[2023] KETAT 593 (KLR)

Crater Enterprises and Supplies Limited v Commissioner of Domestic Taxes (Appeal 701 of 2022) [2023] KETAT 593 (KLR) (Commercial and Tax) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 593 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Appeal 701 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

June 29, 2023

Between

Crater Enterprises And Supplies Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated in Kenya whose core activity is general supplies and construction.

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 carried out an audit on the Appellant’s affairs for the period 1st June 2015 to 30th June 2015 from where the Respondent issued the Appellant with an additional VAT assessment dated 10th July 2017 amounting to Kshs. 2,935,553. 40 as principal tax.

4. The Appellant lodged its objection to the additional assessment on the iTax on the 9th May 2022.

5. The Respondent vide the email of 3rd June 2022 acknowledged receipt of the late objection application.

6. The Respondent rendered its decision on 20th June 2022 declining the Appellant’s late notice of objection.

7. The Appellant being aggrieved by the Respondent’s decision, commenced the Appeal on 5th July 2022.

The Appeal 8. The Appellant’s Memorandum of Appeal filed on the 5th July 2022 was premised on the following grounds, that;a.The Commissioner of Domestic Taxes or any of its agents cannot take away, what the law has given, including negating the spirit, of granting such allowances. The Appellant has no other persuasive reason, why the claim cannot be allowed as per the tax payer’s claim.b.The apparent slow process or delay this matter has taken has continued to deny the taxpayer’s claim that is specifically given when certain conditions have been fulfilled as stipulated in Cap. 470 of the Laws of Kenya.c.Although the Commissioner had been provided with documents in support of the VAT declared and VAT claimed, the delay to approve the claim has left the taxpayer with a lot of unanswered questions, which the Appellant hopes will be resolved in this Appeal.d.The taxpayer having disputed the additional tax has made an application to the Tribunal to have the matter arbitrated through the ADR Committee dispute resolution process to ensure equality for both parties.e.The taxpayer has attached all necessary documentary evidence in support of the Appellant’s prayers and proof that the additional tax confirmed is excessive, punitive and unreasonable as it has been determined, by denying the taxpayer what the law has granted.f.The Respondent’s staff failed, or declined to give the Appellant what is expressly granted by the law, more specifically under the Income Tax Act Paragraph 24(1)(f) and 24(2)(c).g.The Appellant appealed against the Commissioner’s decision contained in the additional VAT assessment, together with his notice to confirm the same, regardless of whether the Appellant had given sufficient grounds in the objection or not. (see Annexure ‘d’)a.Additional TaxAssessment Reference numberTax ObligationAssessment PeriodAssessment AmountObjectionKRA202020604175Value Added Tax (VAT)01/06/2015- 30/06/20152,935,553. 42,935,553. 4h.If the Respondent’s staff acted reasonably within the confinement of the timelines, this matter could have been amicably resolved, but since the Commissioner had made his decision, the Appellant had no option except to demonstrate and prove that the taxpayer was legally entitled to input tax as declared in June 2015. i.The Commissioner’s staff in their pursuit to meet their departmental allocated targets in form of collections, regrettably denied the taxpayer the right granted under the law that cannot be taken away.j.It is against the law and natural justice to deny an investor and a tax payer to pay again what has already been by Nakuru County as Withholding VAT what is expressly given in law.k.Its willing to pay any tax that is properly determined and has done so in the past, and more specifically to any tax that may arise from what the Tribunal may deduce is payable.l.Based on evidence deduced from the information & documents examined as marked and attached in the Memorandum, the Appellant disclosed and paid the taxes as they arose.m.Appellant is also seeking to apply to have the matter resolved through the ADR frame work rather than the High Court, and hence his prayer for more time to allow both the Appellant & the Respondent to resolve the tax so disputed.n.The Appellant has lodged the application to have this dispute dealt with through the ADR frame work, and not in court.

Appellant’s Case 9. The Appellant’s case is premised on the Appellant’s Statement of Facts filed on the 5th July 2022 together with the documents attached thereto.

10. The Appellant stated that the Respondent occasioned the raising of an additional assessment for the month of June 2015 vide the confirmation notice dated 10th July 2017 for the principal tax amounting to Kshs. 2,935,553. 40 as per Assessment Reference number KRA201707396317.

11. The Respondent rejected the objection raised by the Appellant and confirmed the tax under dispute on 20th June 2022, which action was without due regard, to the objection raised and the fact that the additional tax which has now been confirmed as per assessment was wrongly determined and computed and therefore repugnant to the natural justice.

12. That Appellant stated that being aggrieved by the decision of 20th June 2022 presented this Appeal, however it was the Appellant’s assertion that it had paid the actual tax due amounting to Kshs. 1,200,000. 00

13. The Appellant further stated that the additional tax which is subject of this Appeal is expunged of claims and therefore excessive, and punitive and the Appellant opted to appeal the decision of the Commissioner to the Tribunal.

