[2023] KETAT 966 (KLR)

CKL Africa Limited v Commissioner of Domestic Taxes (Tax Appeal 1321 of 2022) [2023] KETAT 966 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 966 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1321 of 2022

RM Mutuma, Chair, M Makau, EN Njeru, W Ongeti & BK Terer, Members

November 24, 2023

Between

CKL Africa Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a limited liability company duly registered in the Republic of Kenya and is a registered taxpayer. Its core business engagement is the manufacturing of animal health products.

2. The respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act, 1995. Under section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under section 5 (2) of the Act with respect to the performance of its functions under subsection (1), the Authority 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 revenues in accordance with those laws.

3. The dispute in this appeal arose when the respondent issued the appellant with audit findings on the August 19, 2022 rejecting the appellant’s income tax application for refund for overpaid taxes amounting to Kshs. 30,282,468. 00 relating to the refund period in January to December 2019.

4. The appellant disputed the respondent’s findings and lodged its notice of objection to the refund rejection on September 16, 2022.

5. The respondent issued a response to the appellant’s objection on the 22nd September 2022.

6. The appellant being aggrieved by the decision issued by the respondent, lodged this appeal, filing its notice of appeal on the October 21, 2022.

The Appeal 7. The appellant’s Memorandum of Appeal dated and filed on the 4th November 2022 is premised on the following grounds, that;a.The respondent erred in law and fact by rejecting the appellant’s refund claim despite finding that the appellant’s claim is valid, correctly claimed and properly supported contrary to section 47 of the Tax Procedures Act.b.The respondent erred in law and in fact by failing to adhere to the provisions of section 47 (4) of the Tax Procedures Act which mandates the respondent to apply the overpaid tax to any tax owed by the taxpayer as long as the respondent is satisfied that the taxpayer overpaid the tax, and in this case failed to offset the overpaid tax against the appellant’s current corporation tax liability.c.The respondent erred in law and in fact in its decision to reject the appellant’s refund application for overpaid corporation tax based on additional assessments for investment deduction claims that were struck out by the Honourable Tribunal in its Judgement in TAT No. 297 of 2021 CKL Africa Limited v Commissioner of Domestic Taxes.d.The respondent erred in law and in fact in rejecting the application for refund pending the respondent’s Appeal of the judgement of this Honourable Tribunal to the High Court in ITA No. E050 of 2022 Commissioner of Domestic Taxes v CKL Africa Limited while there is no order staying the judgement of this Honourable Tribunal.e.The respondent erred in law and in fact in failing to recognise that the refund application for overpaid corporation taxes amounting to Kshs. 30,282,468 for the financial year 2018/2019 is distinct and separate from the respondent’s Appeal at the High Court pertaining to a claim for investment allowances on construction of a building and purchaser and installation of machinery.f.The respondent erred in law and in fact in rejecting the appellant’s refund application pending the determination of the High Court matter and failing to consider that the law provides a five-year time limitation on refund application under section 47 of the Tax Procedures Act.g.The respondent erred in law and in fact by infringing the appellant’s right to fair administrative action, as enshrined in article 47 of the Kenyan Constitution, 2010, by rejecting the refund application based on irrelevant considerations against the appellant’s right to lawful and reasonable administrative action.

The appellant’s Case 8. The appellant’s case is premised on the herein under filed documents before the Tribunal;a.The appellant’s statement of facts dated and filed on the November 4, 2022 together with the documents attached thereto.b.The appellant’s written submissions dated and filed on 5th June 2023.

9. That the appellant stated that through its tax representatives, Viva Africa Consulting LLP made an application for Income tax refund to the respondent for the financial year 2018/2019 vide the letter dated November 5, 2021 for the overpaid taxes which amounted to Kshs. 30,377,245. 00, constituted as follows; Withholding tax Kshs. 441,073. 00, Advance Tax 26,400. 00 and Instalment Tax Kshs. 29,909,772. 00.

10. The appellant stated that in the said application, it requested the respondent to offset its tax liability by invoking its authority to so do under the TPA, for the financial year 2020/2021 whose tax fell due on October 31, 2021.

11. The appellant averred that the respondent upon conducting an audit for the period January to December 2019, issued an audit finding on August 19, 2022, in which the respondent indicated that based on the audit done on the records submitted by the appellant, the tax returns were appropriately done and that the amount of taxes overpaid by the appellant was summed up at Kshs. 30,282,468. 00.

