[2024] KETAT 1277 (KLR)

Eldo-Rosta Construction Limited v Commissioner of Domestic Taxes (Tax Appeal E459 of 2023) [2024] KETAT 1277 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1277 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E459 of 2023

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

August 23, 2024

Between

Eldo-Rosta Construction 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 to May 2018 on 15th November 2019.

4. The Appellant lodged objections on 17th December 2020 which were rejected by the Respondent on 17th December 2021 confirming the assessments for the reason that the objection was late.

5. The Appellant filed a Notice of Motion dated 18th April 2023 under a certificate of urgency on 20th April 2023 seeking orders to be granted extension of time to file its appeal out of time. The same application sought the immediate lifting of agency notices placed on it by the Respondent. The Appellant was granted leave to file its appeal out of time and the agency notices were lifted in a Ruling delivered by the Tribunal on 28th July 2023.

6. Being dissatisfied with the Respondent’s decision and on the basis of the leave granted by the Tribunal, the Appellant filed a Notice of Appeal on 14th August 2023.

The Appeal 7. The Appellant filed its Memorandum of Appeal dated on 10th August 2023 and filed on 14th August 2023 raising the following grounds of appeal:a.The Respondent failed, neglected and/or deliberately refused to serve the Appellant with copies of the Agency notices on the banks as required by the law. The Appellant only got to know of the Agency notices from the banks and its clients.b.The Respondent failed to note and act accordingly to the effect that the Appellant had the right to access information held by it and that the Appellant required the exercise or protection of its right and fundamental freedom.c.The Respondent misdirected itself by failing to render its decision within the prescribed timelines as established under Section 51(11) of the Tax Procedures Act which establishes that where the Commissioner has not made its Objection decision within 60 days from the date the taxpayer lodged a Notice of Objection, the Objection shall be allowed.d.The Respondent’s insistence on the Applicant’s Managing Director to provide proof of sickness is an affront to Article 31 of the Constitution of Kenya which establishes that every person has the right to privacy which includes the right to have the information relating to private affairs unnecessarily required or revealed.e.The Respondent violated Article 47 of the Constitution and Section 4 of the Fair Administrative Act by failing to act lawfully, and procedurally and failing to give reasons for its actions.f.The Respondent knew too well and ought to have known that its administrative action as depicted in the Agency notices was certainly going to adversely affect the rights or fundamental freedoms of the Appellant but failed to:i.Give prior and adequate notice of the nature and reasons for the administrative action.ii.Give the Appellant an opportunity to be heard and to make representations in that regard.iii.Give the Appellant Notice of right to a review or internal appeal against this administrative decision despite being a requirement of law.iv.Give the Appellant information, materials and evidence relied upon in making the decision or taking the administrative actiong.The Respondent’s decision as depicted in the Agency notices was unprocedural and outright abuse of relevant tax laws and the fundamental rights and freedoms of the Appellant.

Appellant‘s Case 8. The Appellant’s case was premised on the following documents:a.Its Statement of Facts dated 10th August 2023 and filed on 14th August 2023; andb.Its Written Submissions dated 25th March 2024 and filed on 27th March 2024.

9. The Appellant averred that it had communicated to the Respondent that no formal letter was issued to the taxpayer communicating the issues for which the assessment was raised.

10. The Appellant stated that it filed late objections to the Respondent’s assessment of VAT for the periods between 1st to 31st December 2017 for Kshs. 8,219,275. 68; 1st to 31st January 2018 for Kshs. 1,153,016. 57 and Kshs. 790,490. 24; 1st to 28th February 2018 for Kshs. 1,033,520. 15; 1st to 31st March 2018 for Kshs. 914,942. 74; and 1st to 31st May 2018 for Kshs 2,367,900. 00 on account of sickness.

11. The Appellant contended that in a surprise turn of events the Respondent communicated its decision to reject all the Objections on 17th December 2021, one year later written by one Rosemary Sitati who communicated that the reason for the rejections of the late Objections was the failure to avail documentary evidence for filing.

