[2023] KETAT 527 (KLR)

Burder Construction Ltd v Commissioner of Domestic Taxes (Tax Appeal 657 of 2022) [2023] KETAT 527 (KLR) (4 August 2023) (Judgment)

Neutral citation: [2023] KETAT 527 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 657 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

August 4, 2023

Between

Burder Construction Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya with its principal activity as supplies of goods and services.

2. The Respondent is a principal officer appointed under and in accordance with section 13 of the Kenya Revenue Authority Act and is responsible for the administration and enforcement of various revenue laws.

3. The Respondent conducted a tax investigation of the Appellant with a view of establishing the tax liability arising from income accrued and earned in Kenya during the years of Income 2016 to 2020. The Respondent also obtained information from the Government’s IFMIS system that established that the Appellant was paid a total of Kshs 12,590,566. 00 by Wajir Country on various dates. The investigation also revealed that the Appellant filed NIL returns for VAT for the years 2015/2016 to 2020/2021.

4. Vide a letter dated 19th April, 2022 the Respondent issued an assessment for Kshs 17,789,801. 00.

5. The Appellant did not file a notice of objection but instead proceeded to lodge its Memorandum of Appeal and Statement of Facts dated 23rd June, 2022 and filed on even date.

The Appeal 6. The Appeal is premised on the following grounds:a.That the learned Commissioner included transactions that do not relate to the company income.b.That the learned Commissioner raised additional assessment on the months which the company did not transact.c.That the learned Commissioner computed Withholding tax without considering the ones computed in the previous months on self- assessments.d.That the learned Commissioner did a comparison of IFMIS without reconciling the supporting documentation.e.That the learned Commissioner did not include supporting credentials on the expenses of the income.f.That the Appellant requests the Tax Appeals Tribunal for its case to be heard and fair view to be determined for any tax liabilities due.

The Respondent’s Case 7. In response to the Appellant’s grounds of Appeal, the Respondent, through its Statement of Facts dated 20th July, 2022 and filed on even date averred:-a.That the Appellant never filed an objection as provided for under section 51(II) of the Tax Procedures Act and as such, has prematurely invoked the jurisdiction of this Tribunal.b.That in the assessment dated 19th April 2022, the Appellant was to write to the Respondent within 30 days of the date of service of the assessment notice if the Appellant wished to dispute the tax decision which it never did.c.That it is the Respondent’s position that an objection decision would have otherwise been in accordance with section 51(8) of the TPA had the Appellant filed a valid objection to the tax decision by furnishing the Respondent with all the relevant documents.d.That the additional assessments clearly indicated the alterations made by the Respondent and it is clear that the Appellant was assessed on undeclared income in respective periods.e.That the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts are unfounded in law and not supported by evidence.

8. The Respondent prays that this Tribunal:a.Upholds the Respondent’s additional assessment of Kshs 17,789,801. 00 being Corporation tax and VAT.b.Dismisses this Appeal with costs to the Respondent as the same is devoid of merit.

Submissions Of The Parties 9. As at the date of the hearing on 18th July, 2023, the Appellant had not filed its submissions. The Tribunal will therefore only consider the Respondent’s submissions dated 27th February, 2023 and filed on even date.

10. In its submissions, the Respondent has raised a single issue for determination.

Whether the Appeal is properly before the Tribunal 11. The Respondent submitted that the TPA states the instances in which the jurisdiction of the esteemed forum can be invoked by a taxpayer who feels aggrieved by a decision made by the Respondent. Further that section 52(I) of the TPA allows a taxpayer to appeal against appealable decisions of the Respondent and that an appealable decision is defined under section 2 of the Tax Procedures Act. It submitted further that an appealable decision is defined to exclude all tax decisions and decisions made in the course of making tax decisions.

12. The Respondent submitted that section 2 of the TPA lists all the tax decisions that are not appealable and that the very first item on this list is an assessment. It therefore means that a taxpayer dissatisfied with the contents of an assessment cannot appeal to the Tribunal however strongly it feels it has been wronged.

13. The Respondent submitted that it is an established principle of law that before a party seeks the audience of a judicial forum, it must exhaust all the internal mechanisms provided by the relevant statute pursuant to which it is seeking judicial redress commonly referred to as the exhaustion doctrine. It stated further that it is only after an objection is lodged that an objection decision can be issued and thereafter a taxpayer dissatisfied with the objection decision may appeal to this Tribunal.

14. The Respondent averred that it notified the Appellant of its right to object to the assessment under paragraph 6 of the notice of assessment and referred the Appellant to section 51 of the TPA. Therefore, the Appellant has no excuse for failing to comply with the requirements of objecting to the assessment and challenging a tax decision before the Tribunal contrary to the express provisions of the TPA.