14. Further the Appellant stated that it had applied to the Tribunal to have the matter arbitrated by the ADR Committee, to ensure equity of both parties.

15. The Appellant stated that it has attached all the necessary documentary evidence in support of the Appellant’s prayer and proof that the additional tax confirmed is excessive, punitive and unreasonable as it has been determined, using incomplete records and assumptions.

16. The Appellant submitted that it appealed against the Commissioner’s decision which was contained in the additional assessment, together with the Commissioner’s notice to confirm the additional tax, regardless of whether there were sufficient grounds presented or not.

17. The Appellant contented that the estimated income used by the Respondent to compute the additional income, apparently failed to recognize the withholding VAT Tax deductions by Nakuru County Government.

18. The Appellant further stated that the Respondent’s staff were not proactive in forestalling the dispute, but failed to respond to quivery raised, this matter could have been amicably resolved by the station manager without reverting to ADR, nonetheless the Appellant averred that it shall endeavour to adduce in pursuance to the appeal Tribunal’s Rules & Procedures to demonstrate the taxpayer’s willingness to resolve the tax issues.

19. The Appellant stated that it is willing to pay any tax that is properly determined and has done so in the past, and more specifically to any tax that may arise from what the Tribunal may deduce is payable.

Respondent’s Case 20. The Respondent’s case is premised on the following documents;a.The Respondent’s Statement of Facts filed on the 4th August 2022 together with the documents attached thereto.b.The Respondent’s written submissions filed on 27th January 2023.

21. The Respondent stated that on the 10th July 2017, the Appellant was assessed for Value Added Tax of Kshs. 4,663,988. 42 for the period of June 2015, which sum was inclusive of interest and penalties; the principal tax thereof being Kshs. 2,999,261. 55.

22. The Respondent argued that the assessment was based on undeclared sales for work done with Nakuru County as well as unsupported VAT input claims.

23. The Respondent submitted that the Appellant lodged a late objection application on iTax on the 9th May 2022 indicating its reason for the late application, to which the Respondent’s IRO team on 3rd June 2022, wrote back via email and requested for evidence in support of late objection application.

24. The Appellant’s response thereto, of 8th June 2022, cited technical hitches in obtaining the requisite documents as the ground for delay. According to the Respondent, the Appellant never provided the evidence that was requested on the 3rd June 2022.

25. Subsequently, the Respondent proceeded to make its decision on 20th June 2022, rejecting the Appellant’s late objection application and cited Sections 31 and 51 of the Tax Procedures Act.

26. The Respondent submitted that the Appellant’s objection application was lodged out of the period provided in law; delay whereof was for more than 4 years and 9 months. It was argued by the Respondent that Appellant had not lodged a valid objection application.

27. The Respondent stated that the Appellant was notified immediately of the decision invalidating the Appellant’s objection application together with the reasons thereof.

28. The Respondent reiterated its justification in disallowing the Appellant’s objection application as the Appellant did not provide all the invoices required by the Respondent and even acknowledged that fact via email.

29. The Respondent averred that the Appellant failed to provide the supporting and evidential documents, failure wherof lead to the confirmation of the VAT assessments, further the Respondent was also guided by Sections 51(3) and 51(4) of the Tax Procedures Act and Section 43(3) of the VATAct.

30. The Respondent contended that the Appellant’s objection was invalid as the Appellant failed to precisely state the grounds of the objection required to provide the correct/change of the decision.

31. The Respondent submitted that Appellant failed to discharge its burden of proof within the meaning and confines of Section 56(1) of the Tax Procedures Act.

32. The Respondent stated that the Appellant objected online to the VAA assessment on 15th November 2019 on the grounds that the invoices were correctly declared and claimed. The Respondent acknowledged the objection and requested for the documents in support of the Appellant’s objection via iTax on the same date.

33. The Appellant furnished the Respondent with the requested documents on the 24th November 2021 after being turned back on numerous occasions for not presenting the correct documents. The Respondent stated that the Appellant agreed with the Respondent to disallow what was not supported once the review began.

34. It was the Respondent’s assertion that the assessment was confirmed on 10th December 2021 and the Appellant issued with an objection decision thereof.

35. The Respondent asserted that input tax is only allowed for deduction once a person has presented the relevant supporting tax invoices and the same must be claimed within six months after the end of a tax period which the supply or importation occurred as per the provisions of Section 17 of the VATAct.

36. In fortifying its case, the Respondent placed reliance on Section 31(1) of the Tax Procedures Act and Section 17(3) of the VATAct, 2013.

37. It was the Respondent’s position that the confirmed assessment issued is proper in law and that the same should be upheld.

