[2023] KETAT 103 (KLR)

Echenje v Commissioner of Domestic Taxes (Tribunal Appeal 383 of 2022) [2023] KETAT 103 (KLR) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 103 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 383 of 2022

RM Mutuma, Chair, EN Njeru, RO Oluoch, D.K Ngala & EK Cheluget, Members

February 10, 2023

Between

Reuben Abwao Echenje

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a sole proprietor operating his business in Kenya. His main form of business is in providing consultancy services to Tata Chemicals.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The Respondent conducted an audit on the Appellant where it noted that the Appellant invoices Tata chemicals for services rendered and Tata Chemicals pays him after deducting Withholding VAT on the invoices.

4. On 15th May 2018, the Respondent issued an assessment to the Appellant on inconsistencies between sales declared and purchases declared by Tata Chemicals for the periods February, March August and November 2017 where it claimed that the Appellant under-declared the sales invoices.

5. The Appellant objected to the assessment on 14th September 2021.

6. The Respondent issued an Objection Decision dated 10th December 2021.

7. The Appellant dissatisfied with the Respondent’s decision lodged a Notice of Appeal dated 13th April 2022 and filed on the 14th April, 2022.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 13th April 2022 and filed on 14th April 2022:-a.The Respondent erred in fact in finding that the Appellant has not remitted taxes for the month of February, March, and August 2017. b.The Respondent’s assessment is misguided and the amount they are seeking is not justified.

The Appellant’s Case 9. The Appellant’s case is premised on his Statement of Facts dated 13th April, 2022 and filed on 14th April, 2022 and the written submissions dated 25th November, 2022 and filed on 28th November, 2022.

10. He stated that having filed his returns and remitted the resultant VAT tax payments for the four months, the Respondent on its own motion did a further assessment on 15th May 2018 and came up with new figures which it disputed with the exception of November.

11. He averred that the demand by the Respondent is not only wrong but punitive and unlawful and without any legal basis after which he lodged a notice of objection via email on 14th September 2021 which was replied to by the Respondent on 11th December 2021.

12. He further averred that he only received the email communicating rejection on 22nd March 2022.

13. He stated that he has since cleared all the taxes not in dispute.

The Appellant’s Prayers. 14. The Appellant prayed for :-a.This Appeal be allowed with costs.b.The decision of the Commissioner of Domestic Taxes with regards to the tax payable by the Appellant be discharged and set aside with costs to the Appellant.c.The additional assessments issued by the Respondent for the periods under review together with penalties and interest were unlawful and improperly assessed, and as such the same should be set aside;d.The Honourable Tribunal be pleased to assess the tax payable by the Appellant to be commensurate;e.The Tribunal considers vacating the additional assessments accordingly so that the going concern of the company is not threatened;f.The Objection Decision under review be declared null and void; andg.Any other relief that this Honourable Tribunal deems fit.

The Respondent’s Case 15. The Respondent’s case is premised on its Statement of Facts dated and filed on 13th May 2022 and the written submissions dated 6th December, 2022 and filed on 7th December, 2022.

16. It stated that the Appellant filed a late objection without applying to file the objection late or providing reasons for lateness despite several reminders by the Respondent. It added that the Appellant also failed to adduce documents to support its late objection despite various reminders.

17. It stated that it required a rebuttal from the Appellant and since none was provided it invalidated the Appellant’s objection.

18. It averred that the burden of proof is on the Appellant to produce evidence challenging the Respondent’s decision to invalidate its objection by providing documents and applying for a late objection as provided under Section 56(1) of the Tax Procedures Act.

19. It averred that the Appellant did not at the objection stage provide the payment slips adduced in the Appeal and that the Appellant’s decision to adduce the documents at the Appeal stage is contrary to the provisions of the Tax Procedures Act and the Tax Appeals Tribunal Act.

20. It reiterated that its Notice of Invalidation dated 10th December 2021 is proper in law and denied the argument that the Appellant has settled its tax affairs.

21. It further averred that the Appellant’s grounds for appeal are insufficient as the Appellant did not provide any evidence contradicting the basis of the Respondent’s assessment.

