[2025] KETAT 43 (KLR)

Cipla Kenya Limited v Commissioner of Customs & Border Control (Tax Appeal E338 of 2024) [2025] KETAT 43 (KLR) (31 January 2025) (Judgment)

Neutral citation: [2025] KETAT 43 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E338 of 2024

RM Mutuma, Chair, Jephthah Njagi, D.K Ngala, T Vikiru & M Makau, Members

January 31, 2025

Between

Cipla Kenya Limited

Appellant

and

Commissioner of Customs & Border Control

Respondent

Judgment

Background 1. The Appellant, Cipla Kenya Limited, is a limited liability company incorporated in Kenya and is a subsidiary of Cipla Medpro South Africa with the ultimate holding company being Cipla Limited a company with its headquarters located in Mumbai, India. The Appellant’s principal business is the marketing and distribution of pharmaceutical products purchased from Cipla India.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Act, Cap 469 Laws of Kenya. Under Section 5 (1), the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5 (2) with respect to performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. On 18th November 2022, the Appellant applied for the refund of overpaid Corporate Income Taxes (CIT) amounting to Kshs. 26,593,801. 00 for the year of income ended 31st March 2022 and received an acknowledgment slip No. KRA202218774056.

4. The Respondent embarked on a refund verification process by requesting several documents and explanations through an initial email dated 21st December 2022.

5. The Appellant shared the requested documents via email on 26th March 2023 and further held discussions with the Respondent to provide support for its refund claim.

6. The Respondent continued to engage with the Appellant through letters and email correspondence in a bid to obtain supporting documents and explanations to its findings before finalizing on its audit findings.

7. Vide a letter dated 7th February 2024, the Respondent issued its Income Tax audit findings rejecting the Appellant’s CIT refund claim amounting to Kshs. 26,593,801. 00 and subsequently issued an additional demand for principal CIT and VAT amounting to Kshs. 223,581,871. 00.

8. Aggrieved by the decision, the Appellant objected to the additional assessment amounting to Kshs. 223,581,871. 00 on 8th March 2024.

9. The Appellant being dissatisfied with the Respondent’s Refund Decision dated 7th February 2024 notified the Respondent of its intention to appeal against the said decision through a Notice of Appeal dated and filed on 8th March 2024.

The Appeal 10. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated and filed on 22nd March 2024. a.That the Respondent erred in law and in fact by issuing a Refund Decision 446 days late contrary to the express provisions of Section 47 (3) of the Tax Procedures Act (TPA); and,b.That the Respondent erred in law and in fact by rejecting the Appellant’s refund application of Kshs. 26,593. 801. 00.

The Appellant’s Case 11. The Appellant’s case is premised on the following documents;a.Statement of Facts dated and filed on 22nd March 2024 together with the documents attached thereto;b.Written submissions dated and filed on 26th November 2024.

12. The Appellant averred that having lodged its refund claim application on 18th November 2022, the Respondent ought to have issued its decision within the statutory timeline of ninety (90) days, i.e., by 16th February 2023 at the latest.

13. That on the back of the Appellant’s refund claim application, the Respondent sent a request for documents and explanations through its letter dated 21st December 2022, being 33 days after receipt of the Appellant’s refund claim application.

14. That the Appellant being a cooperative taxpayer proceeded to respond to this request and provided the requested documents vide an email dated 2nd February 2023.

15. That following the provision of the requested documents and explanations, the Respondent issued its Refund Decision dated 7th February 2024, being 446 days after receipt of the refund claim application.

16. That this Refund Decision as issued was therefore in violation of the express provisions of the TPA as it was then in the year 2022 with respect to the statutory timelines set for issuance of refund decisions.

17. The Appellant averred that Section 47 of the TPA provided as follows;“(1)When a taxpayer has overpaid a tax under a tax law the taxpayer may apply to the Commissioner, in the approved form, for a refund of the overpaid tax within five years of the date on which the tax was paid.Provided that for value added tax the period of refund shall be as provided for under the Value Added Tax Act, 2013.

2. The Commissioner may, for purposes of ascertaining the validity of the refund claimed, subject the claim to an audit.

3. The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.

4. Where, in relation to an application for a refund made under this section or made under any other tax law, the Commissioner is satisfied that a taxpayer has overpaid a tax, the Commissioner shall apply the overpayment in the following order -a.in payment of any other tax owing by the taxpayer under the tax law;b.in payment of a tax owing by the taxpayer under any other tax law; and,c.any remainder shall be refunded to the taxpayer.