Respondent’s Prayers 38. Pursuant to the arguments and submissions advanced herein above, the Respondent prayed for this Tribunal, that;a.The Respondent’s decision together with the penalties and interest be found to be due and payable.b.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 39. The Tribunal upon the careful consideration of the pleadings, Statements of Facts and submissions made by the parties, respectively, was of the view that the issues that crystalize for its determination are:a.Whether the Appellant’s Appeal before the Tribunal is valid?b.Whether the Respondent’s decision invalidating and/or rejecting the late objection application was justified?c.Whether the additional assessment of VAT raised by the Respondent as against the Appellant was proper?

Analysis and Determination 40. The Tribunal, having identified the issues for its determination, proceeds to analyse them as hereunder.a.Whether the Appellant’s Appeal before the Tribunal is valid?

41. The Appeal before the Tribunal is hinged on the Appellant’s dissatisfaction with the Respondent’s decision of 20th June 2022 rejecting the late objection application to the additional assessment made on the 10th July 2017.

42. The manner of referring any appeal to the Tribunal is stipulated under Sections 12 and 13 of the Tax Appeals Tribunal Act, No. 40 of 2013, which provides as follows:“12. Appeals to the TribunalA person who disputes the decision of the commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal,Provided that such person shall before appealing, pay a non-refundable fee of twenty thousand shillings.

13. Procedure for appeal(1)A notice of appeal to the Tribunal shall –(a)be in writing or through electronic means;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

43. Similarly, Section 52 of the Tax Procedures Act, provides as follows with regard to the filing of a Notice of Appeal;“52. Appeal of appealable decision to the Tribunal

(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).(2)A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

44. It follows that, the Notice of Appeal of any appealable decision of the Commissioner to the Tribunal to be lodged by an aggrieved party, must essentially meet the following criterion;i.That it ought to be made in writing or through electronic means;ii.That it ought to be presented within thirty (30) days upon receipt of the decision of the Commissioner.iii.That subsequent to the filing of the notice of appeal, the other pleadings and documents ought to be filed and served in accordance with Section 13(2) of the Tax Appeals Tribunal Act.

45. Pursuant to the provisions of Sections 12 & 13 of the Tax Appeals Tribunal Act as read together with Section 52 of the Tax Procedures Act, all appeals that are to be deemed valid, must be commenced by the Appellants filing the Notice of Appeal that conforms with the provisions of the law. The notice of appeal is therefore, an integral and prerequisite document to any valid appeal before the Tribunal.

46. It is noteworthy that the Respondent’s decision, subject of this appeal was made on 20th June 2022, the Appellant ought to have filed its Notice of Appeal on or before 19th July 2022. The Tribunal took note of the fact that the Appellant filed the Memorandum of Appeal and Statement of Facts on 5th July 2022, which documents ought to have been filed within fourteen (14) days of the date of filing the Notice of Appeal.

47. Whereas the law offers a remedy to a taxpayer who defaults in lodging an Appeal within the statutory timelines, within the purview of Section 13(3) and (4) of the Tax Appeals Tribunal Act, the law does not, however offer any remedy to a party who commences an Appeal before the Tribunal and fails and/or neglects to file a Notice of Appeal in the prescribed manner and period.

48. The Appellant was not required to seek leave to file the Notice of Appeal out of time as its appeal was presented within the prescribed timelines, however the Appellant was under the obligation of the law to file a valid and/or proper Notice of Appeal.

49. The Tribunal has carefully perused the record and notes that the Appellant did not file the Notice of Appeal, nevertheless proceeded to file and serve its Memorandum of Appeal and Statement of Facts on 5th July 2022.

50. In the case of Equity Group Holdings Limited v Commissioner of Domestic Taxes 2021 (eKLR), relating to strict dictates of compliance with any statute, the Court of Appeal observed that:-“………. There is a well-known distinction between a case where the directions of the legislature are imperative and a case where they are directory. [29] The real question in all such cases is whether, a thing, has been ordered by the legislature to be done, and what is the consequence, if it is not done. The general rule is that an absolute enactment must be obeyed, or, fulfilled substantially. Some rules are vital and go to the root of the matter, they cannot be broken; others are only directory and a breach of them can be overlooked provided there is substantial compliance………”

51. The Tribunal is therefore obligated to uphold the strict statutory timelines provided by law to any party to act on any matter.

52. There being no notice of appeal filed in accordance with the express provisions of the law cited herein above, the Tribunal finds that the Appeal is fatally defective and incompetent.

53. The Tribunal having established that there is no valid appeal for its consideration, shall not delve further into the other issues for determination, as they have been rendered moot.

Final Decision 54. The upshot of the foregoing is that the Appeal is incompetent and untenable in law, the Tribunal proceeds to makes the following Orders;-a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

55. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE 2023. ..............................................ERIC N. WAFULA - CHAIRMAN..............................................CYNTHIA B. MAYAKA - MEMBER..............................................GRACE MUKUHA - MEMBER..............................................JEPHTHAH NJAGI - MEMBER..............................................ABRAHAM K. KIPROTICH - MEMBER