The Respondent’s Prayers 22. The Respondent prayed that the Honourable Tribunal:a.Upholds the Respondent’s Notice of Invalidation dated 10th December 2021. b.This Appeal be dismissed with costs as the same is devoid of any merit.

Parties Submissions On whether the respondent erred in fact in finding that the appellant has not remitted taxes for the month of February, March, and August 2017 23. The Appellant cited Section 51(2) and (3) of the Tax Procedures Act and stated that the Respondent’s presumption of correctness which attaches to the assumption remains until the taxpayer produces evidence to support his position which if produced, the presumption vanishes and the case must be decided upon the evidence presented.

24. He submitted that under the system of self-reporting, the taxpayer possesses the relevant evidence for the determination of tax liability and that he provided the Tribunal with a tabulation showing total VAT and Withholding tax payable and the total amount paid.

25. He reiterated that in the months of February, March, August and November 2017 the total outstanding amount was Kshs. 130,857. 65 which has been paid and the total amount the Respondent is demanding is Kshs. 324,653. 03 which is unjustified.

26. He quoted Section 56(1) of the Tax Procedures Act reiterating that he has proven that the Respondent’s decision was incorrect through the receipts heprovided together with a breakdown of payment and explanation of the difference between the Respondent’s demand and his outstanding tax liability.

On whether the respondent’s assessment is misguided and the amount they are seeking is not justified. 27. The Appellant submitted that the onus of disproving the Respondent’s position may shift based on the proceedings and actions taken by the parties and that once a taxpayer makes out a prima facie case to prove the facts, the onus shifts to the Respondent to rebut it.

28. He further submitted that the Respondent’s assessment was in bad faith because he submitted his self-assessment with supporting documents showing he filed returns and paid VAT for the tax period in question and the Respondent did his own assessment coming up with different figures based on unknown invoices while failing to justify how it came up with the figures.

On whether the respondent erred in invalidating the appellant’s objection and consequently upholding the additional VAT assessment. 29. The Respondent submitted that it amended the Appellant’s original assessment under Section 31 of the Tax Procedures Act.

30. It quoted Section 56(1) of the Tax Procedures Act and averred that upon receipt of the additional assessment, the burden of proof shifted to the Appellant to disprove the Respondent’s position.

31. It reiterated that it immediately advised the Appellant that his objection was invalid for being time-barred and not supported by any ground and documentation therefore not in conformity with Section 5(2) and (3).

32. It added that it gave the Appellant the opportunity to validate the objection by providing the information requested on 21st September, 12th October and 2nd December 2021 and that the Appellant has no regard for procedure and pursuing a proper objection.

33. It argued that the Appellant did not align his objection with the guidelines of Section 51 of the Tax Procedures Act by not providing relevant documents making the grounds of objection mere averments without basis. It added that this non-compliance by the Appellant forced it to invalidate the objection.

34. It relied on the case of Boleyn International Ltd. v Commissioner of Investigations and Enforcement, Nairobi TAT Appeal No 55 of 2018 where it was held that:-“... on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant’s objection as the same did not place itself within the parameters of Section 51 (3) of the Tax Procedures Act.”

35. It submitted that the Appellant squandered the opportunity it provided and should therefore not be allowed to hold the Tribunal at ransom and that the Appellant failed to discharge his burden of proof. It cited the case of Afya X Ray Centre Limited v Commissioner of Domestic Taxes TAT Appeal No 70 of 2017 where the Tribunal held that:-“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent’s finding after the preliminary finding and after the confirmation of the assessment. Both are instances where the Appellant could have produced its books of accounts to counter the Respondent’s assessment after all the Appellant by law bears the burden of proof…”

36. It further submitted that the documents provided by the Appellant before the Tribunal were not provided during the Objection Review stage and thus the production at the Appeal stage is contrary to Section 56(3) of the Tax Procedures Act, Section 13(6) of the Tax Appeals Tribunal Act, and rules of evidence.