(4A)Where the Commissioner notifies a taxpayer that an application for a refund has been ascertained in accordance with subsection (3) and applies the refund to the payment of an outstanding tax in accordance with subsection (4)(a) or (b), interest or penalties shall not accrue on the amount applied to the payment of the outstanding tax from the date of the notification.

(4B)For the avoidance of doubt, where the Commissioner has applied a refund to the payment of an outstanding tax under subsection (4A), if there is any outstanding tax after such application, the outstanding tax shall accrue interest and penalties in accordance with this Act.

(4C.)Without prejudice to the provisions of this section, once the Commissioner notifies of a decision under subsection (3) and the Commissioner is satisfied that there is an overpayment of tax, the overpaid tax shall be deemed to have been offset against the taxpayer’s future tax liabilities.

5. The Commissioner shall repay the overpaid tax within a period of two years from the date of application, failure to which the amount due shall attract an interest of 1% per month or part thereof of such unpaid amount after the period of two years.”

18. The Appellant averred that its refund claim was validly lodged as required under the provisions of Section 47 (1) of the TPA as follows;i.The refund application which related to overpaid instalment taxes was lodged within five (5) years of the date the tax was paid; and,ii.The application was made using the approved form.

19. The Appellant averred that according to Section 47 (2) of the TPA, the Respondent can opt to carry out an audit to ascertain the validity of the refund. However, such an audit must be concluded and a decision following the audit of the claim must be issued within ninety (90) days.

20. The Appellant averred that upon lodgement of its valid refund application, the Respondent ought to have ascertained the refund claim and issued a Refund Decision by 16th February 2023.

21. The Appellant averred that since the Respondent failed to issue its Refund Decision within ninety (90) days of receiving the refund application, the application for refund automatically stood allowed in law by effluxion of time as set out under Section 47 (3) of the TPA which states;“(3)The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.”

22. The Appellant averred that the word “shall” is couched in mandatory terms. That due to the Respondent’s failure to issue a refund decision within ninety (90) days from 18th November 2022, the Appellant’s application for refund automatically stood allowed.

23. The Appellant averred that the word “shall” when used in statutory provisions is a command, it is not permissive, it is mandatory.

24. The Appellant relied on the case of Equity Group Holdings Limited vs. Commissioner of Domestic Taxes [2021] eKLR, in which the High Court emphasized on the need for strict application of statutory timelines and stated as follows;“A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided…”

25. The Appellant submitted that this position was adopted by the Tribunal in its decision in BIC East Africa Ltd vs. Commissioner of Customs & Border Control (Tax Appeal No.127 of 2020), in which the Tribunal was categorical that;“Additionally, the Tribunal finds the Respondent's late response to the review application to be in gross violation of Section 229 (5) of the EACCMA 2004 which stipulates that the where the Respondent had not communicated his or her decision within the specified time of 30 days, the review application shall be deemed to have been allowed by the Respondent. To contextualize this, as of 7th June 2019 the Appellant's review application was deemed allowed meaning that it had no tax liability in the eyes of the law. It also meant that the Appellant was well within its right to apply for a refund of the taxes paid earlier under protest. Our resolve in this regard is further cemented in light of the fact that Section 229 (4) & (5) of the EACCMA are cushioned in mandatory terms, hence the Respondent was not allowed to extend the same timelines. (See Associated Battery Manufacturers limited versus Respondent of Customs Services (TAT Appeal No 1 of 2015).”

26. The Appellant also relied on the ruling in the case of Nicholas Kiptoo Arap Korir Salat vs. IEBC & 6 Others [2013] eKLR, where the court held;“This Court, indeed, all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

27. The Appellant averred that it had a legitimate expectation that its application for refund was allowed when the Respondent failed to issue its Refund Decision within the ninety (90) days’ timeline mandated by law. That legitimate expectation arises where a member of the public, as a result of a promise or other conduct of an administrative body expects that s/he will be treated in one way and the administrative body thereafter reneges and wishes to treat him/her in a different way.

