[2024] KETAT 1276 (KLR)

Danveck Construction Company Limited v Commissioner of Domestic Taxes (Tax Appeal E327 of 2023) [2024] KETAT 1276 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1276 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E327 of 2023

E.N Wafula, Chair, E Ng'ang'a, Jephthah Njagi & G Ogaga, Members

August 9, 2024

Between

Danveck Construction Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated in Kenya under the Companies Act. Its main business is in construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. The Respondent issued the Appellant with additional tax assessments for VAT for the period of December 2017 of Kshs. 2,152,587. 20 based on variances it identified between the Appellant’s income tax returns and VAT returns.

4. On 27th August 2021, the Appellant was assessed for VAT of Kshs. 560,224. 00 for the period of February 2018, Kshs. 26,855. 17 for October 2019, and Kshs. 480,000. 00 for the period of February 2021 based on unsupported purchases claimed in the income tax returns for the years ending February 2020 and 2021 which were disallowed.

5. On 30th August 2021, the Appellant was assessed for VAT of Kshs. 1,711,971. 24 for July 2020.

6. The assessment for the period July 2020 was based on supported purchases claimed in the income tax returns for the years ending February 2021 which were disallowed.

7. Further, the Respondent issued an assessment of income tax to the Appellant on 1st September 2021 for Kshs. 2,247,118. 70 for the period August 2019 to July 2020 and Kshs. 3,352,178. 37 based on a turnover variance of under-declared VAT sales.

8. On 28th February 2022, the Appellant was assessed Kshs. 1,009,053. 93 Value Added Tax for the period June 2021.

9. The Appellant lodged objections against the above-mentioned assessments on 27th September 2021 and 17th March 2022, which were invalidated by the Respondent on 18th November 2021 and 9th May 2022, respectively.

10. The Respondent issued its objection invalidation decisions on 26th June 2021 and 18th November 2021 and confirmed the assessment with regard to the 9th May 2022 decision on 21st March 2023.

11. Being dissatisfied with the Respondent decisions dated 26th June 2021, 18th November 2021 and 21st March 2023, the Appellant filed a Notice of Appeal on 23rd June 2023.