12. The appellant asserted that in the above letter of 19th August 2022, the respondent stated that the purchase (cost of sale) ledgers and the expense ledgers were reviewed respectively and were found to have been properly supported, the same were deemed by the respondent to have been incurred in the generation of taxable income and to relate to the generation of business income respectively.

13. The appellant contented that the respondent in its audit findings contained in the letter of 19th August 2022, it broke down the composition of the overpaid taxes remitted by the appellant for the financial period January to December 2019 as follows; instalment tax Kshs. 29,909,772. 00; advance tax 26,400. 00 and Withholding tax Kshs. 441,073. 00.

14. The appellant submitted that the respondent, despite acknowledging the validity of the appellant’s tax overpayment and its supporting records, proceeded to state that the credits upon which the refund application was based were extinguished when the 2019 return was amended, and an additional assessment raised on the appellant following the investment deduction claim audit was conducted on the company.

15. The appellant further averred that the respondent in its audit findings proceeded to add that the additional assessment following the investment deduction claim were objected to by the appellant at the Tax Appeals Tribunal, and the determination made by the Tribunal in favour of the appellant, the respondent appealed the judgement to the High Court and the same is pending determination.

16. The appellant stated that the respondent indicated in its audit findings of August 19, 2022 its ground for objecting to the valid refund application was to await the decision of the High Court on the matter of the additional assessments arising from the appellant’s investment deduction claim.

17. That the appellant contented that it objected to the audit findings of August 19, 2022 vide the objection of September 16, 2022 and outlined the overpayments it had made, its reasons for the objection and referenced the decision of the Tribunal in respect to the investment deductions claimed that was determined in its favour.

18. The appellant averred that the respondent was in disobedience and breach of a valid order of the Tribunal and further argued against the respondent’s rejection of its refund pending the determination of the High Court on investment deductions Appeal presented by the respondent based on the fact that the statutory timelines for a refund application are limited to a five year timeline, and that cases at the High Court are known to take plenty of time until determination, thus, risking the expiry of the appellant’s statutory timelines of five years.

19. The appellant further avowed that the respondent in its act of rejecting the refund claim, it violated the appellant’s administrative rights enshrined in the Constitution and action amounted to unfair administrative action.

20. The appellant contented that the respondent disregarded its own audit findings which contravened section 47 (4) of the Tax Procedures Act, which mandates the Commissioner to apply the overpaid tax upon satisfaction that the taxpayer overpaid tax.

21. The appellant asserted that the respondent issued its decision to the Objection on 22nd September 2022 and advised the appellant to seek redress to the Tribunal within thirty days of being notified of the objection decision.

22. The appellant in its submissions raised two issued for determination, being;a.Whether the respondent erred in fact and in law by rejecting the appellant’s refund application?b.Whether the respondent should refund the appellant’s income taxes?

23. The appellant submitted that the Commissioner conducted an audit in line with section 47 (4) of the TPA, which mandates the Commissioner to conduct refund audits where necessary, with the intention of verifying the legitimacy of the overpaid taxes sought.

24. The appellant averred that the wording of section 47 (2) (a) of the TPA does not grant the Commissioner with any discretion to decide whether to process a taxpayer’s refund application or not, once the Commissioner determines and ascertains that a taxpayer indeed overpaid tax.

25. The appellant contented that the Commissioner acted ultra vires and exercised its power beyond its scope, by rejecting the appellant’s refund application despite ascertaining the legitimacy of the appellant’s tax overpayments.

26. The appellant asserted that the Commissioner’s decision to reject the appellant’s refund application despite ascertaining the validity of the tax overpayments amounted to a breach of the appellant’s legitimate expectation that it would be subjected to fair, just and reasonable tax administration and governance.

27. It was the appellant’s contention that the present matter does not revolve around the same material facts and circumstances that were litigated upon between the appellant and the Commissioner in TAT Appeal No. 297 of 2021 and subsequently before the High Court in ITA No. E050 of 2022, the Commissioner’s rejection of refund based on ground that the parties await the outcome of the appeal before the High Court violates the principles that inform res judicata.

28. The appellant averred that in view of the foregoing, the Commissioner ought to refund the appellant’s overpaid Income taxes in line with its acknowledgement contained in the audit findings of 19th August 2022.

