[2024] KETAT 564 (KLR)

Consultants v Commissioner, Legal Service and Coordination Board (Tax Appeal 18 (NRB) of 2023) [2024] KETAT 564 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 564 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 18 (NRB) of 2023

RM Mutuma, Chair, EN Njeru, M Makau, B Gitari & AM Diriye, Members

March 22, 2024

Between

Arprim Consultants

Appellant

and

Commissioner, Legal Service and Coordination Board

Respondent

Judgment

1. The Appellant herein is a partnership incorporated in Kenya under the Partnership Act, (Chapter 29) and a registered taxpayer. Its principal activity is in professional, scientific and technical activities.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority 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 issued additional Value Added Tax (VAT) assessment through the assessment order dated 3rd October 2022 for the period 1st January 2022 for a total of Kshs 55,723,384. 42.

4. The Appellant lodged an objection to the additional VAT tax assessments on 19th October 2022. The Respondent issued a confirmation assessment notice dated 22nd December 2022 fully rejecting the Appellant’s objection. The Respondent then issued an objection decision dated 8th December 2022.

5. The Appellant being dissatisfied with the Objection decision lodged a Notice of Appeal dated 6th January 2023 and filed on 11th January 2023.

The Appeal 6. The Memorandum of Appeal dated 6th January, 2023 and filed on 11th June,2023 raises the following grounds of appeal:i.That the Respondent erred in law and fact by raising the assessments and confirming the same despite being provided with the relevant supporting documents to cure the problem;ii.The Respondent failed to verify the physical purchase invoices on which the Commissioner has erred in assessing the tax;iii.That the Respondent did not accord the Appellant fair hearing more specifically not considering the substance of the objection and not reviewing the Appellant’s relevant documents provided to support its case;iv.That the assessment was done erroneously and greatly does not reflect the Appellant’s true position of what its books of accounts depicts;v.That the assessment is humongous, unfair and such an amount will greatly affect the Appellant’s business;vi.The Respondent erred in law and fact by issuing the decision dated 8th December 2022 against January 2022 Vat assessments on the grounds that the Appellant failed to avail the documentary evidence to support its case;vii.That all the relevant documentations are available and all explanations relating to the same can be shared for the Respondent’s review and input;viii.The Respondent erred in law and fact by disallowing the Appellant’s purchases declared in the VAT returns for the months of January 2022 that resulted to incremental tax;ix.That the Respondent erred in law and in fact by going against Section 17 of the Vat Act 2013 which provides that:“If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)—a.The person does not hold the documentation referred to in subsection (3), andb.The registered supplier has not declared the sales invoice in a return,The deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation: Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”x.The suppliers declared the sales but the Commissioner still went ahead and disallowed valid inputs;xi.That the Appellant claimed input tax correctly as per Section 17 (1) of the VAT Act 2013;xii.That all the invoices claimed were proper tax invoices as required under VAT Tax Regulations 2017, Regulation No.9 which describes the features of a valid tax invoice;xiii.That the Appellant is also not required under any tax law to ensure that suppliers correctly declare the corresponding output VAT for its input VAT to be validated;xiv.That the VAT input is valid and can be fully supported;xv.The assessments are excessive and contrary to the provisions of Vat Act;

Appellant’s Case 7. The Appellant relied on its;a.Statement of Facts filed on 11th January 2023 together with the documents annexed thereto; andb.Written submissions filed on 18th October 2023;

8. The Appellant averred that on 19th October 2022, the Appellant objected to the Respondent’s assessments but on 8th December 2022 the Respondent rejected the objection without considering the substance of the matter and reviewing all evidence and examinations adduced. The Appellant stated that the Respondent failed to engage the Appellant where any clarification was needed and that the Respondent should have given the Appellant adequate time to provide the relevant clarifications or documentation to prove the Appellant’s case.

9. The Appellant maintained that the relevant documentations and explanations that might lead to an amicable solution of the matter also available.

The Appellant’s Prayers 10. The Appellant urged the Tribunal to accept the Appeal and do set aside the Respondent’s objection decision dated 8th December 2022.

Respondent’s Case 11. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 10th February 2023 together with its documents annexed thereto; andb.Written submissions dated 23rd October 2023;

12. The Respondent averred that it reviewed the Appellant’s Value Added Tax (VAT) returns for the period January 2022 then raised assessment notice against the Appellant on under-declared VAT returns. The Respondent argued that since the Appellant failed to respond to the notice, the Respondent raised a VAT additional tax assessment for the period of January 2022 on 3rd October 2022. The Respondent acknowledged that the Appellant lodged an objection to the additional VAT tax assessments on 19th October 2022.

13. The Respondent averred that via email correspondences of 21st October and 30th November 2022, it asked for more documents to support the Appellant’s Objection but the Appellant failed to provide requested documents. Consequently, the Respondent issued its Objection decision dated 8th December 2022 with total tax due plus penalties at Kshs. 58,256,265. 53.

14. In response to the Memorandum of Appeal and Statement of Facts, the Respondent assertted that Section 24 of the Tax Procedures Act 2015 allows a tax payer to submit tax returns in the approved form and manner prescribed by the Respondent but the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

15. The Respondent stated that after review of the available documents, it established that the Appellant had under-declared VAT sales without presenting claimed inputs with supporting documents. Upon review of the Appellant’s sales declared in VAT and partnership returns revealed discrepancies.

