[2024] KETAT 285 (KLR)

Daipas Automobiles v Commissioner of Domestic Taxes (Tax Appeal 1548 of 2022) [2024] KETAT 285 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 285 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1548 of 2022

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

February 23, 2024

Between

Daipas Automobiles

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered Partnership in Kenya under the Partnerships Act and its core business engagement is the importation of Motor Vehicles.

2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all revenue. Further, under Section 5 (2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated with the responsibility for the administration and enforcement of the various statutes set out in Part 1 & 2 of the First Schedule to the said Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The dispute giving rise to the Appeal herein arose out of the Respondent’s tax audit into the business affairs of the Appellant for the tax period 2016 to 2019 and on the 31st October 2018 and 28th February 2020 relating to Income tax, 2nd March 2020 and 15th July 2020 relating to VAT, the Respondent issued various Additional Assessment Orders, to which the Appellant objected vide distinct notices on the 3rd June 2020.

4. The Respondent issued its confirmation of assessment on 20th November 2020 rejecting the Appellant’s Objections and confirmed its assessment on Income tax and VAT in the cumulative sum of Kshs. 95,015,375. 40 for the principal tax, penalty and interest, respectively.

5. Dissatisfied with Respondent’s aforesaid decision, the Appellant lodged its Appeal on 20th December 2022 with leave of the Tribunal to file Appeal out of time being granted on 2nd September 2022.

The Appeal 6. The Appellant in its Memorandum of Appeal dated 15th September 2022 and filed on 20th December 2022 set out the following grounds of appeal, that;i.In arriving at the additional assessment;a.The Respondent relied on the entries for imports to arrive at the Value Added Tax and Partnership income charged to the partners.b.The Respondent suspended the Value Added Tax obligation which disabled the Appellant to file returns.c.The Appellant could not claim the input tax within the specified period therefore its input was time barred thus overcharging the Value Added tax being demanded.d.The same information for Value Added tax was used to estimate the partnership income.e.The Appellant was not allowed to claim the expenses incurred in generating the income thus inflating the tax liability.ii.The Respondent started demanding the taxes by forwarding the file to Debt and Enforcement Department which issued demand notices;iii.The Appellant objected to the assessments but late because of ill health which was rejected;iv.The Appellant is willing to provide documents to be reviewed to come up with the correct tax position. The Respondent also need to take into consideration of the input which is time barred because the Appellant was prevented to file the returns to lessen the tax burden;v.The Appellant also could not appeal in good time because of the health condition and Covid-19 which made him more prone to be infected by the virus, thus limited and stayed indoors as per ministry directives;

The Appellant’s Case 7. The Appellant has set out its case on its;i.Statement of Facts dated 15th September 2022 and filed on 20th December 2022 together with the documents annexed thereto; andii.Written submissions filed on 27th June 2023.

8. The Appellant stated that the Respondent communicated on 26th February 2020 regarding VAT obligation assessment, however, the Appellant could neither access the email, the communication nor file its returns as its PIN number was suspended by the Respondent.

9. The Appellant averred that it notified the Respondent of the suspension of the PIN and the challenges it brought by, vide the correspondence dated 28th May 2020, whom in response whereof, vide the correspondence dated 20th May 2020 issued it with a demand notice for taxes.

10. That the Respondent issued various additional assessments on the 19th December 2019 and 15th July 2020, to which the Appellant objected vide the letters dated 13th January 2020 and 3rd June 2020.

11. That the Respondent vide its letter dated the 20th November 2020 issued its Objection decision disallowing the Appellant’s late Objection in its entirety and subsequently issued a demand notice on 26th November 2020.

12. That the Appellant averred that it is willing to provide documents for review by the Respondent.

13. The Appellant in its submissions, submitted that it was registered for VAT and had been filing its returns promptly on the due dates, however, for reasons best understood by the Respondent, the obligation was suspended barring the Appellant from filing returns effective 1st October 2016 to 31st December 2018. Despite the Appellant’s efforts to have the issue resolved, it bore no fruits.

14. The Appellant submitted that the Respondent, despite the above cited challenges it relied on the entries for imports and raised additional assessments for income tax for the period 2016, 2017 & 2018 and relating to VAT for the period 2016, 2017, 2018 & 2019 in the cumulative sum of Kshs. 95,015,275. 40.

15. The Appellant submitted that the additional assessment focused on sales but the Appellant could not claim the input VAT incurred on the importations. The additional assessment could not therefore factor in the expenses incurred in generating the income.

16. The Appellant further submitted that it could not object in good time due to illness and Covid-19 pandemic.

17. The Appellant submitted that it has provided evidence of customs entries and other documents for reviewing in form of a booklet when the Memorandum was served.

