[2025] KETAT 6 (KLR)

Dormakaba Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E127 of 2024) [2025] KETAT 6 (KLR) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 6 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E127 of 2024

RM Mutuma, Chair, D.K Ngala, Jephthah Njagi, T Vikiru & M Makau, Members

January 17, 2025

Between

Dormakaba Kenya Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private company incorporated in Kenya under the Companies Act Cap 486 Laws of Kenya. Its principal business activity is the importation and sale of access items.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. Under Section 5 (1) of the said Act, the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5 (2) with respect to 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 Respondent issued the Appellant with additional income assessment orders for Kshs. 35,967,698. 40, inclusive of penalty and interest on 24th December 2018. The assessment was for the period 1st July 2015 to 30th June 2016 and 1st July 2016 to 30th June 2017.

4. The Appellant objected to the assessment on 22nd January 2019 which the Respondent considered and vacated principal tax of Kshs. 18,686,118. 60 for the period 1st July 2015 to 30th June 2016, on 12th July, 2021. It however confirmed the additional assessment amounting to Kshs. 10,905,812. 40 on 27th July 2021.

5. Aggrieved by the Respondent’s decision with leave of the Tribunal the Appellant lodged.

The Appeal 6. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated and filed on 1st February 2024 on the following grounds;a.That the Respondent erred in law and fact by rejecting the Appellant’s objection past statutory timelines;b.The Respondent erred in law and fact by issuing demand notices yet valid objections had been filed by the Appellant;c.The Respondent erred in law and fact by seeking to enforce its demand despite the fact that the Appellant has continuously provided elaborate explanations and supporting documentation against the demand;d.The Respondent erred in law and fact in levying penalties and interest on filed VAT returns;e.The Respondent erred in law and fact in issuing demands on Corporation Tax yet the Respondent had not taken into account that it had allowed some of the amounts in its demands;f.The Respondent erred in law and fact in disregarding material evidence shared by the Appellant relating to the demand issued;g.The Respondent erred in law and fact in blocking the Appellant’s iTax portal preventing them from filing its returns; and,h.That the Respondent erred in law misapplying itself in its findings and lacks a legal and factual basis.

The Appellant’s Case 7. The Appellant’s case is premised on the following;a.Statement of Facts dated and filed on 1st February 2024 together with the documents attached thereto; and,b.Written submissions dated 18th September 2024 and filed on 19th September 2024.

8. The Appellant averred that it made its objection to the Respondent’s demand on 18th January 2019 for the period 2014, 2015, 2016 and 2017 issued on 24th December 2018 in line with the provisions of Section 5 1(2) of the Tax Procedures Act. However, the Respondent responded to this objection with no reason for the period 2016 - 2017 on 26th July 2021, two years after to Appellant’s objection had been lodged contrary to the provisions of Section 51 (11) of the Tax Procedures of Act, as it then was.

9. It averred that it was under the assumption that the fact that the Respondent had not communicated, it was under the impression that the Respondent agreed with its objection as lodged and consequently there was no tax to pay.

10. The Appellant stated that it was further issued with additional assessment on 22nd January 2019 for Kshs. 18,686,115. 60 for the period 2015 and 2016 and it noted that the periods in dispute had already been objected to in its letter dated 18th January 2019 that covered the period 2014 - 2019. It however objected again and the Respondent allowed the objection for the amount of Kshs. 18,686,118. 60 for the period 2015 and 2016 while disallowing Kshs. 10,905,812. 40 for the period 2016-2017.

11. The Appellant stated that the Respondent had clearly taken its time in issuing a response but it indulged the Respondent on the basis that it did not want any conflict. However, this Respondent issued another demand on 17th and 18th November 2022 for the period 2015-2021.

12. It was the Appellant’s averment that the objection dated 18th January 2019 covered the period 2014 -2017 and consequently the Respondent was wrong in issuing demands for the period 2015 to 2021 as the matter had already been resolved through the Respondent’s non-communication and further by the simple fact that the Respondent had allowed the objection for Kshs. 18,686118. 60 for the period 2015 and 2016.