37. It reiterated that the Appellant neither demonstrated nor gave evidence showing that the Respondent’s decision was erroneous. It relied on the case of Boleyn International Ltd v Commissioner of Investigations and Enforcement (supra) where it was found as follows:-“we find that the Appellants at all times bore the burden of proving that the Respondent’s decision and investigations were wrong. The Tribunal is guided by section 56(1) of the Tax Procedures Act, 2015 which states: In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. Further, the Tribunal finds the following paragraphs from Pierson v Belder (H.M Inspector of Taxes)(1956 - 1960)38 TC 387 to be instructive; but the matter may be disposed of, i think even more shortly in this way: there is an assessment made by the commissioner upon the Appellant; it is clearly settled by cases such as in the case of Norman v Golder 26 T.C. 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the appeal, which is accordingly dismissed with costs.”

38. It submitted that the Appellant’s failure to comply with the express statutory provisions is not a procedural technicality curable by application of the overriding objective of the law or the principles espoused in Article 159(2) of the Constitution of Kenya.

Issues for determination 39. Upon perusing the pleadings and documents filed together with the submissions made by the parties the Tribunal believes that the following is the main issue for determination: -Whether the Respondent’s decision dated 10th December 2021 invalidating the Appellant’s objection was justified.

Analysis and Findings 40. The Tribunal wishes to analyse the issue as herein under:

Whether the respondent’s decision dated 10th December 2021 invalidating the appellant’s objection was justified. 41. The Respondent has proffered 2 arguments for its decision to invalidate the Appellant’s Notice of Objection. First, that the Notice of Objection was filed late and second, that Appellant failed to provide documents to support his case at the objection stage.

42. The Respondent has argued that its decision invalidating the Appellant’s Notice of Objection was correct because the Appellant failed to lodge his objectionon time and when he lodged the objection, he did not apply for an extension of time hence the rejection.

43. Section 51 (6) of the Tax Procedures Act provides as follows:“A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.”

44. Further, Section 51 (7) continues as follows:“The Commissioner shall consider and may allow an application under subsection (6) if— (a) the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and (b) the taxpayer did not unreasonably delay in lodging the notice of objection.”

45. To this, the Appellant has neither given any explanation as to why the Notice of Objection was lodged out of time nor provided evidence on what might have caused the delay on the Appellant’s part.

46. The Respondent reiterated that the Appellant did not provide the documents presented to the Tribunal during the objection and that it is basically a stranger to the same issues.

47. The Appellant argued that he had provided sufficient evidence to the Tribunal to prove that the Respondent’s assessment was wrong and the same were attached to his Memorandum of Appeal. However, upon perusal of the pleadings and documents provided, it is clear that the Appellant’s documents were not provided to the Respondent at the Objection stage.

48. The Tribunal observed that no explanation was tendered by the Appellant as to the reason for not providing the same to the Respondent even after multiple requests and reminders from the Respondent resulting in the respondent rejecting the Appellant’s Objection.

49. The Tribunal wishes to associate itself with the findings in the case of Afya X Ray Centre Limited v Commissioner of Domestic Taxes TAT Appeal No 70 of 2017 where the Tribunal held as folows:-“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent’s finding after the preliminary finding and after the confirmation of the assessment. Both are instances where the Appellant could have produced its books of accounts to counter the Respondent’s assessment after all the Appellant by law bears the burden of proof…”

50. Indeed, the Appellant squandered his opportunity to file a valid objection by not filing it in time and for failing to support it with documents.

51. The Tribunal therefore finds that the Appellant is guilty of laches for not following the procedure required to lodge an objection within the specified time and that the Respondent was right to invalidate the Appellant’s Objection for being time-barred.

Final Decision 52. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders;-i.The Appeal be and is hereby dismissed;ii.The Respondent’s Notice of Invalidation dated 10th December, 2021 confirming the Additional Assessment be and is hereby upheld;iii.Each party to bear its own costs.

53. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF FEBRUARY, 2023ROBERT M. MUTUMACHAIRPERSON..........ELISHAH NJERUMEMBER..........RODNEY O. OLUOCHMEMBER..........DELILAH K. NGALAMEMBER..........EDWIN K. CHELUGETMEMBER..........