[2023] KETAT 96 (KLR)

Cementers Limited v Commissioner of Domestic Taxes (Tribunal Appeal 715 of 2021) [2023] KETAT 96 (KLR) (Civ) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 96 (KLR)

Republic of Kenya

In the Tax Appeals Tribunal

Civil

Tribunal Appeal 715 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & A.K Kiprotich, Members

March 17, 2023

Between

Cementers Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company and a registered taxpayer. The Appellant’s principal business activity is construction of other civil engineering projects.

2. The Respondent is a principal office appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act and 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 initiated an audit on the Appellant’s VAT input tax claims for the months of February, March and April 2018.

4. The iTax system detected inconsistency in the months of February 2018, March 2018 and April 2018 between the invoices declared by the taxpayer and its suppliers. Notices were sent to the taxpayer and its suppliers to amend their VAT returns to eliminate the inconsistency.

5. According to the Respondent, the Appellant did not amend and VAT assessments were subsequently issued on the inconsistent invoices to the taxpayer on 15th November, 2019.

6. The Appellant filed an objection on 30th January, 2020, supported some of its invoices and apparently failed to support some of them.

7. The Respondent, on 12th October, 2021, partially accepted the objection allowing an amount of Kshs. 8,342,572. 39 and disallowing Kshs. 2,189,224. 65.

8. The Appellant thereafter filed a Notice of Appeal on 8th November, 2021.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal and Statement of Facts dated 8th November, 2021 and filed on 9th November, 2021:a.That all the records for the disallowed amounts were available.b.That bank statements and receipts were available as proof of payment.

Appellant’s Case 10. The Appellant’s case is premised on the Statement of Facts dated 8th November, 2021 and filed on 9th November, 2021.

11. That the Appellant has all the documents to support disallowed VAT input.

12. That the Appellant has all the bank statements and receipts as proof of payment.

13. That the Appellant has all the records required to support the disallowed VAT amounts.

Appellant’s Prayers 14. The Appellant prays for orders that:a.The Respondent amends the assessment as per returns and accounts as applicable.

The Respondent’s Case 15. The Respondent’s case is premised on the following filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 7th December 2021 together with the documents attached thereto.ii.The written submissions dated 16th August, 2022 and filed on 17th August, 2022 together with the legal authorities filed therewith.

16. That a review of the Appellant’s and its suppliers’ records and iTax revealed inconsistencies and the reasons for the same.

17. That the main reasons for inconsistencies were noted as follows:a.Lumping of sales of suppliers.b.Mismatch of invoice details as captured by both the claimant and the supplier.c.Some suppliers did not declare the sales made to the claimant.d.The Appellant claimed input tax from suppliers who are non-filers and nil-filers.

18. That most suppliers such as Kenya Power & Lighting Co. Ltd (KPLC), Wire Products Ltd, Cemtrax Technical Services Ltd, Frakim Construction Ltd, Real Auto Spares Ltd, Resta Limited, Rhombus Concrete Limited, Hari Oum Autospares Ltd, Hilalium and Sons Limited, N’ Design Ltd, Safaricom Limited, lumped their sales while doing their monthly VAT returns for the months under review while the Appellant claimed individual invoices.

19. That the Appellant did not avail all the supporting documents required upon request such as a tax invoice, highlighted bank statements corresponding to invoice amount disallowed for each invoice, supplier confirmation and supplier statements hence the input tax claimed was disallowed.

20. That the main reason for the disallowed input tax was failure by the Appellant to avail all records necessary to support the objection application on time upon request.

21. That the Respondent’s objection decision was made in line with the Tax Procedures Act, 2015.

22. That the Appellant provided some supporting documents on which the Respondent analysed and subsequently issued an amended assessment notice partially accepting the Appellant’s objection notice.

23. That the Respondent was justified in disallowing the Appellant’s objection as the Appellant did not provide all the invoices required by the Respondent and even acknowledge this fact vide email.

24. That input tax is only allowed for deduction once a person has the relevant supporting tax invoices and the same must be claimed within six months after the end of the tax period in which the supply or importation occurred as per the provisions of Section 17 of the VAT Act.

25. That in making the assessment order and confirming the assessment, the Respondent relied on available information that it had as well as the Commissioner’s best judgement as provided for in Section 31(1) of the TPA. Further, the confirmation of assessment notices was only done after the Respondent had also compared VAT returns of the Appellant’s suppliers and the input VAT claimed by the Appellant.

26. That Section 31(1) of the TPA provides as follows regarding amendments of assessments:“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 to ensure that –…”

27. That the Respondent also relied on Section 17(3)(a) of the Vat Act, 2013 that provides that:“The documentation for the purposes of subsection (2) shall be –a.an original tax invoice issued for the supply or a certified copy;b.a customs entry duly certified by the proper officer and a receipt for the payment of tax;c.a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction;d.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16(5).”