Appellant’s Prayers 18. By reason of the foregoing submissions, the Appellant prayed to the Tribunal, that;i.The Appeal is allowed.ii.The additional assessments raised by the Respondent be set aside;

The Respondent’s Case 19. The Respondent has set out its case on its;i.Statement of Facts dated 10th August 2023 and filed on 14th August 2023, together with documents annexed thereto;

20. The Tribunal vide the Orders issued on the 30th August 2023 and rehashed on 28th November 2023, the Respondent’s submissions dated 30th August 2023 and filed on 31st August 2023 were expunged from the record and the Respondent’s case was to be heard and determined on the basis of its Statement of Facts.

21. The Respondent stated that it carried tax audit into the business affairs of the Appellant with the view of confirming whether the Appellant was tax compliant in relation to the tax period 2016 to 2019.

22. That the Respondent averred that it noted variances between the Appellant’s import data and the data declared in VAT 3 and income tax returns for the period under review.

23. That the Respondent issued additional assessments for income tax and VAT for the period under review on the 31st October 2018 & 28th February 2020 and 2nd March 2020 & 15th July 2020.

24. The Respondent averred that the Appellant lodged late Objections to the additional assessments on VAT on the 3rd June 2020, and was requested to avail documents in support of the late Objections, however, the Appellant failed to do so. As a result, whereof, the Respondent on the 20th November 2020 issued the Appellant with the late objection rejection notice pursuant to Section 51 (7) of the TPA.

25. The Respondent contented that the Appellant’s Appeal evoked one issue for determination, namely;i.Whether the Respondent’s late Objection rejection notice dated 20th November 2020 was proper in law?

26. The Respondent asserted that Section 24 of the TPA allows a taxpayer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

27. The Respondent averred that Section 31 of the TPA allows the Respondent to amend the self-assessments where a taxpayer has been assessed of a lesser amount based on any additional available information and to the best of his judgement.

28. The Respondent stated that additional assessments on income tax and VAT were based on variances between the Appellant’s import data and the data declared in the income tax returns and VAT 3 returns.

29. The Respondent further contented that the Appellant filed late Objections but failed to provide the documentation in support contrary to Section 51 (7) of the Tax Procedures Act, 2015.

30. The Respondent further stated that the Appellant having failed to lodge valid Objection at the objection stage cannot then introduce new evidence before the Tribunal contrary to Section 56 of the TPA.

31. That the Respondent averred that the late Objection rejection notice dated 20th November 2020 is proper in law and the same be affirmed.

Respondent’s Prayers 32. By reason of the foregoing the Respondent prayed to the Tribunal that;i.The late objection rejection notice dated 20th November 2020 rejecting the Appellant’s late Objections be upheld; andii.The Appeal dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 33. After perusing the Memorandum of Appeal and parties' Statements of Facts together with the Appellant’s submissions and documentation attached therewith, the Tribunal presents the following as the issue for determination:

Whether there is a competent Appeal before the Tribunal. Analysis and Findings 34. The Tribunal wishes to analyze the issue as herein-under.

35. The Appellant’s Appeal was against the Respondent’s objection rejection notice issued on the 20th November 2020. The Appellant moved the Tribunal by way of a Notice of Motion dated 15th May 2022 seeking leave to file an appeal out of time in Miscellaneous Application Number 194 of 2022.

36. The Tribunal upon careful consideration of the application, delivered a ruling on the 2nd September 2022 in the aforesaid Miscellaneous application file and directed as follows, that;i.The Appellant is granted leave to appeal out of time.ii.The Appellant to file a Notice of Appeal and Appeal documents within fifteen (15) days.iii.The Respondent to file its response within thirty (30) days upon being served.

37. Accordingly, the Appellant was required to lodge a Notice of Appeal and Appeal documents by 17th September 2022 in compliance with the Orders of the Tribunal.

38. Section 12 as read together with Section 13 (1) of the Tax Appeals Tribunal Act, provides that:-“12. Appeals to the Tribunal

A person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subjection 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 day upon receipt of the decision of the Commissioner.”

39. The Tribunal upon perusal of the record noted that the Appellant lodged the instant Appeal on the 20th December 2022 by filing its Memorandum of Appeal and Statement of Facts. Gleaning through the various documents presented before it, the Tribunal noted that there is no Notice of Appeal on record.

40. It is noteworthy that the Notice of Appeal is a mandatory document envisaged in law for an Appeal to be considered as competently presented and/or lodged before the Tribunal.

41. Further, the Appellant ought to have complied with the provisions of Section 13 (2) of the Tax Appeals Tribunal Act, which provides that: -“(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts;(c)the appealable decision; and(d)such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.”

42. From the record the Appellant did not present its Appeal in conformity with the law as well as the Orders of the Tribunal issued on 2nd September 2022.

43. The Tribunal finds that the Appeal herein is fatally defective and is therefore incompetent and untenable in law.

Final Decision 44. The upshot to the foregoing is that the Appeal is not validly lodged, and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby struck out.b.Each party bears its own costs.

45. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBERNADETTE GITARI - MEMBERABDULLAHI M. DIRIYE - MEMBER