[2024] KETAT 706 (KLR)

David Mwangi Kibert t/a Saloga Stores v Commissioner of Domestic Taxes (Tax Appeal E182 of 2023) [2024] KETAT 706 (KLR) (24 May 2024) (Judgment)

Neutral citation: [2024] KETAT 706 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E182 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

May 24, 2024

Between

David Mwangi Kibert t/a Saloga Stores

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a businessman operating a wholesale business and supplies within Kiambu.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of the laws of Kenya. Under Section 5(1) of the Act, the Respondent is an agency of the Government for the collection and receipt of all the tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Respondent 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 Appellant was issued with assessment orders on 31st May, 2022 being Value Added Tax of Kshs 983,063. 42.

4. The Appellant objected to the demand on 7th June, 2022 stating his grounds of objection.

5. The Respondent reviewed the Appellant’s objection and vide its letter dated 26th August, 2022 issued the objection decision confirming tax of Kshs 983,063. 42.

6. Aggrieved by the Respondent’s decision, the Appellant filed his Notice of Appeal dated 28th April, 2023 on the same date.

The Appeal 7. The Appeal was premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 28th April, 2023 and filed on even date:a.That the confirmation of the assessment was issued on 12th January ,2023 which in itself is two hundred plus days after the Appellant’s objection acknowledgement on 7th June 2022 whose net effect is that it is out of the statutory timeline therefore has no effect and does not in any way invalidate the Appellant’s objection.b.Without prejudice to ground (a) above, the Respondent erred in fact and in law in refusing to give reasons for the refusal of the Appellant’s objection.c.The Respondent failed to consider the Appellant’s accounts, invoices, audited financial statements, general ledgers, bank statements, reconciliations of the turnover and other related documents provided to it.d.That the Respondent erred in its decision by demanding tax of Kshs 983,063. 42.

The Appellant’s Case 8. The Appellant contended in his Statement of Facts dated 25th April 2023 that his objection dated 7th June, 2022 was confirmed by the Respondent on 12th January, 2023 which was more than two hundred days hence outside the statutory timelines. He contended further that the Respondent was required to either accept or refuse (giving reasons) within 60 days upon receipt of the objection, however on the lapse of the 60 days, the Appellant was convinced that the objection had been allowed by the operation of the law.

9. It was the Appellant’s averment that prior to the issuance of the assessment’s he held many working meetings with the Respondent’s representatives and provided all the documents requested and the Respondent proceeded to issue assessments.

10. The Appellant stated that the Respondent did not comply with the provisions of the Tax Procedures Act, No. 29 of 2015 (hereinafter ‘TPA’) when issuing the objection decision which did not contain reasons for rejection and is invalid, statute barred and therefore null and void. He concluded his case by stating further that the Respondent’s demand for the said taxes was unfounded, unreasonable, unjustified and not based on any material facts.

Appellant’s Prayers 11. The Appellant therefore prayed that the Tribunal finds He is not liable to pay any outstanding taxes with regards to the months of income and tax periods under review.

Respondent’s Case 12. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 19th June, 2023 and filed on 20th June, 2023 wherein it raised the following issues for determination:a.Whether the Respondent erred in demanding the Kshs 983,062. 42. b.Whether the objection decision is proper in law.

13. The Respondent asserted that it requested the Appellant to provide the purchase invoices verification vide its letter dated 22nd June, 2022. However, the Appellant instead provided the purchase excel analysis and a soft copy of a bank statement. The Respondent stated that it again sent reminder emails on 8th August 2022 and 15th August, 2022 but the Appellant provided the same excel analysis.

14. Vide an electronic mail dated 10th August, 2022 the Appellant informed the Respondent that he was engaging his suppliers to provide the requested purchase invoices and that later, only one supplier responded by providing the wrong invoices. Having failed to provide supporting documents for the Respondent to consider his responses through various correspondence, it went ahead to issue an objection decision on 26th August 2022. This having been handled before the amendment of Section 51(II) of the TPA.

15. The Respondent cited Section 56 of the TPA which has general provisions relating to objections and appeals and shifts the burden on the taxpayer to prove that the tax decision was incorrect.

Respondent’s Prayers 16. The Respondent prayed that the Tribunal finds as follows:(a)That the Respondent’s objection decision dated 26th August 2022 is proper in law and the same be affirmed; and(b)That the short-levied taxes of Kshs 983,063. 42, resultant penalty and interest are due and payable by the Appellant.

