[2024] KETAT 1086 (KLR)

China Overseas Engineering Group Company Limited v Commissioner of Legal Servicesand Board Coordination Department (Tax Appeal 425 of 2023) [2024] KETAT 1086 (KLR) (12 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1086 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 425 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

July 12, 2024

Between

China Overseas Engineering Group Company Limited

Appellant

and

Commissioner of Legal Servicesand Board Coordination Department

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act. It is authorized to carry out various businesses under its name.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1& 2 of the First Schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The issue in dispute in this Appeal arose when the Respondent carried out an audit of the Appellant’s affairs and issued it with an additional assessment vide a letter dated 23rd October 2019.

4. The Appellant objected to this assessment on 26th July 2022 and the Respondent issued its decision thereon on 22nd August 2022.

5. Dissatisfied with the Respondent’s decision the Appellant lodged the Appeal on 13th July 2023.

6. The Tribunal vide an order dated 26th July 2023 granted the Appellant’s prayer to file and serve its Appeal out of time.

The Appeal 7. The Appellant in its Memorandum of Appeal dated 5th August 2023 and filed on 30th August 2023 has set out the following grounds of Appeal:a.That the Respondent erred in law and fact by failing to acknowledge input VAT for supplies as evidenced by the invoices provided to the Appellant's benefit as per Section 17 of the Value Added Tax Act.b.That the Respondent erred in law and fact by demanding payment of taxes that had always been paid by the Appellant.c.That the Respondent erred in law and fact by failing to consider all the documents that the Appellant supplied in support of its application for late objection before issuing the Objection Invalidation decision.d.That the Appellant effectively discharged its onus of proof as imposed on it by Sections 51 and 56 of the Tax Procedures Act as the documents furnished by it during the review of the objection application were sufficient to compel it to vacate the assessed taxes.

Appelant’s Case 8. The Appellant has relied on its Statement of Facts dated 5th August 2023 and filed on 30th August 2023 to support this Appeal.

9. The Appellant stated that it filed a late objection to its assessments on 26th July 2022. That grounds of its objection were that it did not receive the said assessment because it faced technical challenges with its email because the company changed personnel after it was restructured.

10. That its second ground for filing the appeal out of time was because it was undergoing a second audit and the Respondent had advised it that it would issue a consolidated objection decision.

11. That it subsequently learned of agency notices on its bank account and began following up on the matter with the Respondent.

12. The Appellant stated that it obtained copies of letters dated 22nd August 2022 and other documents on or about 23rd June 2023 when it followed up on this issue with the Respondent.

13. That it subsequently filed its application seeking leave to file its Appeal out of time on 13th July 2023 and that prayer was granted on 26th July 2023.

14. The Appellant submitted that the Respondent’s Objection decision as contained in its additional assessment dated 7th September 2021 and Confirmation of Assessment Notice dated 21st May 2023, demanding Corporation tax of Kshs 101,401,912. 00 Withholding tax of Kshs 2,012,356. 00, PAYE of Kshs 58,372,992. 00 and VAT arrears of Kshs 29,732,533. 00 summing up to a total of Kshs. 191,520,014. 00 is an affront to substantive justice and as a consequence, the Appeal ought to be allowed.

Appellant’s Prayer 15. The Appellant prayed that:a.The Respondent’s Objection decision dated 22nd August 2022 be struck out in its entirety and the Assessment Order dated 7th September 2021 be dismissed.b.The costs of this Appeal: andc.Any other remedies that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 16. The Respondent’s case is premised on its Statement of Facts dated 5th September 2023 and filed on 15th September 2023 and the written submissions dated and filed on 11th March 2024.

17. The Respondent stated that the Appellant being dissatisfied with additional assessments, applied to extend the time to file an objection late on 26th July 2022 on grounds that it was undergoing an additional audit.

18. The Respondent averred that it wrote to the Appellant and requested it to support the late objection application. That the Appellant failed to avail the requisite documents and subsequently rejected the application on 22nd August 2022 and confirmed the assessment of Kshs. 310,158,598. 00.

19. The Respondent averred that the assessments had been issued on 7th September 2021, and the Appellant was expected to have filed an objection to the assessment on 7th October 2021. That the Appellant instead lodged the objection on 26th July 2022 making it late by about 10 months.

20. The Respondent stated that it had the discretion to allow objection under Section 51(7) of the TPA and could not be faulted for exercising its discretion.