12. The Appellant averred that whereas the late Objection notices were filed by the Appellant on 17th December 2020 the Respondent communicated its decision on 17th December 2021, one year later and thus failure of the Respondent to render its decision within the prescribed timelines is an illegality.

13. The Appellant stated that the Respondent subsequently proceeded to issue Agency notices to the Appellant’s banks on a flawed process as the rejection notices were issued one year after the application contrary to Section 51(11) of the Tax Procedures Act with the consequence of the Objection being allowed with no taxes due.

14. The Appellant contended that its documents had been earlier seized and had not been returned by the Respondent’s officers from the North Rift region and that it had made all attempts and requests for the documents to be returned to no avail.

15. In its Supplementary Affidavit dated 11th August 2023 and filed on 14th August 2023, the Appellant’s Managing Director introduced a Supplementary list of documents with the Agency notices issued to its bankers.

16. The Appellant submitted that the late Objection notices were filed on 17th December 2020 but the Respondent communicated its decision on 17th December 2021, one year later, and thus the failure to render the said decision within the prescribed timelines led the Appellant to believe that the Objection had been allowed.

17. The Appellant argued that the Respondent’s Objection decision was invalid because it was not made and communicated within 60 days of a valid objection and contrary to Section 51(11) of the Tax Procedures Act with the effect of the objection being allowed by operation of the law but the Respondent continued to harass the Appellant with Agency notices while the Objection had been allowed by operation of the law.

18. The Appellant asserted that Section 51(11) of the Tax Procedures Act is couched on mandatory terms and the Respondent had no jurisdiction to render a decision after 60 days from the date of filing the Objection thus the Respondent had an obligation to respect and enforce the provisions of the law in favour of the Appellant.

19. The Appellant maintained that the Respondent’s decision violates the Appellant’s Constitutional right to an administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair by purporting to render the decision 12 months later and then later seeking to enforce the said decision through the said Agency Notices.

20. The Appellant relied on the following cases to support its case:a.Commissioner of Domestic Taxes v Fortune Container Depot Tax Appeal No. E060 of 2020;b.Equity Group Holdings Limited v Commissioner of Domestic Taxes Civil Appeal No. E069 & E205 of 2020; andc.Krystalline Salt Ltd v KRA [2019] eKLR

Appellant’s prayers. 21. The Appellant prayed for orders that the Tribunal:a.Allows the Appeal hereinb.Sets aside the Respondent’s Agency notices dated 23rd February 2018c.Stops the Respondent from demanding the principal tax, interest, and penalties in respect of the said notices.d.Permanently restrains the Respondent from taking any enforcement measures with respect to the demand for tax for the Agency notices dated 23rd February 2023. e.Provide costs for the Appeal.f.Issue any other remedies that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 22. The Respondent’s case is premised on the following:a.Its Statement of Facts dated and filed on 7th September 2023; andb.Its Written Submissions dated 7th March 2024 and filed on 8th March 2024.

23. The Respondent cited Section 42 of the Tax Procedures Act and stated that it issued the Agency notices to the Appellant’s creditors and banks after it noted that the Appellant had not made any attempts to settle its tax debt.

24. The Respondent contended that the claim made by the Appellant that it was not notified of the Agency notices placed on its creditors and bankers as per Section 42(9) of the Tax Procedures Act are untrue and misleading to this Tribunal as in the notices sent to the Appellant’s creditors and bankers, the Appellant was attached as one of the recipients of the notices hence the communication was adequate.

25. The Respondent averred that the Appellant effectively received all the communication pertaining to it from the Respondent and thus, it could not claim that its rights under Article 35 of the Constitution of Kenya and Section 5 of the Access to Information Act were infringed upon.

26. The Respondent stated that it was within its ambit when it issued the invalidation decision to the Appellant at the time that it did as it was not an Objection decision as envisioned under Section 51(11) of the Tax Procedures Act.

27. The Respondent cited Section 51(7) of the Tax Procedures Act and maintained that it did not violate the Appellant’s rights under Article 31 of the Constitution of Kenya.

28. The Respondent averred that the onus of proof was upon the Appellant to prove that the delay was not an abuse of the Act. That the late objection was rejected as the Appellant failed to provide documents to prove its claim as per the provisions of Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.