Parties’ Submissions 17. The Appellant did not file any written submissions. The Tribunal will therefore only consider the Respondent’s written submissions dated 8th February ,2023 and filed on 2nd February, 2024. In the said submissions, the Respondent raised two issues for determination and analysed them as outlined below:

a. Whether the Confirmation of Assessment by the Respondent is proper in law. 18. The Respondent submitted that the Finance Act 2022 that implied a mandatory 60 days’ time limit for the objection decision to be issued had not come into place by the time the Appellant had raised the objection. Further, that prior to 1st July 2022 introduction of Finance Act 2022 the sixty days rule was as follows; “sixty days after receipt of the last documents as requested by the Commissioner”. It submitted that the last date of receipt of documents was on 10th August 2022 and that the law does not work retrospectively unless specifically stated and in this case, the one cycle of 60 days came to effect on 1st July 2022 yet the Appellant had objected on 7th June, 2022.

19. The Respondent submitted that Section 23(3)(c) of the Interpretation and General Provisions Act, Chapter 2 of Kenya’s Laws (IGPA) prohibits the retrospective application of the law and provides that the repeal of a law shall not affect a right, privilege or obligation that was acquired or accrued under a written law so repealed.

20. It was the Respondent’s submission that it was in constant communication with the Appellant requesting the specific documents and information to enable proper assessment as evidenced by the various correspondence enclosed in its bundle of documents. It submitted further that Section 23 of the TPA requires the Appellant to keep tax records in a manner that his tax liability can be easily determined.

21. In shifting the burden of proof to the Appellant, the Respondent cited the case of Kisa Jaffer Tenje vs Kenya Revenue Authority, Cooperative Bank of Kenya(interested party(2020) eKLR and submitted that it exercised its best judgement based on available information to make its decisions as empowered under Sections 29 and 31 of the TPA.To buttress its case of burden of proof, the Respondent further relied on the case of Boleyn International Ltd vs Commissioner of Investigations and Enforcement, Nairobi TAT Appeal No 55. of 2018.

22. It therefore submitted that the Appellant failed to discharge the onus of proving that the Respondent had relied on wrong information in its assessments and objection decision.

b. Whether the Appeal is on merit. 23. The Respondent submitted that the Appellant’s objection dated 7th June, 2022 failed to comply with Sections 51(3)(a) and 51(3)(c) of the TPA. It submitted further that it notified the Appellant and informed him to remedy the defects through an electronic mail of 22nd June, 2022 in line with Section 51(1) of the TPA which provides for the request for additional information from the Appellant. It stated that it sent reminder emails on 8th August, 2022 and 15th August 2022. However, the Appellant failed to comply with the production of the relevant documents. Instead the Appellant communicated to the Respondent vide an electronic mail on 10th August 2022 stating that he was engaging supplies to provide the requested documents however, the documents provided were wrong.

24. The Respondent submitted that the Appellant requested for more time to avail the requested documents vide an email dated 18th July 2022. He however failed to provide the same. The said electronic mail stated thus“Kindly it isn’t possible due to period under review and time you’ve given us. We request 14 days to avail the required items.”

25. It was the Respondent’s submission that it issued the objection decision on 26th August, 2022 which was within the 60 days of the Respondent having requested for further documents. Further, that in arriving at its decision to confirm the assessment, it considered the merits of the Appellant’s objection.

Issues for Determination 26. The Tribunal has considered the parties pleadings, documentation and the submissions and is of the view that this Appeal raises two issues for determination namely:a.Whether the objection decision was properly issued pursuant to Section 51 (11) of the TPA.b.Whether the tax demanded is due and payable.

Analysis and Findings 27. Having established the two issues for determination, the Tribunal will proceed to analyse them hereinunder:

a. Whether the objection decision was properly issued pursuant to Section 51 (11) of the TPA. 28. The Appellant had raised the issue of validity of the Respondent’s objection decision both as grounds for Appeal and in his Statement of Facts. He averred that he objected to the Respondent’s demand on 7th June 2022 and that the Respondent confirmed the assessment on 12th January 2023 which was after more than two hundred days and therefore outside the statutory timelines.

29. On its part, the Respondent stated that following the Appellant’s objection dated 7th June 2022, it requested the Appellant to provide purchase invoices vide an email communication of 22nd June 2022. It stated that the Appellant only provide a purchase excel analysis and a soft copy of the bank statement.

30. The Tribunal noted the Respondent’s further averment that it sent reminders vide electronic mails of 8th August 2022 and 15th August 2022, however the Appellant provided the same excel analysis. The Respondent had averred that the Appellant had indicated in his electronic mail dated 10th August 2022 that he was engaging his suppliers to provide the requested purchase invoices. However only one supplier had responded but provided the wrong invoices. The Respondent asserted that it issued its objection decision on 26th August 2022 and that the period from the last communication from the Appellant on 10th August 2022 and the date of the objection decision on 26th August, 2022 was within the 60-day statutory period pursuant to Section 51 (11) of the TPA.

