[2024] KETAT 278 (KLR)

Company v Commissioner of Domestic Taxes (Tax Appeal 1440 of 2022) [2024] KETAT 278 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 278 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1440 of 2022

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

February 23, 2024

Between

Top Rank Brewing Company

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose is engaged in the brewing business.

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.

3. The Appellant applied for Excise stamps through the iTax on 19th May 2022.

4. The Respondent issued additional assessment dated 23rd August 2022 for Excise duty. The Appellant objected vide a letter dated 29th August 2022.

5. The Respondent issued its objection decision vide a letter dated 28th October 2022.

6. Being dissatisfied with the Respondent’s decision, the Appellant filed this Appeal on 28th November 2022.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal filed on 28th November 2022:a.That it was appealing the decision of the Commissioner to the assessment and rejection of the objection to the assessment by the Independent Review of Objection (IRO)dated 28th October 2022. b.Failure by the Commissioner of Domestic Taxes to give a decision on the Legal Notice No. 52. c.Failure by the Commissioner to advice the Minister of Finance as requested by the letter dated 30th April, 2017. d.That the Appellant has been tax compliant as per declaration and payment of 20%.e.That the Appellant prays for vacation of the assessment in totality and the cost of the Appeal to be borne by each party.f.That the Appellant appointed the tax agent w.e.f January 2017.

Appellant’s Case 8. The Appellant’s case is supported by the following documents:a.The Appellant’s Statement of Facts dated 27th November 2022 and filed on 28th November 2022 together with the documents attached thereto.b.The Appellant’s written submissions dated 23rd March 2023 and filed on 28th March 2023.

9. The Appellant stated that the Respondent on 23rd August 2022 raised a demand for Kshs. 328,456,412. 00. That its objection on Kshs 249,583,565. 00 the Respondent rejected it in totality.

10. That having not had contrary communication from the Respondent, on Excise duty remission application, it assumed the Appellant's position had been accepted

11. That the provision of Legal Notice No. 52 allows manufacturers of Keg beer made from sorghum and millet a remission of tax at 80%

12. That the Respondent's officers carried out an inspection at the Appellant's premises and did not raise objection on its operations

13. That unless there was a contrary report which was not communicated to the Appellant. That it therefore assumed that the report on the inspection was in favor of the Appellant

14. The Appellant stated that the Respondent had omitted to attend to the spirit of Legal Notice No. 52 as regards the Appellant. That the Appellant had originated communications on diverse dates from 2017 to the Respondent.

15. That the Respondent was yet to make an attempt to respond to the Appellant’s issues raised.

Appellant’s Prayers 16. That the Appellant prayed for orders, that:a.The Respondent vacates the Objection decision pronounced on the 28th October, 2022. b.The Respondent should take into consideration the full effect of Legal Notice No.52.

Respondent’s Case 17. That the Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -i.The Respondent’s Statement of Facts dated 15th December 2022 and filed on 23rd December 2022 together with the documents attached thereto.ii.The Respondent’s written submissions dated 20th March 2023 and filed on 29th March, 2023.

18. The Respondent pleaded that the Excise duty (Remission of Excise Duty) Regulations 2017 (hereinafter referred to as Legal Notice No.52) was enacted. That the Legal Notice allowed for the grant of remission of Excise duty at eighty per centum with respect to beer made from sorghum, millet or cassava or any other agricultural produce grown in Kenya subject to the approval of the Cabinet Secretary for the National Treasury.

19. That Legal Notice No. 52 is not applicable in respect of beer that is made with barley.

20. The Respondent averred that on 19th May, 2022, the Appellant applied for excise stamps through the iTax platform. That upon receipt of the application, it requested the Appellant to provide a reconciled summary of stamps usage.

21. The Respondent pleaded that it reviewed the reconciliation availed by the Appellant and noted that the stamps reconciliation yielded additional principal tax amounting to Kshs. 328,456,412. 33.

22. The Respondent averred that it raised an additional assessment on 23rd August,2022 on the basis that there were variances identified upon a comparative analysis of Excise stamps issued and used versus Excise duty declared in the monthly returns.