21. That Section 31 of the TPA allows it to make additional assessments based on the information placed before it, in cases where the Appellant has failed to provide relevant documents.

22. That Appellant bears the burden to prove that the additional assessments were excessive or improper and that it had failed to discharge this burden as required by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunals Act.

23. The Respondent identified the following issues for determination in this Appeal.i.Whether there is an appealable decision; andii.Whether the Respondent was justified in rejecting the Appellant’s late objection.

i. Whether there is an appealable decision 24. The Respondent submitted that there was no appealable decision issued by the Respondent and that the Appeal was therefore incompetent.

25. That the Appellant could only file a valid appeal if there was an appealable decision before the Tribunal as is envisaged in Section 52 of the TPA.

26. That the Appellant lodged a late objection and it requested the Appellant to avail documents in support of the late objection.

27. That it was the Appellant’s failure to provide documents which led it to confirm the assessments and decline the application to lodge an objection late. It supported its position with the case of Commissioner of Investigations & Enforcement v Maulik Vyas t/a Rocon Enterprises (2022) eKLR.

28. The Respondent took the position that its decision dated 22nd August 2022 was not an appealable decision that could be challenged before the Tribunal. That the Appeal before the Tribunal is therefore incompetent and is ripe for dismissal.

ii. Whether the Respondent was justified in rejecting the late Objection. 29. The Respondent submitted that a taxpayer who fails to lodge an Appeal within the stipulated timelines may apply to it for an extension of time to lodge a late objection under Section 51(6) of the Tax Procedure Act.

30. That Respondent stated that the Appellant lodged a late objection and stated that the reason for the late objection was 'other reasonable cause' but failed to specify the reasonable cause and or provide documents in support of the late objection despite the fact that it was requested to file the said documents on 26th July 2022.

31. That in the absence of the said documents, the Respondent had no option but to decline the application for late objection. It premised its decision on the cases of ObamaEnterprises Limited V Commissioner of Domestic Taxes, Tax Appeal 2023 of 2021 and Far East Connection Limited V Commissioner of Domestic Tax Appeal 223 of 2021.

32. That the Tribunal is not clothed with jurisdiction to hear and determine the case and it thus ought to down its tools as was stated in the case of Owners of the Motor Vessel “Lillian S” v Caltex oil (Kena) Ltd [1989] eKLR.

Respondent’s Prayer 33. Respondent prayed that:-a.The Appellant’s Appeal be dismissed with costs.b.The Assessment raised by the Respondent amounting to Kshs. 310,158,598. 00 be confirmed and the principal taxes and interest be found due and payable.

Issues For Determination 34. The Tribunal having considered the parties’ pleadings, submissions and documents submitted, is of the view that the Appeal herein distils into two issues for determination:a.Whether the Tribunal has jurisdiction to hear and determine this Appeal.b.Whether the Respondent’s decision was premised on any legal foundation

Analysis And Determination a. Whether the Tribunal has jurisdiction to hear and determine this appeal. 35. The question before the Tribunal under this issue is whether the Tribunal has jurisdiction to hear a dispute arising from pronouncements made by the Commissioner under Section 51(7) of the TPA.

36. The Appellant is of the view that the Tribunal is clothed with such jurisdiction. The Respondent on the other hand opines that such a decision is not an appealable decision that can form the basis of an appeal before the Tribunal.

37. Section 12 of the TAT Act states as follows regarding appeals to the Tribunal:“A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal.” (Emphasis added)

38. It is apparent from the above citation that the Tribunal is clothed with the power to hear any disputes arising from a decision made by the Commissioner on any matter arising under the provisions of a tax law.

39. It is also apparent to the Tribunal that the decision dated 22nd August 2022 was a decision of the Commissioner and it was made on a matter arising under the provisions of Section 51(7) of the TPA, which is a tax law.

40. The said decision had the effect of determining that the Appellant could not file its objection out of time. It also raised a tax liability against the Appellant. It thus ticked all the boxes stipulated under Section 12 of the TAT Act, making it an appealable decision.