31. The Tribunal has carefully perused the documentation availed by the parties and finds that the Appellant’s assertion that the Respondent confirmed the assessment on 12th January 2023, was unsupported. The Tribunal therefore finds that the Appellant was unable to prove his assertion that the Respondent’s objection decision was made more than 200 days out of time. The Tribunal associates itself with the holding in that case of Trust Bank Ltd vs Paramount Universal Bank Ltd and 2 others (2009) eKLR where the court held as follows:“It is trite, where a party fails to call evidence in support of its case that party fails to substantiate its pleadings.”

32. The Tribunal has however sighted the objection decision dated 26th August, 2022 and the various electronic mail correspondence from the Respondent on 22nd June 2022, 8th August 2022 and 15th August 2022 requesting the Appellant for specific documents. The Tribunal has also sighted the Appellant’s electronic mail of 10th August 2022 informing the Respondent that he was engaging his suppliers to provide the requested documents.

33. Section 51(11) of the TPA provides as follows:“The Commissioner shall make the objection decision within sixty days from the date of receipt of,(a)The notice of objection; or(b)Any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to have been allowed.”

34. The Tribunal notes that when the Appellant objected to the assessment on 7th June, 2022, the Respondent replied on 22nd June 2022, requesting him to provide specific documentation to support his objection. It is the Tribunal’s considered view that this request was made within reasonable time and that the subsequent issuance of the objection decision on 26th August 2022 following the Appellant’s last communication on 10th August 2022 satisfied the provisions of Section 51 (11) of the TPA.

35. In view of the foregoing, the Tribunal finds that the objection decision was was properly issued pursuant to Section 51 (11) of the TPA.

b. Whether the demanded tax was due and payable. 36. The Tribunal notes that the Appellant was asked to provide specific documents to support his objection but instead provided an excel analysis of the purchases and that even after several reminders to provide the said documents, he still failed to provide the same.

37. The Tribunal notes the following provisions of Section 23(1) of the TPA which compels the Appellant to maintain records:“A person shall –(a)Maintain any document requested under a tax law, in either of the official languages.(b)Maintain any document required under a tax law so as to enable the persons tax liability to be readily ascertained and(c)Subject to subsection (3) retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

37. The Tribunal relies on its decision in TAT no 55 of 2018 – Boleyn International Ltd vs Commissioner of Investigations and Enforcement where it held as follows: -“The Appellant failed to provide documents and the Tribunal held that there was no conceivable way the Respondent would have considered the objection as the same did not place itself within the parameters of section 51(3) of the Tax Procedures Act.”

38. Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act, No. 40 of 2013 (hereinafter ‘TATA’) places the burden of proof on the taxpayer to prove that a tax decision is incorrect. The provisions of both Acts are as outlined below:Section 56 (1) of TPA“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”Section 30 of TATA“In 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; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

39. The Tribunal cites the case of Commissioner of Domestic Taxes vs Metoxide Limited (2021) where the Court held as follows:“Section 56(1) of the Tax Procedures Act provides that the taxpayer had the burden of proving that a tax decision is incorrect. It is common knowledge that the Kenya system of taxation is based on self-assessment. The taxpayer assesses self and pays what he/she considers to be the tax due to the tax authorities. In this regard, the tax laws mandate the appellant to later own assess the taxpayer in order to ascertain whether the tax remitted was proper or not. Ordinarily the assessment is made years after the tax has fallen due and been paid or the economic activity or commercial transaction for which the tax arises has been undertaken. It is for this reason that the tax laws in this country shoulder the taxpayer with the burden of disproving the correctness of the appellant’s tax decision.”

40. The Tribunal notes that the Appellant failed to keep proper records as provided for under Section 23(1) of the TPA and that accordingly, he was unable to discharge his burden of proof as provided for under Section 56(1) of the TPA and Section 30 of the TATA.

41. In view of the foregoing, the Tribunal having found that the Appellant was unable to prove the incorrectness of the objection decision by his inability to discharge his burden of proof, finds that the demanded tax was due and payable.

Final Decision 42. The upshot of the above is that the Appeal lacks merit and the Tribunal proceeds to make the following final Orders:(a)The Appeal be and is hereby dismissed.(b)The Respondent’s objection decision dated 26th August, 2022 be and is hereby upheld.(c)Each party to bear its own costs.

43. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF MAY, 2024CHRISTINE A. MUGA - HAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBER