[2025] KETAT 45 (KLR)

Coretec Solutions Africa Limited v Commissioner of Domestic Taxes (Tax Appeal E900 of 2023) [2025] KETAT 45 (KLR) (31 January 2025) (Judgment)

Neutral citation: [2025] KETAT 45 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E900 of 2023

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

January 31, 2025

Between

Coretec Solutions Africa Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited company that engages in the business of partnering with software providers to distribute and implement the software products to their customers.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. The Respondent conducted an audit of the Appellants tax affairs for the period 2016 to 2021 whereupon it issued that Appellant with VAT and PAYE tax assessments on 30th November 2021 for Kshs. 63,670,702. 00 and 4,383,006. 00 respectively on principal tax.

4. On 21st September 2023 the Appellant filed an application seeking extension of time to lodge a late objection, the Respondent allowed the Application on 4th October 2023.

5. The Respondent issued an Objection Decision dated 1st December 2023.

6. The Appellant vide a Notice of Appeal dated and filed on 8th December 2023, lodged the instant Appeal before the Tribunal contesting the validity of the Objection Decision.

The Appeal 7. The Appeal is premised on the following ground as stated in the Appellant’s Memorandum of Appeal dated and filed on 8th December 2023;a.That the Commissioner did not provide us the opportunity to provide supporting documents to support our objection.

The Appellant’s Case 8. The Appellant’s case is premised its Statement of Facts dated 8th December 2023 and filed before the Tribunal on the same date. The Appellant on the 5th December 2024 in open court waived its right to the filing of its submissions, despite it being afforded the right to so do.

9. The Appellant averred that it engages in the business of partnering with business software providers to distribute and implement their software products to their customers.

10. That the Respondent undertook a desk top compliance verification exercise on its records for period 2016 to 2021 on VAT and PAYE and came up with an assessment of Kshs. 63,670,702. 00 and 4,383,006. 00 respectively on principal tax on 30th November 2021.

11. The Appellant contended that the Commissioner failed to accept cases of VAT exceptions for some customers and in case of PAYE the difference between Income Tax return and Payroll returns was due to other charges like contribution to provident fund and casual wages not in the payroll.

12. The Appellant averred that it objected the VAT & PAYE assessments on the ground that the Respondent did not take into consideration the supporting documents when making the decision.

13. The Appellant submitted that the documents are now readily available for review by the Respondent.

Appellant’s Prayers 14. The Appellant prayed the Tribunal that the above assessment be reviewed and the Commissioner allow the exempted customers and allow a payroll reconciliation.

The Respondent’s Case 15. The Respondent’s case is premised on the hereunder filed documents;a.Statement of Facts filed on 1st March 2024 together with the documents attached thereto;b.Written Submissions dated 12th August 2024 and filed on 14th August 2024.

16. The Respondent averred that it was justified in issuing the additional assessment on the vatable supplies that had not been subjected to tax. Further, that its basis of the issuing and confirming the assessment was lack of document in support of the contentions advanced by the Appellant.

17. The Respondent submitted that Section 2 (1) of the VAT Act provides that;“taxable supply" means a supply, other than an exempt supply, made in Kenya by a person in the course or furtherance of a business carried on by the person, including a supply made in connection with the commencement or termination of a business;”

18. The Respondent contended that the Appellant partners with software providers to distribute and implement the software products and the supplies made by the Appellant are vatable taxable supplies and the Appellant ought to charge and remit VAT on the supplies.

19. The Respondent averred that its audit of the Appellant’s income and tax returns and a comparison of the items below resulted in variances as follows;i.Income Tax self-assessment and VAT self-assessment;ii.Purchases claimed from the Appellant's pin and the VAT self-assessment;iii.Grossed up income from Withholding VAT Certificate and VAT self ­ assessment;iv.Withholding Income Tax Certificates and VAT self-assessment; and,v.Salaries and wages expenses claimed in the income tax company returns and salaries and wages claimed in the PAYE return.

20. The Respondent cited Section 31 (1) of the TPA which provides that;“Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that-a.in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;b.in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

21. The Respondent states that it is mandated in law to issue an additional assessment where an incorrect amount of tax has been declared and/or paid. That accordingly, the variances identified in PAYE and VAT during the audit were charged to tax.

22. The Respondent averred that the Appellant objected to the assessment on grounds that the variances were due to exempt sales declared in income tax return but not declared in sales due to supplying government institutions. Further, that the Appellant failed to charge VAT on supplies to government institutions thinking they are exempt.

23. The Respondent averred that it requested the Appellant to provide sample invoices to the government institutions, contract agreements, LPO’s and tender award documents in support of the objection.

24. The Respondent stated that the Appellant only provided invoices addressed to government institutions which showed that the Appellant did not charge VAT, that it failed to provide contracts agreements; LPO’s and contract award documents which could have helped the Respondent understand the terms of the contract and/or whether the supplies were tax exempt.

25. The Respondent asserted that as evidenced in its Objection Decision, it considered the grounds of objection and evidence produced and that the allegation by the Appellant that it did not take into consideration the supporting documents when making the decision was untrue.