The Appeal 12. The Appeal is premised on the following grounds as deduced from the Memorandum of Appeal dated 22nd June 2023 and filed on 23rd June 2023. i.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of VAT and Income tax.a.VAT Assessmentsi.VAT December 2017The assessment was done of the period December 2017 for amount of Kshs.2,152,587. 202. 152,587. 20 on the 1st April 2021. ii.VAT February 2018The assessment was done of the period February 2018 for amount of Kshs. 672. 68. 80 on the 27th August 2021. An objection was raised for Kshs.672,268. 80 on the 27th September 2021. iii.VAT October 2019The assessment was done of the period October 2019 for amount of Kshs. 32,226. 19 on the 27th August 2021. An objection was raised for Kshs.672,268. 80on the 27th September 2021. iv.VAT July 2020The assessment was done of the period July 2020 for amount of Kshs. 2,227. 569. 48 on the 30th August 2021. An objection was raised for Kshs.2. 054,365. 48 on the 28th October 2021. v.VAT February 2021The assessment was done of the period February 2021 for amount of Kshs. 582,034. 53 on the 27th August 2021. An objection was raised for Kshs.582,034. 53 on the 28th October 2021. vi.VAT June 2021The assessment was done of the period June 2021 for amount of Kshs. 1. 009,053. 79 on the 28th February 2022. An objection was raised for Kshs.1,009. 053. 79 on the 17th March 2022. b.Income Tax Assessmentsi.Year 2019-2020The assessment was done of the period 2019-2020 for amount of Kshs. 2. 247,118. 70 on the 10th September 2021. An objection was raised for Kshs.2,696,542. 44 on the 27th September 2021. ii.Year 2020-2021The assessment was done of the period year 2020-2021 for amount of Kshs.3,352. 178. 37on the 1st September 2021. An objection was raised for Kshs.4,022,614. 03 on the 27th September 2021. c.Grounds of Objectioni.VAT December 2017: The assessment was erroneous as no income however was generated nor an invoice raised for the said amount. The Commissioner did not provide adequate information as to why the assessment was raised and as such no such incomes were generated to warrant such an assessment.ii.VAT February 2018: A close analysis of the VAT filings that were made, it is noted that the VAT for April 2018 made on the 20th May 2018 which was declared as per the withholding certificate that was issued then, even though the invoice was issued in February 2018. Where the assessment was done on the 27th August 2021, the income had been declared earlier as per the Withholding certificate that was issued in the month of April 2018. iii.VAT October 2019: The assessment was made based on the disallowing of an invoice detailed below:TABLE{dir ltr|align right|hspace 6}TRTC{style border: 1px solid #000; width: 18%}PINTC{style border: 1px solid #000; width: 23%}NameTC{style border: 1px solid #000; width: 16%}DateTC{style border: 1px solid #000; width: 14%}Inv NoTC{style border: 1px solid #000; width: 16%}Taxable AmtTC{style border: 1px solid #000; width: 11%}VATTRTC{style border: 1px solid #000; width: 18%}P051104476XTC{style border: 1px solid #000; width: 23%}Ruby hardware LtdTC{style border: 1px solid #000; width: 16%}28/10/2019TC{style border: 1px solid #000; width: 14%}126039TC{style border: 1px solid #000; width: 16%}167,845TC{style border: 1px solid #000; width: 11%}26,855The invoice however was a cash sale that was claimed and disallowed based on the fact that the supplier did not declare the same.iv.VAT July 2020: The additional assessment did not allow for the output VAT that was made for the supplier.v.VAT February 2021: The additional assessment did not allow for the output VAT that was made for the supplier.vi.Income tax-2019-2020: The Commissioner disallowed some of the cost of sales as they argue that the same had not been declared in the VAT input while filing the VAT returns. It should be noted that the VAT return template does not accommodate for the cost of sales here then referred to as the purchases that do not have VAT to accommodate in the return. Thus the commissioner is not right in disallowing such cost of sales in the year end return.vii.Income Tax-2020-2021: The Commissioner disallowed some of the cost of sales as they argue that the same had not been declared in the VAT input while filing the VAT returns. It should be noted that the VAT return template does not accommodate for the cost of sales here then referred to as the purchases that do not have VAT to accommodate in the return. Thus the Commissioner is not right in disallowing such cost of sales in the year end return.

The Appellant’s Case 13. The Appellant’s case was premised on its Statement of Facts filed on 23rd June 2023.

14. The Appellant averred that the Respondent erred in assessments of VAT for the disputed periods as elucidated in the Memorandum of Appeal which it objected to and the Commissioner confirmed.

15. The Appellant stated that it gave a Notice of Intention to Appeal on 22nd June 2023.

Appellant’s prayers 16. The Appellant prayed for orders that the Tribunal vacates the assessments thereof.

Respondent’s Case 17. The Respondent’s case is premised on the following documents:a.Its Statement of Facts dated 16th October 2023 and filed on 17th October 2023. b.Its Written Submissions dated 2nd March 2024 and filed on 4th March 2024.

18. The Respondent cited Sections 31(1)(c), (2) and 51 of the Tax Procedures Act and stated the Appellant failed to provide the required documents for the Objection application.

19. The Respondent relied on Section 56 of the Tax Procedures Act and contended that the Appellant failed to provide the required documentation leading to the Respondent issuing the Objection invalidation and the burden of proof is on the Appellant and until the same is discharged to the Commissioner’s satisfaction, this Appeal should be dismissed.

20. On whether the Appellant herein discharged its burden of proof in challenging the additional assessments the Respondent relied on Section 31 of the Tax Procedures Act and submitted that it is empowered to make assessments according to the information available which it did.

21. The Respondent further relied on Section 59 of the Tax Procedures Act and submitted that the Appellant failed to provide supporting documents adding that the burden is on the Appellant to demonstrate that it has discharged its tax liability in accordance with Section 56 of the Tax Procedures Act.

22. The Respondent cited the following authorities to support its case:-a.Section 23 of the Tax Procedures Act;b.Section 54 of the Income Tax Act;c.The case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR;d.Mbuthia Macharia v Annah Mutua Ndigwa 7 Another [2017] eKLR;e.Primarosa Flowers Ltd v Commissioner of Domestic Taxes [2019] eKLR; andf.Section 107 of the Evidence Act.