29. The Respondent reiterated that its need to have the Appellant prove that it filed a late objection due to sickness is not a violation of the Appellant’s rights.

30. The Respondent contended that it is allowed to make additional assessments based on the available information to the best of its judgment pursuant to Section 31 of the Tax Procedures Act and that it was allowed by Section 24(2) of the Tax Procedures Act to assess a taxpayer’s liability using any information available to it.

31. On whether the Agency notices issued to the Appellant’s banks and creditors by the Respondent were proper in law the Respondent submitted that on 15th November 2019, it issued the Appellant with additional tax assessments with respect to VAT for the periods December 2017, and January, February, March, and May 2018.

32. It further submitted that the Appellant filed a late Objection on 17th December 2020 for assessment of VAT for the periods in contention and the same was rejected by the Respondent for the reason that the Appellant had failed to provide documentary evidence as proof of the reason for the late Objection.

33. The Respondent cited Section 42(2) of the Tax Procedures Act and reiterated that on 23rd February 2023, two years after the late Objection rejection, the Respondent noted that the Appellant had not made attempts to settle its tax debts and proceeded to issue agency notices to the Appellant’s creditors and banks pursuant to the law.

34. The Respondent asserted that the Agency notices served to the Appellant’s bank and creditors were also served to the Appellant concurrently. The Respondent added that, in line with Section 42(9) of the Tax Procedures Act, it is standard procedure that Agency notices also contain the taxpayer’s address as one of the recipients thus the Appellant cannot claim that its rights under Article 35 of the Constitution were infringed upon.

35. On whether the Respondent erred in its decision that invalidated the Appellant’s late objection the Respondent cited Section 51(7) of the Tax Procedures Act and submitted that it was within its ambit when it issued the invalidation decision to the Appellant as the invalidation decision was issued when Section 51(7A) of the Tax Procedures Act was not in force.

36. The Respondent relied on Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and reiterated that the onus of proof was upon the Appellant to prove that the delay was an abuse adding that in this case, the Appellant had failed to avail documents to prove its claim for the reason of the late objection.

37. The Respondent relied on the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR, and Sections 107 and 109 of the Evidence Act and maintained that the Appellant had the burden of supporting its reasons for late objection and the current Appeal but had not attempted at either stage to discharge that burden.

38. The Respondent relied on the case of Ushindi Exporters Limited v Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No 7 of 2015) and asserted that the Appellant failed to support the Appeal with all the relevant documents and it merely made averments that the Respondent was wrong in its decision to invalidate the late objection but failed to support the same with proper documentation.

39. On whether the Respondent erred by raising additional assessments the Respondent cited Section 24(2) of the Tax Procedures Act and the case of Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR and submitted that it is allowed to make additional assessments based on the available information to the best of its judgment.

Respondent’s prayers 40. The Respondent prayed for the Tribunal to find that:a.The Respondent’s decision to invalidate the late objection was correct and uphold the late objection rejection notices dated 17th December 2021. b.The Respondent correctly applied itself in raising additional assessments.c.The Appeal herein be dismissed with costs to the Respondent.

Issue for Determination 41. 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:Whether the Respondent was justified in its decision dated 17th December 2021.

Analysis and Findings 42. The Tribunal having determined the issues falling for its determination proceeds to analyse the same as hereunder.

43. The Tribunal observes through its Ruling dated 28th July 2023 that it already set aside the agency notices issued against the Appellant and consequently the Tribunal will not delve further into that matter.

Whether the Respondent was justified in its late objection rejection decision dated 17th December 2021. 44. The Respondent issued the Appellant with additional tax assessments for VAT for the period of December 2017 to May 2018 on 15th November 2019.

45. The Appellant lodged objections on 17th December 2020 giving sickness as the reason for objecting late. The Appellant submitted that its documents were seized by the Respondent’s officers and that its efforts to recover the documents were futile. It reiterated that it filed a late objection because its director was sick.

