[2023] KETAT 535 (KLR)

Das Group Kenya Limited v Commissioner of Legal Services and Board Coordination (Tax Appeal 864 of 2022) [2023] KETAT 535 (KLR) (Commercial and Tax) (13 October 2023) (Judgment)

Neutral citation: [2023] KETAT 535 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 864 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, E Ng'ang'a, AK Kiprotich & B Gitari, Members

October 13, 2023

Between

Das Group Kenya Limited

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

(Appeal against the Respondent's decision dated 19th April, 2022)

Judgment

Background 1. The Appellant is a private limited liability company and a registered taxpayer. The Appellant is engaged in the business of supply of fish products.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue 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 raised additional assessment to the Appellant on 26th April 2018 and 20th September 2018

4. The Appellant lodged an application for late objection on 6th April 2022. The Respondent issued its objection decision vide a letter dated 19th April 2022. The Respondent further raised late objection rejection notice online on 25th May 2022

5. The Appellant being dissatisfied with the Respondent‟s decision filed this Appeal on 18th August 2022.

The Appeal 6. The Appeal as stated in the Memorandum of Appeal dated 17th August 2022 and filed on 18th August 2022 was premised on the following grounds that:-a.That the Respondent erred in law and in fact by arriving at the conclusion that the assessments raised on the Appellant were proper and consistent before giving the Appellant ample opportunity to effectively prosecute its objection application.b.That the Respondent erred in law by curtailing the Appellant's right to a fair hearing as enshrined in Section 4(3)(b) and 4(4)(b) of the Fair Administrative Actions Act and Article 47 of The Constitution of Kenya.c.That the Respondent's objection decision is deficient of the mandatory qualities of an objection decision as prescribed in Section 51(10) of the Tax Procedures Actas it does not disclose any substantive finding relating to the assessment.d.That the Respondent erred in law when it violated the Appellant's right of legitimate expectation by rendering its objection decision whilst simultaneously admitting the Appellant's documents for review.e.That the Respondent was estopped by its conduct from invalidating the Appellant's objection application as it had represented to the Appellant that its objection application would be readmitted for review.

Appellant's Case 7. The Appellant‟s case is premised on the Appellant‟s Statement of Facts dated 17th August, 2022 and filed on 18th August 2022 together with the documents attached thereto.

8. The Appellant submitted that the focal issue for determination in this Appeal is whether the Respondent accorded a fair hearing to the Appellant.

9. The Appellant stated that the Respondent's case as elicited from the invalidation letter turns on the alleged default by Appellant to provide documents and grounds in support of its late objection application. That it was not accorded fair and ample opportunity to prosecute its objection application.

10. That the Respondent without fair notice invalidated the Appellant's late objection application depriving the Appellant of its chance to effectively prosecute its objection application and tender evidence

11. It averred that the Appellant's right to a fair hearing as enshrined in the Fair Administrative Actions Act and the Constitution of Kenya was curtailed. That the Respondent infringed on the Appellant's rights to a fair administrative action as enshrined in Section 4(3)(b) and 4(4)(b) of the Fair Administrative Actions Act and Article 47 of the Constitution when it gave primacy to minor technicalities over the merits of the Appellant's objection application.

12. The Appellant asserted that the Respondent's objection decision is deficient of the mandatory qualities of an objection decision as prescribed in the Tax Procedures Act.

13. That the Respondent's letter invalidating the objection application was deficient of the model qualities of an objection decision espoused in Section 51(10) of the Tax Procedures Act. That this Section states that an objection application should contain a statement of findings on the material facts and the reasons for the decision.

14. The Appellant submitted that its right of legitimate expectation was violated by rendering its objection decision invalid whilst simultaneously admitting the Appellant's documents for review. That the Respondent had given the Appellant the legitimate expectation that the objection application lodged by it was active and undergoing review by requesting the submission of documents despite issuing the invalidation letter.

15. The Appellant contended that the Respondent was estopped by its conduct from invalidating the Appellant's objection application. That the Respondent created and estoppel by conduct when it requested and received documents from the Appellant. That an impression was given by the Respondent that the objection application was live and undergoing review.

16. The Appellant submitted that the Respondent's decision of 19th April 2022 was devoid of any legitimacy and as a consequence the Appellant's Objection ought to be allowed.

