duly rejected and assessments confirmed.

40. The Respondent averred that the details of the case are well captured in the Respondent's Statement of Fact and the tabulation below.Period Assessment No. AssessmentJuly 2017 KRA202215489548 425,870. 30November 2020 KRA202208895860 2,771,805. 54December 2019 KRA202208898226 5,967,438. 05December 2018 KRA202208899989 7,546,576. 75December 2017 KRA202220004311 7,200Total 16,718,890. 69

41. The Respondent identified the following issues for determinationa)Whether the Respondent was justified in issuing the additional assessments;b)Whether the Appellant discharged its burden of proof.a.Whether the Respondent was justified in issuing the additional assessment

42. The Respondent submitted that Section 31 of the Tax Procedures Act empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner's best judgment. This Section provides;“Subject to this section, the Commissioner may amend an assessment (referred to in this section as the ("original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgment, to the original assessment of a taxpayer for a reporting period to ensure that -a)In the case of a deficit carried forward the Income Tax Act (cap 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the periodb)In the case of an excess amount of input tax under the Value Added Tax Act, 2013, the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc)In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates."

43. That the additional VAT assessments were raised on account of disallowed input VAT and variances accrued from sales per account against sales as per VAT3.

44. The Respondent submitted that it requested documents to support the Appellant’s Objection. However, the Appellant only provided a contract between Airtel Networks Kenya and themselves.

45. The Respondent submitted that the Appellant did not present to the Respondent a plausible justification for the discrepancy discovered. Further no other substantiating documentation was brought forward to disprove the assessments despite email correspondences between the Appellant and the Respondent and a face to face meeting. Therefore, the Respondent could not review the Appellant’s Objection in the absence of supporting documents and consequently rejected the Appellant's grounds of objection.b.Whether the Appellant discharged its burden of proof

46. The Respondent stated that Section 56 (1) of the Tax Procedures Act places the burden of proof on the taxpayer to prove that a tax decision is incorrect. The Section states:-“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect.”

47. The Respondent averred that the Appellant did not discharge its burden of proving that the Respondent’s assessments were erroneous since it did not adduce sufficient evidence to support its objection. The Respondent stated that the Appellant had a duty under Section 51 (3) (c) of the Tax Procedures Act to provide all relevant documentation in support of its Objection.

48. Further the Respondent stated that, Section 23 of the Tax Procedures Act mandates the Appellant to maintain documents required under any tax law and to provide the same upon request by the Respondent. This is to ensure that the taxpayer’s tax liabilities can be readily ascertained. The Appellant failed to provide the relevant supporting documents to discharge the burden of proving the assessments as incorrect.

49. The Respondent cited TAT No. 70 of 2017 Afya X-Ray Centre vs. Commissioner of Domestic Taxes where the Tribunal stated that:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing documents in order that a comprehensive analysis of its affairs is done. Accordingly, the Respondent can hardly he faulted for raising the assessment in accordance with the availed documents ... "

50. Further the Respondent referred to TAT Appeal No. 538 of 2021 Greenroad Kenya Limited vs. Commissioner of Domestic Taxes, paragraphs 52 and 53 which states that: -“The Tribunal's considered view is that the failure by the Appellant to avail the documents requested granted the Respondent the power to use its best judgement as provided for under Section 31(1) of TPA which provides that:-“Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information, and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period.”

51. The Respondent submitted that in view of the foregoing, the Tribunal should make a finding that the Respondent's assessment, and Objection decision are proper in law. The Respondent issued its assessment and it was upon the Appellant to provide evidence that demonstrated that the assessment was excessive, erroneous or unlawful as provided for in Section 30 of the Tax Appeals Tribunal Act, however, it failed to do so.

52. The Respondent referred to Section 30 of the Tax Appeals Tribunal Act on burden of proof. The Section provides that;“In a proceeding before the Tribunal, the appellant has the burden of proving-(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently”

53. Further in Pearson vs. Belcher CH.M Inspector of Taxes, Tax Cases Volume 38 referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited vs. Kenya Revenue Authority (2013) eKLR states that:“Where there is an assessment made by the Commissioner upon the Appellant; it is perfectly settled by cases such as Norman Vs. Galder 267C 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect and of course he has completely failed to do. That is sufficient to dispose of the appeal, which I accordingly dismiss with costs."