23. The Respondent asserted that the Appellant was provided with ample time to effectively prosecute its objection application which timelines were within the practical expectations for time under the statutory 60-day objection review cycle.

Respondent’s prayers 24. The Respondent prayed for the Tribunal to:a.Uphold the Respondent’s Objection decision dated 31st May 2021 and the Notice of Invalidation dated 9th May 2022 as proper and in conformity with the provisions of the law;b.This Appeal be dismissed with costs to the Respondent.

Issue For Determination 25. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there is a single issue that calls for its determination, being:-

SUBDIVISION - Whether there is a proper Appeal before the Tribunal

Analysis And Findings 26. The Tribunal having identified the issue for its determination proceeds to analyse the same as hereinunder.

27. The Appellant lodged objections against the Respondent’s assessments on 27th September 2021 and 17th March 2022 which were invalidated by the Respondent on 18th November 2021 and 9th May 2022.

28. The Respondent issued its objection invalidation decisions on 26th June 2021 and 18th November 2021 and confirmed the assessment with regard to the 9th May 2022 decision on 21st March 2023.

29. Being dissatisfied with the Respondent decisions dated 26th June 2021, 18th November 2021 and 21st March 2023, the Appellant filed a Notice of Appeal on 23rd June 2023.

30. For an Appeal before the Tribunal to be deemed as properly instituted and/or lodged, the Appellant ought to present the Appeal in conformity with the provisions of Section 13(1) of the Tax Appeals Tribunals (TAT) Act as read together with Section 52(1) of the Tax Procedures Act, which Sections provides as follows:-“13(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”“52(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”

31. A perusal of the documentation presented by the Appellant, particularly the Notice of Appeal, the Memorandum of Appeal and Statement of Facts, the Tribunal notes that the Appellant filed its Notice of Appeal together with its Appeal documents on 23rd June 2023.

32. Accordingly, the Appellant ought to have instituted its Appeal by lodging a Notice of Appeal within thirty days of the date of issuance and service of the Respondent’s decisions and filed the Appeal documents outlined under Section 13(2) of the TAT Act within fourteen (14) days of the date of lodging the Notice of Appeal.

33. The Appellant ought to have lodged its Appeal on or before the 30th June 2022 but failed to do so.

34. There exists provisions of law that offer remedy to an Appellant who intends to lodge an Appeal beyond the statutory timelines, under Section 13(3) of the TAT Act, which makes such provisions and such an Appellant could seek leave of the Tribunal to regularize such lateness, the Appellant however failed to do so.

35. The Tribunal refers to the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

36. The Tribunal is further guided by TAT Appeal No. 1321 of 2022 CKL Africa Limited v Commissioner of Domestic Taxes where it was held as thus: -“63. The law makes provisions under Section 13 (3) of the Tax Appeals Tribunal Act for any party who lodges its appeal out of time and with reasonable grounds, to seek leave of the Tribunal to file its appeal out if time, the Appellant did not move the Tribunal seeking such Orders.64. The timelines provided under Section 47 (13) of the Tax Procedures Act and Section 13 (1) of the Tax Appeals Tribunal Act demand strict adherence and are not discretional to any party lodging an appeal before the Tribunal.65. It is the Tribunal’s position that there is no proper and valid Appeal before the Tribunal for the exercise of its jurisdiction.”

37. The Tribunal holds the view that there is no proper Appeal before it to exercise its jurisdiction as the instant Appeal was filed out of time and without leave to file the Appeal outside the mandatory statutory timelines.

38. The Tribunal having established that there is no valid Appeal on record consequently finds that the Appeal herein is incompetent and untenable in law.

Final Decision 39. The upshot to the foregoing analysis is that the Appeal is incompetent and the Tribunal consequently makes the following Orders: -a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

40. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024ERIC NYONGESA WAFULACHAIRMANEUNICE N. NGA’NG’A JEPHTHAH NJAGIMEMBER MEMBERGLORIA A. OGAGAMEMBER