Appellant‟s Prayer 17. The Appellant made the following prayers;a.That the Tribunal upholds the rule of law and sets the objection decision aside forthwith.b.That the Tribunal orders that the costs of this Appeal be awarded to the Appellant.

Respondent's Case 18. The Respondent‟s case is premised on the hereunder filed documents and proceedings before the Tribunal:-a.The Respondent‟s Statement of Facts filed on 26th September, 2022 together with the documents attached thereto.b.The Respondent‟s written submissions dated 5th May 2023 and filed on the same date.

19. The Respondent stated that its customs data indicated that the Appellant did not declare fresh fish exports for the periods 2013 and 2014 amounting to Kshs.5,336,347. 00.

20. That the Appellant's first self-assessment on iTax was for the period 2015 was a nil return. It averred that the undeclared sales were therefore assessed by the Respondent under the period 2015 on 20th September 2019.

21. That the Appellant was issued with income tax- Company additional assessment of Kshs. 1,600,904. 10.

22. Regarding assessment of VAT, the Respondent stated that the Appellant did not file a VAT return for the period February 2017. That however, third party data indicated that the Appellant made a supply to Capricorn Bakers and Confectionary Limited of PIN No.Po51616113W of Kshs. 1,293,103. 45 invoice dated 1st February 2017.

23. That the undeclared sale was therefore assessed by the tax service on 26th April 2018. It added that the Appellant objected to the assessments raised via letter dated 17th February 2022 and lodged an online objection on 6th April 2022.

24. The Respondent stated that objection application lodged by the Appellant was late and the Appellant claimed that the company was dormant. That however, the Appellant's PIN was active with several VAT and IT2C returns being submitted in the periods of 2019 to 2021.

25. That there being no evidence that the Appellant applied for dormancy or removal of tax obligation, the Respondent proceeded to reject the late objection application on 19th April 2022.

26. The Respondent reiterated its position as stated in the rejection notice communicated to the Appellant and stated that the Appellant lodged a manual application on 22nd March 2022 and was given an opportunity to provide supporting documents via email dated 29th March 2022.

27. That the Appellant's objection application was rejected on 19th April 2022 over a month later. That the Appellant was taken through what was required to validate its objection via a phone call on 29th March 2022, which was followed up by an email on the same day requesting the Appellant to provide the necessary documents.

28. It was the Respondent's position that the Appellant was accorded various opportunities to validate its objection. That it went above and beyond in ensuring that the Appellant was well aware of what constitutes a valid objection.

29. The Respondent stated that the objection decision clearly indicated that it was issued in line with Section 51(4) of the TPAsince there was no valid objection.

30. That in the objection decision the Respondent clearly spelled out to the Appellant that it did not have a valid objection by reason that its late objection was rejected under Section 51(7) of the TPA.

31. The Respondent maintained that the Appellant had lodged a late objection and stated that the reason for the late objection was that the company was dormant, meaning not in operation during the period of assessment. That in such circumstances the Appellant was expected to have applied for dormancy status or removal of the inactive obligation.

32. The Respondent submitted that no evidence was provided by the Appellant to show that the company was inactive during the period of review, therefore the Respondent could not be faulted for raising the additional assessment as the same was raised with due regard of the law.

33. The Respondent stated that the Appellant did not submit any relevant documents that could be used in review of the objection application as had been requested in the email sent to the Appellant dated 29th March 2022.

34. That the invalidation of the Appellant's objection was made in line with the law. It averred that there was no documentation submitted by the Appellant that could lead to the review of its objection and hence the Respondent's invalidation.

35. The Respondent stated that allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts unless where in agreement by the Respondent were unfounded in law and not supported by evidence.

Respondent's Prayers 36. The Respondent prayed that this Tribunal:a.Upholds the Respondents objection decision dated 19th April 2022. b.That this Appeal be dismissed with costs to the Respondent as the same is devoid any merit

Issue for Determination 37. The Tribunal upon due consideration of the pleadings, filed on the part of both parties was of the view that the only issue that crystalized for its determination was:- Whether the Respondent was justified in invalidating the Appellant‟s objection and subsequently demanding the taxes.