13. The Appellant averred that the Respondent issued a further demand on 7th November 2023 for Kshs. 26,373,034. 48 which formed part of the disallowed amount for the period 2016-2017 whose principal tax was Kshs. 10,905,812. 40. It stated therefore that what emerged was a pattern by the Respondent to constantly ignore its own decision and communication in regards to the amounts in dispute and then issuing demands to the detriment of the Appellant, a result of which the Appellant has been unable to file its corporate returns bringing about the dispute.

14. It was the Appellant’s averment that the actions of the Respondent have been unfair and unreasonable and contrary to the principles of fair administrative action as contemplated by Article 47 of the Constitution and the Fair Administrative Action Act.

15. The Appellant asserted that it acted within the law since the beginning of the dispute and issued a comprehensive objection in 2019 that would have addressed and resolved queries that the Respondent had raised which was informed by the various demand letters it had issued as the genesis of the matter which covered the periods 2014, 2015, 2016 and 2017. It therefore asserted that the Respondent had not embodied the provisions of the law as there was simply no reason to prevent the Appellant from filing its returns.

16. In its Written Submissions filed on 19th September 2024 the Appellant raised one issue for determination, being;Whether the Respondent erred in issuing demands and confirming assessments past statutory timelines even though the assessments had been objected by the Appellant.

17. The Appellant submitted that it objected to the Respondent’s demand of 24th December 2018 on 18th January 2019 which was within the 30 days as provided for under Section 51 (2) of the Tax Procedures Act. However, the Respondent issued the confirmation assessment on 26th July 2021 which was two years after the Appellant’s objection contrary to the provisions of Section 51 (11) of the Tax Procedures Act. It submitted further that having objected to the Respondent’s demand on 18th January 2019, it reasonably believed that the Respondent would issue its Objection Decision within sixty days which would have been by 17th March 2019.

18. The Appellant reiterated that the Respondent failed to issue its Objection Decision within the statutory timelines and instead confirmed its assessment on 26th July 2021 and 12th July 2022 which was two and three years past respectively from the statutory deadline of 17th March 2019.

19. It submitted that the wording of Section 51 (11) of the TPA is in peremptory terms, and that the word “shall” indicates that it is not obligatory but mandatory for the Respondent to issue its objection decision/confirmation assessment within sixty days and where the Respondent failed to comply, the Appellants objection was deemed allowed.

20. The Appellant submitted further that in interpretation of tax statutes, there shall be strict interpretation without room for intendment, as such the Respondent was strictly bound by the provisions of Section 51 (11) that required the Respondent to issue an Objection Decision within sixty days after filing of an objection by a taxpayer failure of which the taxpayer’s objection was deemed allowed.

21. In buttressing on the importance of abiding by statutory timelines as stipulated in the Tax procedures Act, the Appellant relied on the following Authorities;a.Equity Group Holdings Limited vs. Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) (2021) KEC 25 (KLR);b.Republic vs. Commissioner of Domestic Taxes Large Tax Payers office Ex-parte Barclays Bank of Kenya Ltd [2021] eKLR;c.Republic vs. Commissioner of Customs Services Ex-Parte Unilever Kenya Limited 2012 eKLR; and,d.Republic vs. Kenya Revenue Authority Ex-Parte M-Kopa Kenya Limited [2018] eKLR.

The Appellant’s Prayers 22. The Appellant prayed for judgement/order against the Respondent that;a.The Respondent’s demands dated 17th November 2022, 18th November 2022 and 7th November 2023 be set aside;b.The Appellant’s iTax portal is open to allow the filing of its returns;c.The Appeal be allowed with costs to the Appellant; and,d.Any other orders that the Honourable Tribunal may deem fit.

The Respondent’s Case 23. The Respondent’s case is premised on the following:a.Statement of Facts dated and filed on 29th February 2024 together with the documents attached thereto; and,b.Written submissions dated 13th September 2024 and filed on 17th September 2024.

24. In responding to the Appellant’s grounds of Appeal, the Respondent summarized its response by establishing three issues for determination., namely;

i. Whether the Respondent’s demand Notices dated 17th November 2022, 18th November 2022 and 7th November 2023 constitutes an Appealable Decision. 25. The Respondent averred that the Appellant’s grounds of Appeal as per the Memorandum of Appeal and Statement of Facts is an Appeal against the Respondent’s decisions dated 17th November, 2022, 18th November 2022 and 7th November 2023. It therefore contended that its agency notices of the same dates did not constitute an appealable decision as defined by Section 3 of the Tax Procedures Act.

26. It relied on Section 52 of the Tax Procedures Act, 2015 which stipulates the Appeal procedure and averred that a tax decision, in this case, an agency notice is not an appealable decision as defined in Section 3 (1) of the Tax Procedures Act. The Respondent contended that the High Court has already pronounced itself on the issue of procedural guidelines as enshrined in the Tax Appeals Tribunal Act, therefore the Appellant had a right of Appeal but that right ought to be exercised in view of statutory structures governing the exercise of that right. It contended further that the Appeal herein is incompetent and ought to be struck out with costs to the Respondent.

ii. Whether the Additional Assessments are legally justified. 27. The Respondent averred that the decision to issue additional assessments was justified and had basis in law as required under the Tax Procedures Act, 2015. It stated that the Appellant was issued with assessment orders dated 24th December 2018 which it objected to on 22nd January 2019. The Respondent stated that it reviewed the Appellant’s objection and on 12th July 2022 proceeded to vacate the assessments for the period 1st July 2015 – 30th June 2016 and communicated the same to the Appellant. It however confirmed the additional assessment for Kshs. 10,905,812. 40 for the period 1st July 2016 – 30th June 2017 clearly stipulating the basis for confirming the additional assessment.

iii. Whether the Appellant has discharged Burden of proof. 28. The Respondent averred that the Appellant had not adduced any evidence to support its case and therefore had not discharged its burden of proof to demonstrate that the assessments were erroneous or excessive. The Respondent stated that Sections 56 (1) of the TPA and 30 of the TAT Act places the burden on the taxpayer to proof that a tax decision is incorrect.

29. In its written submissions, the Respondent submitted on three issues.

i. Whether the Tribunal has jurisdiction to hear and determine the Appeal. 30. The Respondent reiterated that the Appellant’s grounds of Appeal as per the Memorandum of Appeal and Statement of Facts was an Appeal against the Respondent’s decisions dated 17th November, 2022, 18th November 2022 and 7th November 2023. It submitted that the agency notices of the same dates did not constitute an appealable decision as defined by Section 3 of the Tax Procedures Act.

31. The Respondent placed reliance in TAT Appeal No 43 of 2017 Uchumi Supermarkets Ltd vs. Commissioner of Domestic Taxes where the Tribunal dismissed the Appeal and held that the Appeal was invalid, incompetent in law as it was in contravention with Section 52 (2) of the Tax Procedures Act. It submitted that since there was no appealable decision, the Tribunal lacks jurisdiction to hear and determine the dispute. Further that jurisdiction was everything and where the Tribunal finds that it had no jurisdiction, it should proceed to strike out the Appeal.

32. The Respondent further relied on the following authorities in buttressing its argument:a.Owners of Motor vessel ‘Lillian S’ vs. Caltex Oil (Kenya) ltd (1989) eKLR; and,b.Fleur Investments Limited vs Commissioner of Domestic Taxes &another [2018] eKLR.ii.Whether the Respondent’s Notice of Confirmation of Assessment was Lawful

33. The Respondent submitted that Section 51 (11) of the Tax Procedures Act stipulates that the Respondent was only required to issue an Objection Decision within 60 days where there was a valid objection and that it is not obligated to issue an Objection Decision where the Appellant has not lodged a valid objection. It submitted that the time envisaged under Section 51 (11) of Tax Procedures Act could not start running and that it is not open in law for the Appellant to question the timelines within which the Respondent confirmed or ought to have confirmed its assessment.

iii. Whether the Appellant discharged its burden of proof. 34. The Respondent reiterated its position as stated in its Statement of Facts and relied on the case of Primarosa Flowers Limited vs. Commissioner of Domestic Taxes [2019] eKLR where the High Court relied on Mulherin vs. Commissioner of Taxation [2013] FCAFA 115 in which the Federal Court of Australia held that in tax disputes the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. Further that the onus was on the taxpayer in proving that the assessment was excessive by adducing positive evidence, which demonstrate the taxable income on which ought to have been levied.