29. The appellant in buttressing its position relied of the following case law;a.TAT Appeal No. 297 of 2021 – CKL Africa Ltd v Commissioner of Domestic Taxes.b.Republic v Commissioner of Domestic Taxes, Large Taxpayers Office ex-parte Barclays Bank of Kenya Limited [2012] eKLR.c.Republic v Business Premises Rent Control Tribunal & another ex-parte Albert Kigera Karume [2015] eKLR.d.Kenya Revenue Authority v Export Trading Company Limited, [Petition No. 20 of 2020 (E021 of 2020)].e.Commissioner of Domestic Taxes v Sony Holdings Limited (Tax Appeal E053 of 2020) [2021] eKLR.

Appellant’s Prayers 30. The appellant made the following prayers to the Tribunal, that;a.The respondent’s audit findings and objection decisions dated 19th August 2022 and 22nd September 2022 respectively be struck out in their entirety.b.The respondent be required to apply the overpaid corporation tax amounting to Kshs. 30,282,468 by offsetting the appellant’s current corporation tax liabilities and any other taxes owed, and where any balance is left after offsetting the taxes owed, the respondent be required to refund any such sums to the appellant.c.The costs of the Appeal be granted to it; andd.Any other remedies that the Honourable Tribunal may deem just and reasonable.

Respondent’s Case 31. The respondent’s case is premised on the herein under filed documents before the Tribunal;a.The respondent’s Statement of Facts dated 1st December 2022 and filed on 2nd December 2022 together with the documents attached thereto.b.The respondent’s written submissions dated and filed on 5th June 2023.

32. The respondent stated that the appellant filed a manual application for tax refund for overpayment on 5th November 2022 for the period July 2018 to June 2019.

33. That the respondent stated that upon receipt of the application, it audited the appellant’s records and made its findings on 19th August 2022 rejecting the appellant’s application.

34. The respondent stated that the basis of the rejection of the appellant’s application was that the credits upon which the application was grounded on were extinguished as the appellant amended its 2019 returns.

35. That the respondent averred that the appellant raised an objection on 16th September 2022, to which it informed the appellant that if aggrieved by the tax refund decision, it can file an Appeal before the Tribunal.

36. That the respondent contented that the appellant filed the present Appeal on the 21st October 2022.

37. The respondent stated the appellant had prior to the appeal herein lodged another one being TAT Appeal No. 297 of 2021 CKL Africa Limited v Commissioner of Domestic Taxes, to which the Tribunal delivered a judgement on the Appeal allowing the same. The respondent being dissatisfied, it appealed to the High Court in ITA No E050 of 2022 Commissioner of Domestic Taxes v CKL Africa Limited which is pending determination.

38. The respondent contented that section 13 of the Tax Appeals Tribunal Act provides for the procedure of an appeal to the Tribunal, which ought to be filed in writing within 30 days upon receipt of a decision and to file a memorandum of appeal, statement of facts and tax decision within fourteen (14) days of filing the notice of appeal.

39. That the respondent asserted that pursuant to section 47 (13) of the Tax Procedures Act anyone who is aggrieved with the findings of the Commissioner under section 47 of the Tax Procedures Act (Offset or refund of overpaid tax) such a person is to file an appeal to the Tribunal within thirty (30) days.

40. That the respondent avowed that it explained to the appellant the reasons for the rejection of the refund application, the said letter dated 19th August 2022 being the decision and therefore time began to run from the said date.

41. The respondent asserted that the appellant filed its notice of appeal on the October 21, 2022 and a memorandum of appeal on November 4, 2022, the Appeal was therefore filed out of time and the leave of the Tribunal to file the same out of time was not sought.

42. That the respondent submitted that the delay was deliberate and inordinate and the same has not been explained. Further that statutory timelines ought to be kept and in the event, they are not kept sufficient explanations should be advanced.

43. The respondent submitted that the appellant by failing to apply for leave to file the Appeal out of time, the appellant did not give a proper explanation to the Tribunal and the entire Appeal before the Tribunal is contra-statute and ought to collapse.

44. The respondent submitted that its communication dated 22nd September 2022 stated that the appellant’s application for refund was rejected.

45. The respondent asserted that the appellant acted contrary to statute by raising an objection where the respondent had already pronounced itself on the appellant’s application.