16. The Respondent assertted whereas it requested for production of additional documents necessary in determination of tax liability as required under Section 59 (1) of the Tax Procedures Act 2015, the Appellant failed to provide the additional documents. At this point, the Respondent concluded that the Appellant was unable to provide evidence to disapprove the assessments hence

17. It is the Respondent’s position that its decision is supported by Section 29 of the Tax Procedures Act 2015 since the Appellant failed to provide full VAT declaration and requested documents. The Respondent maintained that the Objection decision dated 8th December, 2022 is proper and the Appellant’s Appeal herein should be dismissed with costs to the Respondent.

18. Finally, the Respondent relied on Section 56(1) of the Tax Procedures Act which provides that “in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

The Respondent’s prayers 19. The Respondent, therefore, prayed the Tribunal to:i.Uphold the Respondent’s Objection Decision dated 8th December, 2022. ii.Dismiss the Appeal with costs to the Respondent as the same is devoid any merit.

Issues for Determination 20. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts, and submissions, puts forth the following issues for determination:a.Whether the Appellant has adduced documentary evidence in support of the Appeal; andb.Whether the Respondent’s Objection Decision dated 8th December, 2022 is justified.

Analysis And Findings 21. The Tribunal wishes to analyse the issues as hereunder.

a. Whether the Appellant has adduced documentary evidence in support of the Appeal. 22. The Appellant submitted that the required documents as stipulated in Section 17 (2) (b) and Section 17 (3) (a) were provided for purposes of supporting the VAT as claimed.

23. The Appellant relied on the Barclays case in which the court cited the case of Cape Brandy Syndicate vs. Inland Revenue Commissioner [1920] 1KB as applied in T.M Bell v Commissioner of Income Tax [1960] EALR 224 where Roland stated,“in a taxing Act, one has to look at what is clearly said. There is no room for intendment as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used...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.”

24. On this issue the Respondent submitted that via email correspondence of 21st October and 30th November 2022, it asked the Appellant for more documents to support the Appellant’s Objection but the Appellant failed to avail the documents. The Tribunal has examined the Respondent’s documents including the Respondent’s email of Friday, 21st October 2022 04:08 PM and the email of Wednesday, 30th November 2022 10:25 AM. The Tribunal notes that Respondent in the said emails requested for purchases ledger, purchase invoices, evidence of payment, delivery notes, ETR receipts and supplier confirmations. It is the Respondent’s case that the Appellant did not provide these documents.

25. What is in contention to both parties is the issue of documents. Did the Appellant avail the required documents?

26. The Tribunal has examined the Appellant’s pleadings. What is clear from the Appellant’s pleadings is that the Appellant filed the following documents in support of this Appeal: Assessment order dated 3rd October 2022, confirmation assessment notice dated 22nd December 2022, Objection application acknowledgment receipt dated 19th October 2022, Objection decision dated 8th December 2022, and a screenshot of a letter dated 14th October 2022 objecting to additional VAT.

27. Whereas the Appellant submitted that it presented the documentation referred to under Section 17 (3) of the VAT Act within Six (6) Months after the end of the tax period in which the supply occurred, the Appellant did not file those documents to support the Appeal.

28. Section 17 (3) of the VAT Act provides follows:“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);(e)a debit note in the case of input tax deducted under section 16(5); or(f)in the case of a participant in the Open Tender System for the importation of petroleum products that have been cleared through a non-bonded facility, the custom entry showing the name and PIN of the winner of the tender and the name of the other oil marketing company participating in the tender…

29. None of the documents under Section 17 (3) of the VAT Act are on record to support the Appeal. The Appellant did not file any of them.

30. For a taxpayer to discharge the burden of proof, a taxpayer has to comply not only with provisions of Regulation 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 but has to provide relevant documentary evidence in support of the appeal. As provided for under Section 51 (3) of the Tax Procedures Act which provides as follows:‘‘A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—c.All the relevant documents relating to the objection have been submitted.’’Therefore, producing any document is not sufficient, the documents supplied must be relevant.

31. Whereas the Appellant alleged that it gave the Respondent documents in support of the notice of objection, the alleged documents were not placed on record. The Appellant has not provided documentary evidence for the Tribunal to review and to arrive at decision. No relevant documentations were provided, how then would this Tribunal determine that the Respondent’s decision is wrong?

32. Consequently, the Tribunal finds and holds that the Appellant has failed to adduce the requisite documents in support of its Appeal and therefore failed to discharge its burden of proof under Section 56 (1) and Section 30 of the Tax Appeals Tribunal Act.

b. Whether the Respondent’s Objection Decision dated 8th December, 2022 is justified 32. Since the Appellant did not provide documentary evidence in support of the Appeal, and since the Tribunal has found that the Appellant has failed to discharge its burden of proof under Section 56 (1) and Section 30 of the Tax Appeals Tribunal Act, the Tribunal finds that there is no reason to interfere with the Respondent’s Objection decision dated 8th December, 2022.

Final Decision 33. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal lacks merit and consequently makes the following Orders; -a.The Appeal be and is hereby dismissed;b.The Respondent’s Objection decision dated 8th December 2022 is hereby upheld; andc.Each party to bear its own costs.

34. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ROBERT M. MUTUMACHAIRPERSONELISHAH N. NJERUMEMBERMUTISO MAKAUMEMBERBERNADETTE M. GITARIMEMBERMOHAMED A. DIRIYEMEMBER