28. That the conduct of the Respondent to issue a Refund Decision rejecting the Appellant’s refund claim past the legally stipulated timeline contravened basic canons of taxation including certainty, consistency, and predictability. That in any sphere of public law, these ideals and values must be protected against whimsical and capricious violation by public authority. That failure to adhere to these values results in unfairness.

29. That the frustration of the legitimate expectation created is tantamount to abuse of power by the Respondent. Any illegalities created by the Respondent in establishing this legitimate expectation are mistakes of the Respondent and cannot be visited on the bona fide taxpayer. That Judicial precedents on abuse of power have held that a power that is abuse should be treated as a power that has not been lawfully exercised.

30. The Appellant submitted that the Tribunal should be guided by the case of Ashok Shah and Mital Shah T/A Smityss Trading vs. Commissioner of Domestic Taxes Appeal No. 82 of 2022 where the Tribunal held that the Appellant’s refund application was allowed by operation of the law because the Respondent failed to issue a decision within the ninety days stipulated by law.

31. The Appellant submitted that Section 47 (2) of TPA provides as follows;“(2)The Commissioner may, for purposes of ascertaining the validity of the refund claimed, subject the claim to an audit.”

32. That it is clear from the aforementioned Section that the Respondent can choose to carry out an audit. That the Respondent issued an additional assessment stemming from an audit triggered by the refund application is not in dispute. That however, the said audit ought to have solely determined whether a claim made by the taxpayer is valid or invalid for that particular year of income.

33. The Appellant submitted that its refund claim was in relation to overpaid instalment taxes for the 2022 year of income amounting to Kshs. 26,593,801. 00. That, it was the Appellant’s expectation that the Respondent’s audit would be confined to assessing and determining whether the Appellant actually had overpaid instalment taxes as claimed.

34. The Appellant submitted that the Respondent rejected the Appellant’s application for refund without determining whether the Appellant had overpaid its instalment taxes as claimed.

35. The Appellant submitted that the Respondent failed to determine the Appellant’s claim that it overpaid instalment taxes for the 2022 tax period on its own merit i.e., definitively concluding whether or not there existed an instalment tax overpayment of Kshs. 26,593,801. 00 in its 2022 year of income.

36. That in the event the Respondent determined that no such overpayment existed, it would have been expected that the Respondent would clearly notify the Appellant in its audit findings that the Appellant did not overpay the said taxes as claimed and proceed to reject the claim.

37. That conversely, if the Respondent found merit in the Appellant’s claim and concluded that an overpayment existed, it should have notified the Appellant through its audit findings on the same.

38. The Appellant submitted that according to Section 47 (4) of the TPA, where the Respondent is satisfied that a taxpayer overpaid taxes, it is at liberty to apply a tax overpayment to any outstanding taxes.

39. In its submissions, the Appellant also relied on the case of Embu Water and Sanitation Company LTD vs. Commissioner of Domestic Taxes (TAT Appeal No E638 of 2023), where the Tribunal emphasized that;“…It is the Tribunals view and pursuant to Section 47(3) of the TPA the failure by the Respondent to ascertain and determine the Appellant’s application within 90 days has the implication that the same had been deemed ascertained and approved. The Tribunal associates itself with its holding in the case of KCB Bank Limited vs Commissioner of Domestic Taxes (TAT No.402 of 2021) where it held as follows:“…where the Respondent is statutorily obligated to provide a decision within a specific timeframe, and where the applicable legislation expressly provides a consequence for the failure to do so, the same must strictly be adhered to ….”

40. The Appellant submitted that at paragraphs 13 to 15 of the Respondent’s Statement of Facts, the Respondent alleged that the reason it did not issue a decision within 90 days was because the Appellant delayed in providing documentation. The Appellant submitted that in the case of Eastleigh Mall Limited vs. Commissioner of Investigations & Enforcement, the High Court found that the Respondent (Commissioner of Investigations & Enforcement) failed to issue an Objection Decision within the statutory sixty (60) day period as required by Section 51 (11) of the TPA. Despite ongoing engagements between the parties, the court held that the Respondent was still obligated to issue a timely decision.

41. The Court emphasized that the statutory timelines are mandatory and not merely procedural technicalities. Consequently, the Appellant’s objection was deemed allowed by operation of law, and the Tribunal’s decision to uphold the Respondent’s assessment was set aside. The Appeal was allowed with costs awarded to the Appellant.