Analysis and Determination 38. The Tribunal having appropriately ascertained the issue that fell for its determination shall proceed to make an analysis on the issue as hereafter.

39. The genesis of this dispute is the Respondent‟s decision dated 19th April 2022 which invalidated the Appellant‟s late notice of objection. In the decision, the Respondent stated in part as follows;“…We note with regret that you lodged a late objection where the reason for the late objection was given as, „Company was dormant.‟ It is worthy to note that you have asserted that the business was not in operation during the period of assessment. Please note that in such a case we would expect that the company had applied for dormancy status or removal of the inactive obligation.Based on the above and in line with Section 51(4) of the Tax Procedures Act (2015), we hereby notify you that you do not have a valid objection. Hence, the tax as assessed is still due and payable.…”

40. From the above extract of the decision it is clear that the Respondent had considered Appellant‟s objection and rejected it for for failure to provide any document in support of the reason for the late objection application.

41. The Respondent reiterated its position as stated in the rejection notice communicated to the Appellant and stated that the Appellant lodged a manual application on 22nd March 2022 and was given an opportunity to provide supporting documents via email dated 29th March 2022.

42. That the Appellant's objection application was rejected on 19th April 2022 over a month later. That the Appellant was taken through what was required to validate its objection via a phone call on 29th March 2022, which was followed up by an email on the same day requesting the Appellant to provide the necessary documents.

43. The Appellant averred that that it was not accorded fair and ample opportunity to prosecute its objection application. That the Respondent without fair notice invalidated the Appellant's late objection application depriving the Appellant of its chance to effectively prosecute its objection application and tender evidence

44. The Appellant further asserted that the Respondent's decision was deficient of the mandatory qualities of an objection decision as prescribed in the Tax Procedures Act. That the Respondent's letter invalidating the objection application was deficient of the model qualities of an objection decision espoused in Section 51(10) of the Tax Procedures Act. That this Section states that an objection application should contain a statement of findings on the material facts and the reasons for the decision.

45. The Tribunal perused the documents presented before it and noted that the Appellant had indicated in its late objection application the reason for late objection being “Dormant and insolvent”

46. The Respondent had however stated that the Appellant's PIN was active with several VAT and IT2C returns being submitted in the periods of 2019 to 2021.

47. That there being no evidence that the Appellant applied for dormancy or removal of tax obligation, the Respondent proceeded to reject the late objection application on 19th April 2022.

48. The Tribunal noted that the Appellant did not submit on this issue but only contended that it was not accorded a fair hearing. The Tribunal further noted the Respondent had attached a print out of the Appellant‟s VAT and income tax records to demonstrate that the account was active at some point during the period the Appellant had indicated that it was dormant and insolvent.

49. The Tribunal further noted that although the Appellant had indicated in its application for late objection that it was dormant and insolvent it did not provide any evidence in support of this claim.

50. It is the Tribunal‟s position that the Appellant‟s claim that the company was dormant and insolvent were not enough as set out in Section 107 of the Evidence Act which provides that:“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”

51. This position was upheld in Kenya Power & Lighting Co Ltd v Rassul Nzembe Mwadzaya [2020] eKLR where the court stated as thus:-“Since no evidence was adduced in support of the defence case, the defence on record therefore remained as a mere allegation. This is the position in law and was restated in the case of Edward Muriga through Stanley Muriga v Nathaniel D. Schulter, Civil Appeal No.23 of 1997, where the Court of Appeal stated: -“In this matter, apart from filing its statement of defence the Defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st Plaintiff and that of the witness remain uncontroverted and the statement in the defence therefore remains mere allegations. “

52. Consequently, the Tribunal finds that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent was not justified in its decision to invalidate its notice of late objection and subsequently demanding for the resultant taxes.

Final Decision 53. Based on the foregoing analysis the Tribunal determined that the Appeal is not merited. The Orders that accordingly recommend themselves are as follows:-a.The Appeal be and is hereby dismissed.b.The Respondent‟s decision dated 19th April, 2022 be and is hereby upheld.c.Each party to bear its own costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF OCTOBER, 2023. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - EMBERRODNEY OLUOCH - MEMBEREUNICE NG'ANG'A - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADETTE GITARI - MEMBER