26. The Respondent contended that the Appellant did not provide substantive evidence showing that the variances were caused by exempts sales not declared in the VAT return. That in absence of the documents to proof that the Respondent’s tax assessment was incorrect, it issued an Objection Decision fully rejecting the objection raised by the Appellant.

27. As regards the Appellant’s failure to provide documents, the Respondent cited Section 59 (1) of the TPA which enjoins the Appellant to produce documents when required by the Respondent to enable ascertainment of tax obligation.

28. The Respondent averred that on 21st September 2023 and 27th October 2023 it requested the Appellant to provide invoices, contracts agreements; LPO’s and contract award documents in support of the said contentions.

29. The Respondent submitted that it provided the Appellant ample time to submit documents but the Appellant only provided invoices failing to provide contract agreements; LPO’s and contract award documents. That hence, the Appellant’s allegations that it was not afforded time to provide documents is untrue.

30. The Respondent asserted that it is not bound by the tax returns of the Appellant, that it is enjoined to asses a taxpayer’s tax liability using any information available as provided Section 24 (2), TPA which states;“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

31. The Respondent submitted that it used the availed information and best judgement to come up with the assessment. That without availing the records requested, the Appellant cannot claim the assessments are wrong without adducing evidence.

32. The Respondent relied on the case of Ngurumani Traders Ltd vs. Commissioner of Investigations and Enforcement (TAT Appeal No. 125 of 2017) where the Tribunal held that;“This Tribunal need not belabour this issue. It would be an exercise in futility to direct the Respondent to consider the Appellant's cost of sales, operating cost and not to charge VAT keeping in mind that in the foregoing analysis it was established that the Appellant failed in its duty to avail its records. In the Tribunal's view is quite impossible to come to an objective assessment or consideration of the Appellant's prayers there being no physical records to ascertain whether the information submitted in the self-assessment was accurate.”

33. The Respondent postulated that the Appellant is required to object the assessments within the provisions of the Section 51 (3) of Tax Procedures Act, 2015 which provide the threshold for a valid objection.

34. On the Appellant’s prayer to be allowed time to avail documents, the Respondent submitted that the Appellant should not be allowed to avail before the Tribunal any documents that were not considered in making the impugned decision.

35. The respondent cited Section 13 (6) of the TAT Act provides that;“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or documents to which the decision relates.”

36. The Respondent contended that an Appeal is limited to the grounds stated in the Appeal and the documents that were considered in making the decision challenged in the said Appeal.

37. It was the Respondent's contention that all the documents that were used in making the decision dated 1st December 2023 are before the Tribunal and any documents not considered in making the decision are therefore irrelevant before the Tribunal.

38. The Respondent further contended that to allow additional documents at an Appeal stage, the Tribunal must be satisfied that the additional documents are new and the same could not be obtained by the Appellant for consideration by the Respondent.

39. The Respondent posited that the Appellant has not outlined what documents are now available and/or why the same could not be obtained and produced before the Respondent for its consideration.

40. The Respondent propounded that producing and asking the Tribunal to consider documents that were not availed and considered by the Respondent would be inviting the Tribunal to usurp the mandate of the Respondent which is contrary to the provisions of the Kenya Revenue Authority Act and the Tax Procedure Act.

41. The Respondent contended that in failing to provide the specific documents as requested, the Appellant failed to discharge the burden of proof.

42. The Respondent relied on the case of Alfred Kioko Muteti vs. Timothy Miheso & another [2015] eKLR where the court held that;“A party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough. "In reaching its findings, the Court stated that:" Thus, the burden of proof lies on the party who would/ail if no evidence at all were given by either party....Pleadings are not evidence,... "

43. The Respondent further placed reliance on the cases of:a.Anne Wambui Ndiritu vs. Joseph Kiprono Ropkoi & another [2004] eKLR;b.Sheria Sacco Limited vs. Commissioner of Domestic Taxes [2019] eKLR; and,c.Republic vs. Kenya Revenue Authority; Proto Energy Limited (Ex-parte) (Judicial Review Application Eo23 of 2021) [2022].

44. The Respondent submitted that the Appeal is unfounded in law and not supported by evidence.

Respondent’s Prayers 45. The Respondent prayed the Tribunal that the Appeal be dismissed and the Objection Decision dated 1st December 2023 confirming the additional PAYE of Kshs 4,968,309 and VAT of Kshs 11, 153,074 be upheld.

Issue For Determination 46. The Tribunal having considered the parties pleadings and the Respondent’s submissions, is of the view that the issue that calls for its determination is;Whether the Respondent’s assessment and subsequent Objection Decision issued on 1st December 2023 was justified;

Analysis And Determination 47. The Appellant’s main contention was that the Respondent erred in raising additional VAT assessments on exempt supplies and additional PAYE assessments by failing to consider documents.

48. The Appellant contended that the Respondent failed to accept cases of VAT exceptions for some customers and in case of PAYE the difference between Income Tax return and Payroll returns was due to other charges like contribution to provident fund and casual wages not in the payroll.