41. Section 52(1) of the TPA provides the manner of appealing against an appealable decision to the Tribunal as thus:“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

42. Section 3 of the TPA defines an appealable decision thus:“Appealable decision” means an objection decision and any other decision made under a tax law other than—(a)a tax decision; or(b)a decision made in the course of making a tax decision;”

43. A tax decision is defined under Section 3 of the TPA as thus:“tax decision” means—(a)an assessment;(b)a determination under section 17(2) of the amount of tax payable or that will become payable by a taxpayer;(c)a determination of the amount that a tax representative, appointed person, director or controlling member is liable for under section 15, section 17 and section 18(d)a decision on an application by a self-assessment taxpayer under section 31(2);(e)a refund decision;(f)a decision under section 48 requiring repayment of a refund; or(g)a demand for a penalty;”

44. Section 51(7) of the TPA has not been itemised as one of the decisions that constitute a tax decision. Accordingly, any decision that is made under Section 51(7) of the TPA will thus be deemed to be an appealable decision for the reason it has not been excluded under the definition of an appealable decision under Section 3 of the TPA.

45. A final decision which confirms tax liability of a taxpayer is a final decision that cannot be classified as a decision made in the course of making a tax decision. It is thus an appealable decision from where an aggrieved party has right to file an appeal before the Tribunal.

46. The Tribunal determined this issue in Judgment TAT No. 252 of 2021 Geo Chem Middle East v Commissioner of Domestic taxes, where it stated as thus;“The import of the foregoing definition of what constitutes an appealable decision on the part of the Respondent to invalidate the Notice of objection lodged on the part of the Appellant vide a letter dated 30th April 2021 is an appealable decision. The challenge of the invalidation decision on the part of the Appellant was therefore proper and sustainable in law”

47. The Tribunal thus finds and holds that the decision of the Respondent falls within the remit of Section 12 of the TAT Act and 52(1) of the TPA. It is hence an appealable decision to which the Tribunal is clothed with jurisdiction to hear and determine.

b. Whether the Respondent’s decision was premised on any legal foundation 48. The decision upon which this Appeal is premised and which has been held to be an appealable decision is the letter dated 22nd August 2022 which rejected the Appellant’s application to file its objection out of time.

49. The relevant part of the Respondent’s letter dated 22nd August 2022 in this regard reads as follows:“We note that you have failed to support the grounds as prescribed in Section 51(7) of the Tax Procedures Act 2015 in support of your late objection application. The cited section states that:(7)The Commissioner may allow an application for the extension of time to file a notice of objection if—(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.In this regard, the Commissioner hereby declines to grant the application s ought.”

50. The Tribunal has gleaned through the record and noted that the impugned decision was compromised by the Respondent vide an order dated 26th July 2023 in TAT Miscellaneous No. 078 of 2023, wherein the Appellant was granted leave to file its appeal out of time.

51. The Respondent’s Statement of Facts and the written Submissions also proceeded on the misguided assumption that the impugned late objection decision had not been allowed. It thus argued that the decision in the said letter was not an appealable decision and that the Appeal herein should thus be dismissed.

52. The truth of the matter is that the Appellant’s application dated 13th July 2023 to lodge its appeal out of time having allowed the Appellant’s Appeal herein is completely filed for determination by the Tribunal.

53. The appellant lodged the late notice of objection on the 26th July, 2022 with the reason for the delay having been indicated that the appellant was during the intervening period undergoing an additional audit. This fact of the additional audit has not been controverted by the Respondent.

54. The Respondent vide the letter dated 22nd August, 2022 rejected the late objection on the basis that the Appellant had not failed to support the grounds for the late objection. The Tribunal notes from the agency notices dated 25th January, 2023 and 26th January, 2023 addressed to Kenya Commercial Bank and Kenya Rural Roads Authority respectively and the Notification of a restraint placed on the Appellant’s property dated 7th June, 2023, all which documents were filed before the Tribunal by the Appellant, are indeed suggestive of multiple audit and assessment processes having been undertaken by the Respondent for varied tax liabilities.

55. Accordingly, the Tribunal finds and holds that the Appellant's indicated reason for lodging a late notice of objection was plausible and the Appellant is thus deserving of an opportunity to have its notice of objection determined on its proper merits.

Final Decision 56. Flowing from the above analysis, the Tribunal finds that the Appeal is merited and accordingly makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s decision dated 22nd August 2022 be and is hereby set aside.c.The Respondent to consider and issue an appropriate objection decision in respect of the Appellant’s late objection dated the 26th July, 2022 within Sixty (60) days of the date of delivery of this Judgment.d.Each Party is to bear its own costs.

57. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF JULY 2024ERIC NYONGESA WAFULA CHAIRMANCYNTHIA B. MAYAKA MEMBERDR. RODNEY O. OLUOCH MEMBERDR. TIMOTHY B. VIKIRU MEMBERABRAHAM K. KIPROTICHMEMBER