23. The Respondent pleaded that the Appellant was aggrieved with the assessment and raised an objection contending that it made an application subject to Legal Notice No. 52 of 2017 seeking eighty percent (80%) remission thus effectively taking advantage of the benefits the Legal Notice brought along with it.

24. The Respondent submitted that the Appellant further alleged that the Respondent visited its premises with a view to carrying out inspection of its findings and that the Respondent did not revert its findings.

25. The Respondent stated that the Appellant had thus been making payment of Excise taxes after netting the expected remission of eighty percent (80%).

26. The Respondent pleaded that it considered the objection and noted that the Appellant did not get approval for eighty percent (80%) remission for Excise duty. The Respondent thus rejected the objection and upheld the assessment of principal tax amounting to Kshs. 249,583,565. 00.

27. The Respondent pleaded that pursuant to Legal Notice 52 of 2017, the Cabinet Secretary is crowned with the task to approve any application made for remission.

28. The Respondent averred that it had not been assigned any role subject to Legal Notice No. 52 of 2017. That it cannot be faulted for the Appellant's failure to secure the approval for remission.

29. The Respondent pleaded that the ultimate decision on whether any person who applies for remission under Legal Notice 52 of 2017 lies with the Cabinet Secretary.

30. That the Respondent cannot thus be compelled to allow the Appellant to net the remission of eighty percent (80%) subject to unapproved remission.

31. On whether Legal Notice No. 52 applies to the Appellant, the Respondent stated that the Appellant had failed to demonstrate that it received approval from the Cabinet Secretary for the National Treasury. That in the absence of the express approval, the Appellant was not permitted to apply the eighty percent (80%) remission of Excise duty.

32. The Respondent pleaded that the Appellant did not at any point receive any written approval authorizing it to apply the eighty percent (80%) remission of Excise duty. The Respondent argued that the Appellant proceeded with unapproved remission and thus acted contrary to the provisions of Legal Notice No. 52 of 2017.

33. The Respondent further submitted that as a result of the Appellant's actions, the Appellant had been underpaying taxes and depriving the Respondent of taxes due to it.

34. That without prejudice to the foregoing, the Respondent stated that the Appellant was not entitled to the eighty percent (80%) remission as it had admitted to manufacturing beer using barley.

35. That the Respondent was thus correct not to apply the Legal Notice No. 52 of 2017 and uphold the additional assessments made.

36. The Respondent pleaded that the burden of proof that an assessment is excessive and/or erroneous lies with the Appellant. That the Appellant had not discharged this burden.

37. The Respondent stated that the Appellant had alleged that the Respondent visited its premises for inspection purposes. That this allegation was made by the Appellant in its objection.

38. The Respondent asserted that the Appellant had not produced any evidence in support of the claim that inspection was carried out.

39. The Respondent stated that it acted at all times in pursuant to the relevant tax laws and considered all of the documentation availed. That the Respondent's conduct was faultless. The Respondent pleaded that it thus arrived at a logical assessment.

40. The Respondent submitted that the Appellant had failed to prove that the assessment was excessive and/ or the Respondent's objection decision ought to have been made differently.

Respondent’s Prayers 41. The Respondent prayed that:a.The Appeal be dismissed with costs.b.The Assessment raised by the Respondent amounting to Kshs. 249,583,565. 00 be confirmed and the principal taxes and interest be found due and payable as per the objection decision rendered by the Respondent.

Issue for Determination 42. The Tribunal having considered the pleadings and submissions of the parties is of the view that the only issue that calls for its determination is namely; Whether the Respondent’s assessment was justified.

Analysis and Findings 43. The Tribunal having determined the issue falling for its determination proceeded to analyze it as hereunder.

44. The genesis of this dispute is the Respondent’s assessment of tax on the basis that the Appellant does not qualify for the 80% remission of Excise duty under Legal Notice No 52 of 2017.

45. It was the Appellant’s contention that the provision of Legal Notice No. 52 of 2017 allows manufacturers of keg beer made from sorghum and millet a remission of tax at 80%.