49. The Appellant averred that it objected the VAT & PAYE assessments on the ground that the Respondent did not take into consideration the supporting documents when making the decision.

50. On its part, the Respondent averred that it requested the Appellant to provide sample invoices to the government institutions, contract agreements, LPO’s and tender award documents in support of the objection but it only provided invoices failing to provide contract agreements; LPO’s and contract award documents. That hence, the Appellant’s allegations that it was not afforded time to provide documents is untrue.

51. The Tribunal noted that the impugned assessment was issued on 30th November 2021, the Appellant sought for extension of time to object about two years later on 21st September 2020, an extension which was granted by the Respondent.

52. The Tribunal noted further that the Appellant was requested by the Respondent to provide documents vide an email dated 27th September 2023, the Appellant requested extension of time to avail the document and was granted time up to 31st October 2023 to provide documents, it failed to provide the specific documents as requested by the Respondent.

53. It is on the basis of this email evidence that Respondent terms the Appellant’s averment that it was not allowed time to provide evidence as untrue, the Tribunal notes that the Appellant did not controverted these assertions by the Respondent.

54. It was the Respondent’s submission that the Appellant only provided invoices addressed to government institutions which showed that the Appellant did not charge VAT, that it failed to provide contracts agreements; LPO’s and contract award documents which could have helped the Respondent understand the terms of the contract and/or whether the supplies were tax exempt.

55. The Tribunal’s analysis of the Appellant’s documents show that the Appellant failed to attach the documents it alleges to have provided to the Respondent to its Appeal contrary to Section 30 of the TAT Act which enjoins a taxpayer to dislodge the burden of proof at the Tribunal.

56. Further the Appellant averred that the documents required by the Respondent were ready at the time of lodging the Appeal and that it should be allowed time to provide the same to the Respondent, the Tribunal notes that the Appellant had been afforded both extension of time to lodge its objection and a further extension of time to submit documents in support of its objection hence it had been given a fair opportunity to support its case at the objection stage.

57. The failure by the Appellant to object in time and to provide documents which were expected to ordinarily be within its reach speaks of indolence on its part, the Tribunal cannot be expected to aid such indolence and ignorance of the law.

58. The Tribunal is of the considered view that the Appellant does not deserve to be afforded more time to avail documents as it had already squandered such an opportunity provided by the Respondent.

59. The Respondent asserted that as evidenced in its Objection Decision, it considered the grounds of objection and evidence produced and that the allegation by the Appellant that it did not take into consideration the supporting documents when making the decision was untrue.

60. The Respondent contended that the Appellant did not provide substantive evidence showing that the variances were caused by exempts sales not declared in the VAT return. That in absence of the documents to proof that the Respondent’s tax assessment was incorrect, it issued an Objection Decision fully rejecting the objection raised by the Appellant.

61. It is commonplace that once the Respondent has made a tax assessment or decision, the burden is on the Appellants to prove that the said assessments or objections were erroneous. This is supported by Section 56 (1) of the TPA which provides as thus;“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

62. Further, Section 30 of the TAT Act provides that;“30. Burden of proofIn a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

63. The burden was thus on the Appellant to prove that the Respondent’s assessment was erroneous. The easiest way to discharge this burden would have been by sharing the documents that it had supplied to the Respondent to prove that the Respondent’s assessments were inaccurate, excessive or should have been made in a different way with the Tribunal.

64. The Appellant did not provide any document to confirm that it had shared any documents with the Respondent, documents which ought to have guided the Respondent to find that its tax assessment was wrong, erroneous and or excessive.

65. At the Appeal stage, the Appellant only attached the impugned Objection Decision without any other document to support its averments.

66. It is clear and not in doubt that none of the aforementioned documents could have aided the Appellant in discharging the onerous burden of proof placed on it to persuade the Tribunal that the Respondent’s assessment was wrong and or erroneous.

67. Without the supporting documents, the Appellant’s contentions remained mere averments, the Tribunal finds guidance in the case of Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where it was held that;“A party can only discharge its burden upon adducing evidence. ...........Merely making pleadings is not enough.”

68. The fact that the burden of proof that the Respondent’s tax decision was wrong always rests on the Appellant has been affirmed by this Tribunal in Tumaini Distributors [K] Ltd vs. Commissioner of Domestic Taxes [2020] eKLR, where the court held that the taxpayer has the burden to prove that the tax decision is wrong. Similarly, in the case of Otieno Odongo & Partners vs.Commissioner of Domestic Taxes TAT N O. 290 of 2019, again it was held that it is upon the Appellant to prove the that the Respondent’s decision is wrong.

69. Guided by the foregoing analysis, authorities, Section 56 (1) of the TPA and Section 30 of the TAT Act, the Tribunal thus finds and determines that Appellant failed in discharging its burden of proof that the Respondent’s assessments were justified.

Final Determination 70. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed;b.The Respondent’s Objection Decision dated 1st December 2023 be and is hereby upheld; and,c.Each party to bear its own costs.

71. It is so ordered.

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