28. That the Respondent was also guided by Sections 51(4) and 51(4) of the TPA and Section 43(3) of the VAT Act.

29. That Section 51(3) of the TPA states that:“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.”

30. That the allegations of the Appellant as laid out in its Memorandum of Appeal and its Statement of Facts unless where in agreement with the Respondent are unfounded in law and not supported by evidence.

31. That the Appellant has failed to discharge its burden of proof in proving that the Respondent’s tax decision is incorrect as per the provisions of Section 56(1) of the TPA.

32. That the confirmed assessment issued is proper in law and the same should be upheld.

Respondent’s Prayers 33. The Respondent prayed that:a.The Respondent’s Objection Decision together with the penalties and interest be found to be due and payable.b.The Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for determination 34. The Tribunal upon due consideration of the pleadings of the parties was of the considered view that the Appeal raises the following issues for its determination:a.Whether the Appellant’s objection was validb.Whether the Respondent erred by raising the tax assessments on the Appellant.

Analysis And Determination a. Whether the Appellant’s objection was valid 35. This dispute arose from the Respondent’s assessment on the Appellant’s VAT input claims due to inconsistencies.

36. From a review of the documents presented by the parties, the Tribunal notes that the Respondent issued assessments to the Appellant on 15th November, 2019. Thereafter, the Appellant submitted its objection notice on 30th January, 2020. The Respondent issued its objection decision on 12th October, 2021.

37. Section 51 of the TPA provides as follows regarding objection to a tax decision:“(1)A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other 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.3. A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.”

38. The Tribunal notes that the Appellant’s objection notice was filed way after the thirty-day period provided under the Act and the Respondent has raised the issue in its submissions to the Tribunal. Specifically, the Appellant submitted its notice of objection seventy-six (76) days after the assessments were issued.

39. That said, the Respondent went ahead to review this objection notice and amend its assessment downward effectively validating the notice of objection by the taxpayer.

b. Whether the Respondent erred by raising the tax assessments on the Appellant. 40. The Tribunal notes that the Respondent’s objection decision dated 12th October 2021 reviewed its assessments downward from Kshs. 10,531,797. 04 to Kshs. 2,189,224. 65.

41. The Respondent avers that the review was based on submission of documents by the Appellant but also states that the documents were not sufficient to enable the Respondent vacate the assessment in its totality.

42. The Appellant on its part argues that all the records for the disallowed Vat amounts were available and that bank statements and receipts were available as proof of payment. However, the Appellant’s pleadings have no evidence adduced to prove its averments.

43. On the issue of proof of evidence in disputing or proving the existence of any fact, the Tribunal would like to state that it is trite law that whoever alleges must prove. The Evidence Act places the burden of proof of any fact on the person that wishes to rely on the same. Section 107 of the Evidence Act provides as follows in relation to burden of proof:“(1)Whoever desires any court to give judgement as to any legal or liability dependent of the existence of facts which he asserts must prove that those facts exist.(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

44. The Tribunal would like to further state that the Appellant has the burden to prove that the Respondent’s objection decision should have been made differently as provided for under Section 30 of the Tax Appeals Tribunal Act (TATA) which provides for burden of proof for appeals in the Tribunal; that in any other case that the tax decision should not have been made or should have been made differently.

45. The Tribunal relies on the case ofMunyu Maina v. Hiram Gathiha Maina [2013] eKLR (Civil Appeal No. 239 of 2009) where the Court held that:“Under Section 112 of the Evidence Act, when any fact is especially within the knowledge of any party to those proceedings, the burden of proving or disproving that fact is upon him.”

46. The Tribunal also relies on the case of National Social Security Fund Board of Trustees vs. Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR where the High court affirmed as follows at paragraph 36:“There is a world of difference between assertion and proof. That which a party puts to be his case is an assertion. The party needs to adduce evidence to support his said assertion with a view to supporting his case…

47. In the present Appeal the Appellant fell within Section 112 of the Evidence Act and had the duty to demonstrate that its claimed input VAT was valid. The Tribunal should therefore find and hold that the burden remains with the Appellant to prove its allegations with evidence.

48. The Appellant had a chance to submit evidence to the Tribunal to prove its allegations but did not do so.

49. In view of the above, the Tribunal finds that the Appellant did not discharge its burden of proof but instead has made allegations against the Respondent’s assessments without any evidence to substantiate the same.

Final Decision 50. Based on the foregoing analysis the Tribunal determined that the Appeal lacks merit and the Orders that accordingly recommend themselves are as follows: -a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 12th October, 2021 be and is hereby upheld.c.Each party to bear its own costs.

52. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023. ERIC N. WAFULACHAIRMANCYNTHIA B. MAYAKAMEMBERGRACE MUKUHAMEMBERJEPHTHAH NJAGIMEMBERABRAHAM K. KIPROTICHMEMBER