54. The Respondent stated that the Appellant in the present Appeal has manifestly failed to discharge such an onerous burden of proof placed squarely on it.

55. The Respondent averred that the Appellant did not provide sufficient documentation in support of its objection and the Commissioner was right in confirming the additional assessments.

Respondent’s Prayers 56. In light of the above, the Respondent prayed:a)That this Appeal be dismissed with costs; andb)That the Objection decision dated 16th February 2023 upholding the assessment of Kshs. 16,718,890. 65 be upheld.

Issues For Determination 57. The Tribunal having carefully considered the filings and submissions made by the parties is of the considered view that the Appeal distils into two issues for consideration as follows;a)Whether there is a competent Appeal before the Tribunal; and,b)Whether the Respondent’s assessment on the Appellant VAT Returns was justified.

Analysis And Determination 58. The Tribunal shall proceed to analyse the issues as herein under;a)Whether there is a valid Appeal before the Tribunal

59. The genesis of this Appeal relate to the assessment by the Respondent of the Appellant VAT returns relating to disallowed input VAT and variances accrued from sales per account against sales as per VAT3 for specific periods which included July 2017, December 2019, December 2018 and December 2018.

60. In its submissions the Respondent stated that the Appellant was not cooperative and it failed to provide feedback to the Respondent assessing team and also failed to respond to the pre-assessment notices sent to it.

61. Subsequently, the Respondent issued a tabulated assessment showing the period under review, the Assessment number and the assessed amount.

62. On receipt of the assessment notice the Appellant lodged an objection to the assessment on the 22nd December 2022 which the Respondent stated that it was not supported with relevant documents. The Appellant filed an Appeal on 6th April 2023 stating that the assessment is excessive by reason of some error or mistake of fact in the supply. Further, the assessment was made contrary to the law were made in error.

63. On the other hand, the procedure of filing an Appeal before the Tribunal is under the Tax Appeals Tribunal Act Cap 40 of the laws of Kenya. Section 13 of TATA states as follows;“(1)A notice of appeal to the Tribunal shall—(a)be in writing or through electronic means;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts;(c)the appealable decision; and(d)such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.”

64. Section 13 of the TAT Act also allows the Tribunal to extend the time for filing an Appeal and it states as follows“(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

65. The Tribunal has perused the documents submitted by the Appellant in relation to this Appeal and notes the followinga)The Objection decision was issued by the Respondent on 18th February 2023b)The Notice of Appeal and the Memorandum of Appeal which are undated were filed on 6th April 2023, 47 days after the issuance of Objection decision.

66. The Tribunal notes that the principle regarding procedures is well articulated by the Court of Appeal in Speaker of National Assembly vs. Njenga Karume [2008] 1 KLR 425, where it held that;“In our view there is considerable merit.....that where there is clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.”

67. The Tribunal is also guided by the decision in TAT Appeal Number 254 of 2021: Salsa Global Investment Co. Limited vs. Commissioner of Domestic Taxes wherein the Tribunal held that:‘‘flowing from the above, this Tribunal finds that this Appeal was filed out of time without seeking and obtaining prior leave of the Tribunal. The Appeal is thus found to be defective for being in contravention of the law and hence the Tribunal lacks the requisite jurisdiction to hear and determine the same.’’

68. The Tribunal notes that the Appellant did not make any efforts to either apply for extension of time to file the Notice of Appeal. The Appellant is required by law to lodge an Appeal before the Tribunal within 30 days. The Appeal should have been filed by 18th of March 2023 and the MOA and SOF within 14 days of filing the Appeal. Therefore, the Tribunal finds that the Appeal is incompetent.

69. In view of the above findings, the Tribunal shall not delve on the other issue of determination as the same has been rendered moot.

70. The upshot of the foregoing is that the Appellant’s Appeal is found to be incompetent before the Tribunal and consequently fails.

Final Decision 71. The Tribunal finds that the Appeal is incompetent and accordingly makes the following Orders:a)The Appeal be and is hereby struck outb)Each Party to bear its own costs.

72. It is so ordered.

DATED and DELIVERED at NAIROBI this 5th Day of April, 2024ROBERT M. MUTUMACHAIRPERSONBERNADETTE M. GITARI MUTISO MAKAUMEMBER MEMBERMOHAMED A. DIRIYE ELISHAH N. NJERUMEMBER MEMBER