46. That the respondent further averred that its action to reject the objection of the appellant on the basis of the refund claim had already been rejected, which actions were pursuant to section 47 (13) of the Tax Procedures Act.

47. The respondent contended that there is no refund due to the appellant as the credits upon which the refund was based had therefore, already been extinguished.

48. The respondent asserted that it at all material times acted pursuant to the relevant tax laws and considered all of the documentation availed, which conduct is faultless and thus arrived at a logical assessment.

49. That the respondent stated that the appellant failed to prove that the assessment was excessive and/or the respondent’s Objection decision could have been made differently.

Respondent’s Prayers 50. The respondent prayed that the Appeal be dismissed with costs.

Issues For Determination 51. The Tribunal upon the careful consideration of the pleadings and submissions made by the parties respectively, was of the view that the issues that recommend themselves for its determination are;a.Whether the appeal before the Tribunal is lodged in accordance to the law.b.Whether the respondent’s objection decision was justified.

Analysis And Findings 52. The Tribunal having identified the issues for its determination proceeds to analyse the same as herein under;a.Whether the Appeal before the Tribunal is lodged in accordance to the law.

53. The appeal before the tribunal stems from a decision by the respondent rejecting the refund application for overpayment of tax.

54. The appellant contented that the respondent upon receipt of the application for refund, the respondent conducted an audit where it established that there was an overpayment of tax by the appellant, however, it observed that there could be no refund premised on the fact that the credits upon which the application was grounded on were extinguished as the appellant amended its 2019 returns.

55. As a consequence, the respondent issued the notice of rejection on August 19, 2022, the appellant being aggrieved filed an objection to the rejection of refund on September 16, 2022. The respondent in response vide the letter dated 22nd September 2022 referred the appellant to the provisions of section 47 (13) of the TPA and advised the appellant if aggrieved to file an appeal before the Tribunal.

56. It was the respondent’s assertion that the appeal herein as presented is lodged out of time and offends the provisions of section 47 (13) of the Tax Procedures Act and section 13 (1) of the Tax Appeals Tribunal Act.

57. The Tribunal is satisfied that the respondent’s decision which would constitute an appealable decision in accordance to section 52 (1) of the Tax Procedures Act, was the decision issued on 19th August 2022. The letter of September 22, 2022 referred to the decision already issued and communicated the procedure of appeal to the Tribunal.

58. The procedure and manner of adjudicating the refund of overpaid taxes is provided for under section 47 (1), which provides;“47 (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 (No. 35 of 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.”

59. Of significance to the subject matter is the amendment that introduced section 47 (13) of the TPA, which became effective on the 1st July 2022, the instant Appeal is therefore governed by the said section, which provides;“A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.”

60. It follows that, any party aggrieved by the Commissioner’s decision on the refund of overpaid taxes should lodge an appeal to the Tribunal and not an objection to the Commissioner.

61. Similarly, Section 13 (1) (b) of the Tax Appeals Tribunal Act provides for Appeals before the Tribunal to be lodged within thirty (30) days of the decision a party is aggrieved by.

62. Upon perusal of the record, the Tribunal noted that appellant lodged its Appeal vide the notice of appeal of 21st October 2022, which Appeal ought to have been presented within 30 days of the decision made on 19th August 2022. The Appeal therefore, was lodge out of time.

63. The law makes provisions under section 13 (3) of the Tax Appeals Tribunal Act for any party who lodges its appeal out of time and with reasonable grounds, to seek leave of the Tribunal to file its appeal out if time, the appellant did not move the Tribunal seeking such orders.

64. The timelines provided under section 47 (13) of the Tax Procedures Act and section 13 (1) of the Tax Appeals Tribunal Act demand strict adherence and are not discretional to any party lodging an appeal before the Tribunal.

65. It is the Tribunal’s position that there is no proper and valid Appeal before the Tribunal for the exercise of its jurisdiction.

66. The Tribunal having established that there is no valid Appeal on record, shall not delve into the other issue for determination as the same has been rendered moot.

67. Consequently, the Tribunal finds that the Appeal herein is incompetent and untenable in law.

Final Decision 68. The upshot to the foregoing is that the Appeal is incompetent and the Tribunal consequently makes the following orders;-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

69. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERDR. WALTER ONGETI - MEMBERBONIFACE K. TERER - MEMBER