15. The Respondent pointed out that in several judicial pronouncements exhaustion of statutorily provided administrative dispute resolution mechanisms is necessary before the intervention of a judicial body is sought. To buttress its argument, the Respondent relied on the case of William Odhiambo Ramogi & 3 Others v Attorney General & 4 Others; Muslims for Human Rights & 2 Others (Interested Parties) (2020) eKLR which stated that:-“The question of exhaustion of administrative remedies arises when a litigant, aggrieved by an agency’s action, seeks, redress from a Court of law on an action without pursuing available remedies before the agency itself. The exhaustion doctrine serves the purpose of ensuring that there is a postponement of a judicial consideration of matters to ensure that a party is, first of all, diligent in the protection of his own interest within the mechanisms in place for resolution outside the Court”

16. The Respondent submitted that the Appellant would not have been prevented from approaching this Tribunal once it had objected and received an objection decision. As such the Appellant has rushed the matter and should have presented its assertions in its objection decision. According to the Respondent, the Tribunal therefore lacks jurisdiction to entertain an appeal against a tax decision.

Issues For Determination 17. The Tribunal has considered the parties’ pleadings, documentation and Respondent’s submissions, and is of the view that this Appeal raises a single issue for determination.Whether there is an Appealable Decision before the Tribunal

Analysis And Findings 18. The Respondent has raised the issue of validity of the Appeal and submitted that the Appellant did not follow the correct procedure after being issued with the tax demand, but rushed to the Tribunal before exhausting all the internal mechanisms provided by the relevant statutes.

19. The chronology of events is such that the Respondent issued its tax demand on 19th April, 2022 and as per section 51 (1) and (2) of the TPA. The said Sections provide as follows: -“(1)A taxpayer who wishes to disputes a tax decision shall first lodge an objection decision against the tax decision under this section before proceeding under any written law.(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

20. Having been issued with the tax assessment on 19th April, 2022 the Appellant lodged a Notice of Appeal as against the assessment on 23rd June, 2022.

21. The Appellant having been served with a notice of assessment ought to have first lodged a notice of objection to the assessment pursuant to section 51 (1) and (2) of the TPA.

22. Having been issued with the tax assessments on 19th April, 2022 the Appellant had up to 19th May, 2022 to lodge a notice of objection to the tax assessment, stating its grounds of objection and availing any relevant documentation to support its objection.

23. The course of action upon receipt of the objection decision would have been guided by section 51 (8) (11) and (12) of the TPA, which provide as follows:“(8)Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it and the Commissioner’s decision shall be referred to as an “objection decision.(11)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.(12)A person who is dissatisfied with the decision of the Commissioner under subsection (II) may appeal to the Tribunal within thirty days after being notified of the decision.”

24. Sections 2 and 13 (1) (b) of the Tax Appeals Tribunal Act (TAT) provides as follows regarding what would qualify as an appeal and the procedure for appeal. The Sections state as follows: -“(2)Appeal means an appeal to the Tribunal against a decision of the Commissioner under any of the tax laws”Section 13(1) (b) reads as follows:-“A notice of appeal to the Tribunal shall –b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

25. In all the Sections of the TPA and TAT Acts cited above one of the main conditions to be met when lodging an appeal to the Tribunal is the decision of the Commissioner. The Tribunal notes that upon receipt of the Respondent’s tax assessment on 19th April, 2022, the Appellant ignored the procedure as laid out and lodged its Notice of Appeal and other appeal documents on 23rd June, 2022. The implication of this is that the Appellant failed to object to the tax demand within the thirty days as per statute, which meant that the assessed taxes became undisputed for failure to object within the statutory timelines and are therefore due. Further since the Respondent did not issue an objection decision this Appeal is incompetent as the Tribunal lacks jurisdiction to entertain it.

26. The issue of jurisdiction was highlighted in the oft cited case of Owners of Motor Vessel “Lilian S v Caltex Oil (Kenya) ltd (1989) eKLR where the Court stated as follows: -“I think it is reasonably plain that a question of jurisdiction ought to be raised at the earliest opportunity, and the court seized of the matter, is then obliged to decide the issue right away on the material before it. Jurisdiction is everything. Without it a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction… Where a court takes it upon itself to exercise jurisdiction which it does not possess, its decision amounts to nothing. Jurisdiction must be acquired before judgement is given.”

27. Consequently, in view of the above analysis, the Tribunal finds that this Appeal is prematurely before it and is therefore invalid.

Final Decision 28. The upshot of the foregoing is that this Appeal is invalid and the Tribunal accordingly proceeds to make the following final Orders:-a.The Appeal be and is hereby struck outb.Each party to bear its own costs.

29. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF AUGUST,2023. ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERABDULLAHI M . DIRIYE - MEMBERSPENCER S. OLOLCHIK - MEMBER