46. The Respondent rejected the late objections on 17th December 2021 confirming the assessments for the reason that the Appellant failed to support its reasons for filing its objections late. The Appellant argued that the Respondent’s expectation that the Appellant would provide the medical information proving the sickness was a violation of its director’s right to privacy under the Constitution.

47. The Appellant further contended that the Respondent’s decision of 17th December 2021 was time-barred and thus invalid as it was issued one year after the objection was lodged.

48. The Respondent submitted that the Appellant’s late objection was invalid as the Appellant did not provide any document to support the late objection contrary to Section 51(3)(c) of the Tax Procedures Act, and that during the time of the dispute, Section 51(7A) of the Tax Procedures Act was not in place thus it did not have a mandate to inform the Appellant of its objection invalidation within a specified time.

49. The timelines for objecting to tax assessments are clearly set in the law under Section 51(2) of the Tax Procedures Act (TPA) which provides as below:“(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

50. All taxpayers are liable to comply with the timelines, save for when unavoidable circumstances as envisioned in Section 51(7) of the TPA, as cited below, prevent a taxpayer from fulfilling its obligations: -“The Commissioner may allow an application for the extension of time to file a notice of objection 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.”

51. The Tribunal has perused the evidence presented before it and finds that the Appellant did not discharge its burden of proof as required under Section 56(1) of the TPA and Section 30 (b) of the Tax Appeals Tribunal (TAT) Act when it failed to adduce evidence to support its Appeal against the impugned late objection rejection decision and to demonstrate that it did not unreasonably delay in lodging its objection.

52. The Tribunal notes that indeed Section 51(7A) of the TPA which prescribes the timeline within which the Respondent is to give its decision under Section 51(7) of the TPA on whether to allow extension of time for a taxpayer to file its objection late became operational from 1st July 2022. Therefore, the Appellant having applied for extension of time to file its objection late before the operationalization of this provision, meant that the Respondent was not bound to issue its decision within any specified time. For this reason, the Tribunal finds that the Respondent suffered no consequence for issuing its decision under Section 51(7) of the TPA on the date it issued the decision.

53. It is not in dispute that the Appellant filed a late objection and the same did not have accompanying documents to support it per Section 51(7) of the Tax Procedures Act.

54. The Appellant’s averment that its director’s sickness was the reason for its lateness and that providing proof of the sickness runs contrary to the director’s Constitutional right to privacy is defeated as the Appellant has the burden of proving whatever it alleges before the Tribunal. The Tribunal cannot accept mere averments of sickness as the gospel truth on account of ‘privacy’. If the Appellant was very strict on its privacy and concerned about having its medical condition seen by the commissioner, then it ought to have relied on another reason for its delay in filing the Objection. The Appellant cannot eat its cake and have it.

55. The Appellant on its part failed to adduce evidence and merely made averments regarding its reason for filing its objection late. Madan J in his Judgment held in CMC Aviation Ltd V Cruisair Ltd (1) [1978] KLR 103 as thus:-“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an admission of them or any of them, by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of “evidence” as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.”

56. The Tribunal also finds that the Appellant’s contention that it made all the attempts to recover the documents that were seized by the Respondent’s officers from the North Rift region is unsubstantiated. There is no evidence of communication from the Appellant to the Respondent requesting the Respondent to return the documents.

57. Section 56(1) of the Tax Procedures Act further provides on the burden of proof as thus: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

58. These provisions were reiterated in Section 30 of the Tax Appeals Tribunal Act which states: -“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; or (b) in any other case, that the tax decision should not have been made or should have been made differently”

59. The Tribunal buttresses its observation of the importance of adherence to statutory edicts by referring 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.”

60. It is therefore the Tribunal’s finding that the Respondent was justified in making its decisions dated 17th December 2021.

Final Decision 61. The upshot to the foregoing analysis is that the Appeal lacks merit and the Tribunal consequently makes the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s rejection decision for the late notice of objection dated 17th December 2021 be and is hereby upheld.c.Each party to bear its own costs.

62. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024ERIC NYONGESA WAFULA - CHAIRMANEUNICE N. NGA’NG’A - MEMBERJEPHTHAH NJAGI - MEMBERGLORIA A. OGAGA - MEMBER