35. The Respondent submitted that the Appellant did not provide the requisite documents to prove that the assessments made were excessive or erroneous therefore the Appeal is devoid of any merit and ought to be dismissed. It relied on the following other cases to emphasise on the issue of burden of proof;a.Ushindi Exporters Limited vs. Commissioner of Investigations and Enforcement (Tax Appeals Tribunal No.7 of 2015); and,b.Commissioner of Domestic Taxes vs. Metoxide Limited [2021].

The Respondent’s Prayers 36. The Respondent therefore prayed the Tribunal finds that;a.The Respondent’s demand notice issued on 17th November 2022, 18th November 2022 and 7th November 2023 be found to be proper in law;b.The Respondent’s confirmation of assessment’s decision be upheld; and,c.The Appeal is devoid of merit and ought to be struck out with costs to the Respondent.

Issues for Determination 37. The Tribunal has considered the parties pleadings, documentation and submissions and is of the view that this Appeal raises three issues for determination;i.Whether the Tribunal has jurisdiction to hear the Appeal;ii.Whether the Appellant’s Notice of Objection was deemed allowed by operation of the law; and,iii.Whether the Respondent’s Demand was justified.

Analysis and Findings 38. Having established the three issues for determination, the Tribunal will proceed to analyse them as herein under:

i. Whether the Tribunal has jurisdiction to hear the Appeal. 39. The genesis of the dispute arose from the Respondent’s additional assessment on 24th December 2018 and which the Appellant objected to on 22nd January 2019. The Respondent thereafter vacated part of the assessment and confirmed Kshs. 10,905,512. 40 on 26th July 2021.

40. Section 51 (1) of the Tax Procedures Act offers an avenue to a taxpayer who may be dissatisfied with the Respondent’s decision. It provides as follows;“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. ”

41. Section 13 (1) (2) (3) prescribes the procedure for Appeal and the documentation to be filed. It provides as follows;“13 (1)A notice of appeal to the Tribunal shall –a.Be in writing or through electronic meansb.Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissionerc.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)Memorandum of appeal;b)Statement of facts; andc)the tax decision.3)The Tribunal may, upon application in writing or through doctrine means, extend the time for the filing the notice of appeal and for submitting the documents referred to in subsection (2).”

42. The Tribunal notes that although the Appellant sought and was granted leave by the Tribunal to file its Appeal out of time, it only filed the Memorandum of Appeal and Statement of Facts on 1st February 2024. However, the Appellant did not file the Notice of Appeal which procedurally invokes the jurisdiction of the Tribunal without which the Tribunal cannot entertain the Appeal.

43. The Tribunal is guided by its holding in the case of W.E.C LinesLimited vs. Commissioner of Domestic Taxes (TAT No 247 of 2020) where it held;“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure shall 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.”

44. The word “shall” in Section 13 (1) of the TAT Act denotes a command or mandatory requirement. Hence the Appellant even after obtaining leave of the Tribunal to file its appeal out of time failed to follow the statutory requirement to first file the Notice of Appeal which invokes the jurisdiction of the Tribunal. The Tribunal will further rely on its holding in the case of Mazeras Kenya EPZ Limited vs. Commissioner of Domestic Taxes (TAT No. 827 of 2022) which addressed the issue of the Tribunal’s jurisdiction. It stated as follows;“The Tribunal therefore finds that it is not seized of the jurisdiction to entertain this appeal and the Tribunal must at this point down its tools.”

45. As a Consequence, thereto, the Tribunal finds that it lacks the jurisdiction to entertain the Appeal and must at this point in time down its tools.

46. Having determined that the Tribunal lacks jurisdiction to hear and determine this Appeal, it will not proceed to analyse the remaining issues as the same have been rendered moot.

Final Decision 47. The upshot of the foregoing, the Tribunal finds that the Appeal is incompetent and accordingly proceeds to make the following orders:a.The Appeal be and is hereby struck out; and,b.Each party to bear its own costs.

48. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF JANUARY 2025ROBERT M. MUTUMA - CHAIRPERSONDELILAH K. NGALA - MEMBERJEPHTHAH NJAGI - MEMBERDR, TIMOTHY B. VIKIRU - MEMBERMUTISO MAKAU - MEMBER