42. The Appellant submitted that in reaching its decision, the High Court stated as follows;“It is clear from the forgoing that the provisions of section 51(11) of the Tax Procedures are mandatory. Thay are not cosmetic. 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 taxpayer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.

43. The Appellant submitted that guided by the foregoing, it is therefore improper for the Respondent to blame the Appellant for its inordinate delay and failure to comply with provisions of the law.

44. The Appellant submitted that the Tribunal should be guided by the case of Ashok Shah and Mital Shah T/A Smityss Trading vs. Commissioner of Domestic Taxes Appeal No. 82 of 2022 where this Tribunal held that the Appellant’s refund application was allowed by operation of the law because the Respondent failed to issue a decision within the ninety days stipulated by law.

The Appellant’s Prayers 45. The Appellant therefore prayed that;a.This Appeal be allowed;b.The Tribunal finds that the Respondent’s Refund Decision dated 7th February 2024 is invalid by virtue of the operation of the law;c.The Tribunal finds that the Appellant’s Refund Application of Kshs. 26,593,801. 00 is valid and the same should be refunded to the Appellant within 30 days;d.The Respondent’s decision dated 7th February 2024 be set aside in its entirety; and,e.Any other orders that the Tax Appeals Tribunal may deem fit.

The Respondent’s Case 46. The Respondent’s case is premised on its Statement of Facts dated and filed on 24th April 2024 together with the documents attached thereto.

47. In response to Ground 1 in the Memorandum of Appeal, the Respondent averred that it had requested the Appellant to provide adequate evidence on 21st December 2022. That the Appellant provided the documents on 31st March 2023, which was 96 days beyond the stipulated 90 days provided for in Section 47 (3) of the TPA.

48. The Respondent averred that the delay by the Appellant to provide the requested documents, made it impossible for the Respondent to issue the decision as the documents requested would have facilitated the Respondent in making a Refund Decision.

49. That the Respondent continued to engage with the Appellant, and on 25th January 2024 the Respondent proposed a meeting to finalize discussions of the refund audit, but the Appellant replied via email citing they were unavailable, to which the Respondent issued the audit findings the following week.

50. In response to Ground 2 in the Memorandum of Appeal, the Respondent averred that the Appellant used the wrong basis (prior year) to estimate the income tax for the period 2022.

51. The Respondent further averred that upon conducting an audit on the Appellant, it established that the Appellant had a Memorandum of Agreement with Imperial Health Science Limited (IHS) whereby IHS handled all importation tasks, warehousing and order processing to which the Appellant was to remunerate IHS a service fee at a rate of 6. 7% of the total sales moved for each particular month.

52. It was established from the IHS ledger that for the 2022 year of income Kshs. 48,088,812. 00 was paid as net service and as such the expected sales that ought to have been reported by the Appellant was to be Kshs. 723,894,688. 00 against Kshs. 667,675,201. 00 that was reported.

53. From the foregoing, it was evident that there was an understatement in sales amounting to Kshs. 56,219,485. 00 which the Respondent brought to charge.

54. The Respondent avers that the Appellant has an intercompany recharges with Cipla Limited (the Ultimate holding company) which is calculated based on the proportional time spent by the company directors and commercial staff on the operations of other regions in Sub-Saharan Africa outside of Kenya.

55. The proportional percentage applied to the expenses incurred relating to the employment of the directors/commercial staff with a mark-up of 5%, for 2021 and 2022 years of income earned from the recharges was tabulated.

56. The Respondent observed that the Appellant had underdeclared income for the year 2021 since the expected income could not be less than the costs incurred, and as such the costs for the period 2021 were marked up using the mark up rate for the period 2022, and as such, the underdeclared income amounting to Kshs. 82,411,218. 00 for the period 2021was brought to charge.

57. Further, the Respondent established that a comparison of monthly Value Added (VAT) returns vis-a-vis IT2C returns gave variances which were brought to charge.

58. An audit was conducted on the Appellant's customs data and it was established that the Appellant made imports amounting to Kshs. 21,066,276. 00 and it was noted that the volumes of imports were not commensurate to turnover reported of Kshs. 667,675,201. 00.

59. The Respondent requested information to prove that the IHS PIN was used to import the company goods, but the Appellant failed to provide the information requested and as such, the Respondent reworked the cost of sales based on the available custom data, balance sheet inventory figures and disallowed overstated cost of sales amounting to Kshs. 122,893,297. 00.

60. The Respondent averred that the Appellant had claimed provisions comprising of cost of sale provisions, prior year sales non-resolved and other adjustment amounting to Kshs. 17,115,829. 00 to which the Respondent requested for explanations but the Appellant failed to provide any.

61. That Section 54 of the Income Tax Act provides thus:“A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”

62. That the Appellant did not provide relevant documentation and the burden now lies with him to prove that the tax decision is erroneous as claimed. That Section 56 (1) of the Tax Procedures Act, 2015 clearly states that in any proceedings under this part the Burden shall be on the taxpayer to prove that a tax decision is incorrect.

63. That the Respondent disallowed the Appellant’s claim for operating expenses as a result of expiration, reject stock and quality scrapping amounting to Kshs. 32,076,539. 00. The Appellant had provided Certificates of disposal from the Ministry of Health to support the destruction, however the certificates were in the name of Imperial Managed Solutions E.A. Limited and were therefore not admissible.

64. The Appellant had claimed professional fees amounting to Kshs. 39,568,182. 00 from Surgipharm Limited expenses reallocation relating to employees, but the Appellant did not provide any details for these employees to confirm that PAYE was duly deducted and remitted, and as such the Respondent disallowed the claim.

65. The Respondent conducted an analysis of the income tax returns filed by the Appellant vis-a-vis the monthly PAYE returns and established a variance of Kshs. 116,047,841. 00 and Kshs. 151,539,722. 00 for the period 2021 to 2022 and requested for an explanation as to variance, to which the Appellant provided a list of employees without the details of their PINs and monthly pay.

66. Consequently, the Respondent charged PAYE at 30% as the information provided by the Appellant was not comprehensive to verify the amounts.

67. That in failing to provide the supporting documents for all or any of the issues the Appellant failed to exercise their statutory burden of proof as required under Section 56 (1) of the Tax Procedures Act which provides that:“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect.”

68. That the Appellant had claimed consultancy costs amounting to Kshs. 39,124,068. 00 paid to Mr. Martin Sweeney and Mr. Ben Walker. However, from the employment contracts availed by the Appellant, the Respondent confirmed that the two were employees, and Mr Sweeney was listed as a director in the financial statements and therefore could not concurrently be a consultant in the same company.

69. The Respondent established that the cost related to Mr. Martin Sweeney and Mr. Ben Walker was Kshs. 30,657,891. 00 and Kshs. 8,466,177. 00 respectively, and since they were employees, these costs were subjected to PAYE charge and credit given for WHT deducted at a rate of 5% and found that principal tax due was Kshs. 9,781,017. 00.

70. That the Respondent raised additional tax amounting to Kshs. 223,581,871. 00 before offsetting the refund applied of Kshs. 26,593,801. 00 and as such, the principal tax payable after offsetting was Kshs. 196,988,070. 00.

71. That the Appellant did not dispute the basis the Respondent used in arriving at the additional tax amounting to Kshs. 223,581,871. 00.

72. That Section 31 of the TPA provides that the Respondent may amend an assessment by making alterations or additions, from the available information and to the best of the Respondent’s judgement.

73. That the Appellant did not object to the amendments amounting to Kshs. 223,581,871. 00 but however appealed on the late Refund Decision for Kshs. 26,593,801. 00.

74. The Respondent averred that the Appellant’s right of relief under Section 37 of the TPA does not limit the Respondent’s right under Section 31 of the TPA, for which these assessments were issued within the statutory five years.

75. That the Appellant's application for refund of Kshs. 26,593,801. 00 was rejected by the Respondent because additional tax was raised for the period 2021 that was partly off-set by the refund.

76. That Section 30 of the Tax Appeals Tribunal Act places the burden of proof on the taxpayer.

77. The Respondent notes that the Appellant has an obligation to keep documentsthat enable their tax liability to be readily ascertained. The foregoing is enshrined under the provisions of Section 23 of the Tax Procedures Act which provides thus:A person shall-a.Maintain any document required under tax law, in either of the official languages;b.Maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained;

78. That the Appellant has not discharged the burden of proof as stipulated in Section 56 (1) of the Tax Procedures Act 2015 thus the Appeal herein is unmerited and should be dismissed with costs to the Respondent.

The Respondent’s Prayers 79. The Respondent prayed that the Tribunal;a.Upholds the Respondent’s Decision dated 7th February 2024 demanding Kshs. 196,988,070. 00 in principal tax together with interest and penalties; and,b.Dismisses this Appeal with costs to the Respondent as the same is without merit.

Issues For Determination 80. The Tribunal has considered the parties pleadings, documentation and submissions of the Appellant and is of the view that this Appeal raises the following issues for determination;i.Whether the Respondent erred in law and in fact by issuing its refund decision 446 days late contrary to the express provisions of Section 47 (3) of the Tax Procedures Act; andii.Whether the Respondent erred in law and in fact by rejecting the Appellant’s CIT refund application of Kshs. 26,593,801.

Analysis And Findings 81. Having established the issues that fall for its determination, the Tribunal will proceed to analyse them as herein under.

Whether the Respondent erred in law and in fact by issuing its refund decision 446 days late contrary to the express provisions of Section 47 (3) of the Tax Procedures Act; and 82. The genesis of this Appeal is the application for refund made by the Appellant to the Respondent on 18th November 2022. The Appellant applied for the refund of overpaid Corporate Income Taxes.

83. The Respondent embarked on a refund verification process by requesting several documents and explanations through an initial email dated 21st December 2022.

84. Vide a letter dated 7th February 2024, the Respondent issued its Income Tax audit findings rejecting the Appellant’s CIT refund claim.

85. The Appellant being dissatisfied with the Respondent’s Refund Decision dated 7th February 2024 filed this Appeal.

86. In its pleadings, the Appellant indicated that its refund claim was validly lodged as required under the provisions of Section 47 (1) of the TPA as follows;i.The refund application which related to overpaid instalment taxes was lodged within five (5) years of the date the tax was paid; and,ii.The application was made using the approved form.

87. The Appellant further stated that according to Section 47 (2) of the TPA, the Respondent can opt to carry out an audit to ascertain the validity of the refund. However, such an audit must be concluded and a decision following the audit of the claim must be issued within ninety (90) days.

88. The Appellant informed the Tribunal that upon lodgement of its valid refund application, the Respondent ought to have ascertained the refund claim and issued a Refund Decision by 16th February 2023.

89. The Appellant submitted that since the Respondent failed to issue its Refund Decision within ninety (90) days of receiving the refund application, the application for refund automatically stood allowed in law by effluxion of time as set out under Section 47 (3) of the TPA.

90. The Appellant relied on seven matters decided by the Tribunal and the High Court in support of its Appeal.

91. On the other hand, the Respondent indicated that it had requested the Appellant to provide adequate evidence on 21st December 2022. That the Appellant provided the documents on 31st March 2023, which was 96 days beyond the stipulated 90 days provided for in Section 47 (3) of the TPA.

92. That the delay by the Appellant to provide the requested documents, made it impossible for the Respondent to issue the decision as the documents requested would have facilitated the Respondent in making a Refund Decision.

93. The Respondent submitted that it continued to engage with the Appellant, and on 25th January 2024 the Respondent proposed a meeting to finalize discussions of the refund audit, but the Appellant responded via email citing they were unavailable, to which the Respondent issued the audit findings the following week.

94. The Tribunal notes that the decision appealed against was in the letter dated 7th February 2024 that was responding to a Tax Refund Application dated 11th August 2022. Although the letter also dwelt on audit findings, the Tribunal will restrict itself to the Refund decision as this is the dispute that the Appellant brought to the Tribunal.

95. The Tribunal notes that the Law that guides taxpayers on issues relating to refunds is Section 47 of the Tax Appeals Tribunal ACT. The Section states that;“(1)When a taxpayer has overpaid a tax under a tax law the taxpayer may apply to the Commissioner, in the approved form, for a refund of the overpaid tax within five years of the date on which the tax was paid.Provided that for value added tax the period of refund shall be as provided for under the Value Added Tax Act, 2013. 2. The Commissioner may, for purposes of ascertaining the validity of the refund claimed, subject the claim to an audit.

3. The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.”

96. The Tribunal notes that Section 47 (2) of the TPA gives the Respondent the powers to carry out an audit to ascertain the validity of the refund. The words used are that the “Commissioner may…”

97. The Tribunal notes further that Section 47 (3) makes it mandatory for the Respondent to issue a Refund Decision within 90 days whether an audit is carried out or not. The word “shall” is couched in mandatory terms. The Tribunal agrees with the Appellant that the word “shall” when used in statutory provisions is a command, it is not permissive, it is mandatory.

98. The Tribunal relies on its holding in TAT Appeal No E643 of 2023 Kenya General Industries Limited vs. Commissioner of Domestic Taxes where at paragraphs 82 to 84 the Tribunal held that;“82. There was no dispute as to whether the application for a refund was made in time from the date on which it was overpaid. The Tribunal shall thus proceed on the presumption that both parties are in agreement that the application for refund was made in time.

83. Section 47(3) dictates that the Respondent must issue its refund decision within 90 days from the date of receipt of an application failure to which the same shall be deemed ascertained and approved.

84. The Appellant made its refund application on 6th November 2020. It follows that the Respondent was thus required to issue its refund decision by the 5th of January 2021. Its failure to issue the said refund decision meant that the refund application stood allowed on the 5th of February 2023. ”

99. The Tribunal also relies on the High Court case of Tax Appeals E053 of 2020 Commissioner of Domestic Taxes and Sony Holdings Limited where from paragraphs 36 to 38 the Court held;“36. The law concerning refund of overpaid tax is to be found in section 47 of the TPA which underpins the taxpayers statutory right to apply to the Commissioner for a refund. It imposes on the Commissioner the duty to consider the application, audit the claim if necessary, and thereafter make a decision on it within 90 days of application as provided by section 47(3) which states: 47. Refund of overpaid tax (3) The Commissioner shall notify in writing an applicant under subsection (1) of the decision in relation to the application within ninety days of receiving the application for a refund.

37. The Commissioner is correct to assert that the under section 47(4), which I have set out at para. 14 above, it is entitled to apply the overpayment to settle any other tax liabilities of the taxpayer. Lastly, if any refund has been made in error, under section 48 of the TPA, the Commissioner may demand the amount so erroneously paid and the taxpayer shall pay it.

38. Despite communicating to the Respondent the Refund audit findings by the letter dated 25th January 2017, the Commissioner failed to make decision within 90 days as provided by sections 47(3) of the TPA. This communication was, in my view, ambivalent and did not amount to a decision. I therefore hold that since the refund claim was neither denied nor rejected, the Respondent was entitled to claim the refund in its returns in subsequent years until the matter was resolved. I do not find anything in the TPA, nor has the Commissioner pointed to any provision of the law, that states that a taxpayer can only make a refund claim once whereupon the claim is extinguished notwithstanding that it has not been settled. Additionally, I reject the Commissioner’s contention that the Respondent has committed an offence by making a claim that it genuinely believes it is entitled to when the Commissioner has not dealt with its application for the refund.”

100. Due to the Respondent’s failure to issue a Refund Decision within ninety (90) days from November 18, 2022 when the Appellant made its application, the Tribunal holds and finds that the Appellant’s application for refund automatically stood allowed by operation of the law.

101. The Upshot of the above finding is that the Respondent erred in law and in fact by issuing its Refund Decision 446 days late contrary to the express provisions of Section 47 (3) of the Tax Procedures Act. Consequently, the Appeal succeeds.

102. Having held that the Appellant’s Application for refund was allowed by the operation of the law, the Tribunal shall not delve into the second issue for determination as it was rendered moot.

Final Decision 103. Having found that the Appeal is meritorious the Tribunal proceeds to issue the following Order;a.The Appeal be and is hereby allowed;b.The Respondent’s Refund decision dated February 7, 2024 be and is hereby set aside;c.The Respondent be and is hereby directed to refund to the Appellant Kshs. 26,593,801. 00 within sixty (60) days of the date of delivery of this Judgment; and,d.Each party to bear its own costs.

104. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF JANUARY 2025ROBERT M. MUTUMA - CHAIRPERSONJEPHTHAH NJAGI - MEMBERDELILAH K. NGALA - MEMBERDR, TIMOTHY - MEMBERB. VIKIRU - MEMBERMUTISO MAKAU - MEMBER