46. That the Respondent's officers carried out an inspection at the Appellant's premises and did not raise objection on its operations. That unless there was a contrary report which was not communicated to the Appellant it assumed that the report on the inspection was in its favor.

47. The Appellant added that the Respondent had omitted to attend to the spirit of the said Legal Notice as regards the Appellant. That the Appellant had originated communications on diverse dates from 2017 to the Respondent.

48. The Respondent on the other hand contended that the Appellant had been making payment of Excise tax after netting the expected remission of eighty percent (80%). That during objection it noted that the Appellant did not get approval for eighty percent (80%) remission for Excise duty. The Respondent thus rejected the objection and upheld the assessment of principal tax.

49. The Respondent submitted that pursuant to Legal Notice No. 52 of 2017, the Cabinet Secretary was crowned with the task to approve any application made for remission.

50. Regulation 2 (1) & (2) in the Legal Notice No. 52 of 2017 provides as follows regarding Excise Duty (Remission of Excise Duty) for manufacturers;“(1)The Cabinet Secretary may, on the application by a manufacturer, grant the remission of excise duty at eighty per centum with respect to beer made from sorghum, millet or cassava or any other agricultural produce grown in Kenya.(2)This regulation shall not apply in respect of beer made from barley”

51. It follows therefore from the above Regulation that for one to enjoy remission of Excise duty at 80%, it ought to be granted approval by the Cabinet Secretary upon the manufacturer making an application and meeting the set conditions.

52. The Tribunal perused the documents presented by the Appellant and noted that the Appellant had made an application to the Cabinet Secretary, National Treasury on 30th April 2017 for the duty remission under the provisions of the Legal Notice No. 52 of 2017. The Appellant further attached a letter from the Principal Secretary/National Treasury addressed to the Respondent. The letter stated in part as follows;“… Top Rank Industries Limited is requesting for remission of excise duty on beer manufactured from maize/sorghum.Kindly review the application and give your views and comment on eligibility of the company for the remission based conditions specified in the Legal Notice No. 52 of 2017, to enable us advise the Cabinet Secretary appropriately.Attached please find a copy of the application letter.…”

53. From the above correspondence it was clear to the Tribunal that the Appellant had made an application to enjoy the Excise duty remission at 80% as provided under Legal Notice No 52 of 2017. However, there was no evidence presented to the Tribunal to demonstrate that the said application elicited any positive response or whether the Cabinet Secretary granted the Appellant the duty remission of Excise duty at 80% as required under the Legal Notice.

54. It was the view of the Tribunal that the Appellant could not purport to enjoy the duty remission at 80% under the Legal Notice No. 52 of 2017 without first obtaining the requisite approval from the Cabinet Secretary National Treasury as required in the Legal Notice.

55. The Tribunal reiterates the holding in the case of Mount Kenya Bottlers Limited & 3 Others V Attorney General & 3 Others [2012] eKLR, where Hon Lenaola J cited a statement by Justice G. P. Singh who stated that.“Whether the taxation imposed is unfair, harsh or inequitable cannot be the reason for holding that it should not be imposed. It is the duty of the state to impose taxation and it is the duty of its subjects to pay such taxes as are so imposed.”

56. Similarly, in T.M. Bell v Commissioner of Income Tax [1960] EALR 224 Roland J. stated that:-“… If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”

57. Based on the above analysis the Tribunal is persuaded that the Respondent was justified in its assessment of tax on the Appellant.

Final Decision 58. In view of the foregoing, the Tribunal finds that the Appeal lacks merit and accordingly makes the following Orders;a.The Appeal be and is hereby dismissed.b.The objection decision dated 28th October 2022 be and is hereby upheld.b)Each party to bear its own costs.

59. It is so ordered.

DATED and DELIVERED at NAIROBI this 23rd day of February, 2024ERIC NYONGESA WAFULA - CHAIRMANTIMOTHY B. VIKIRU - MEMBERDR RODNEY O. OLUOCH - MEMBERCYNTHIA B. MAYAKA - - MEMBERABRAHAM K. KIPROTICH - MEMBER