[2024] KETAT 540 (KLR)

Elika Engineering Limited v Commissioner of Domestic Taxes (Tax Appeal E302 of 2023) [2024] KETAT 540 (KLR) (Civ) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 540 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E302 of 2023

Grace Mukuha, Chair, W Ongeti, Jephthah Njagi, G Ogaga & E Komolo, Members

April 26, 2024

Between

Elika Engineering Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a company registered in Kenya and incorporated under the Companies Act (cap 486) and dealing in construction and fabrication.

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 (the Authority) is an agency of the Government for the collection and receipt of all revenue.

3. The respondent undertook a tax verification exercise on the appellant for the period ending December 2016, December 2017, December 2018, December 2019 and December 2020.

4. As a result of the verification, the respondent assessed additional tax liability for VAT assessment of Kshs. 6,402,085. 94 on 21st February 2022.

5. The appellant was served with the notice of assessment on February 28, 2022. The same was uploaded on its iTax system and an assessment order for each of the periods shared.

6. The appellant claimed that it became aware of the assessment in February, 2023 when it sought for a tax compliance certificate. On February 28, 2023, the appellant filed an application for late objection on the iTax platform.

7. The respondent on March 3, 2023 informed the appellant via email that the two objections were not proper as the same did not contain any supporting documents and asked the appellant to validate the objection by providing the supporting documents.

8. On March 30, 2023 the respondent wrote to the appellant informing it that it was rejecting the application for late objection as the same was not made in line with section 51(7) of the Tax Procedures Act, 2015.

9. On May 26, 2023, the appellant proceeded to re-apply for late objection on grounds that the delay was attributable to Covid-19 pandemic.

10. The respondent again wrote back to the appellant informing it that the objection process was long completed and referred it to the objection decision issued on March 30, 2023.

11. The appellant being dissatisfied with the decision lodged a notice of appeal against the decision of March 30, 2023 on May 30, 2023 and subsequently lodged a Memorandum of Appeal on 14th June 2023.

The Appeal 12. The appeal is premised on the memorandum of appeal filed on June 14, 2023 raising the following grounds: -a.That the respondent erred in law and fact by issuing a unilateral objection decision, having met severally and discussed and resolved the matter only to learn that on May 18, 2023 the issue was again put back into the iTax system.b.That the respondent erred in law and fact by failing to consider supporting documentation provided by the appellant.c.That the respondent erred in law and fact by assessing and confirming VAT additional assessment without taking into consideration the expenses that were incurred in the accounting period.

appellant’s Case 13. The appellant’s case was premised on its statement of facts filed on June 14, 2023 together with the attachments thereto.

14. The appellant averred that the Respondent issued it with an additional assessment covering the period 2017 to 2021 in February 2022.

15. That the appellant objected to the said assessment vide its letter dated 18th, February, 2023 and March 18, 2023.

16. That the Respondent requested for further documents from the appellant to provide proof of credit balance verbally on 18th February. 2023.

17. That on February 23, 2023 the appellant provided the Respondent with proof of clients/projects for withholding tax certificates in support of professional payments at rates provided in tax laws as demonstrated.

18. That two (2) years later. the respondent wrote to the appellant a letter dated 30th March, 2023 that it had fully rejected its objection lodged on February 18, 2023 and March 16, 2023.

19. That the Respondent's decision was issued beyond the statutory timelines as such the appellant's objection was allowed by operation of the law pursuant to.

20. That section 51(11) which provides that:“The Commissioner shall make the objection decision within sixty days from the date of receipt of-a.the notice of objection: orb.any further information the Commissioner may require from the taxpayer,failure to which the objection shall be deemed to be allowed.”

21. That the Respondent erred in law and fact beyond the Statutory timelines as provided for under section 51 of the Tax Procedure Act.

22. That the Respondent erred in law and in fact by failing to consider supporting documentation provided by the appellant.

23. That the Respondent erred in law and in fact by assessing and confirming additional assessment VAT tax without taking into consideration the expenses that were incurred during the accounting period which is a credit balance.

Appellant’s Prayers 24. The appellant made the following prayers to the Tribunal.a.That the decision of the Respondent made through the invalidation notices contained in the letters dated March 30, 2023 be annulled and set aside in its entirety.b.That this Appeal be allowed with costs to the appellant.c.That the Tribunal awards any other orders that it may deem fit.

Respondent’s Case 25. The Respondent premised its case on the following documents:-a.The Respondent’s Statement of Facts dated and filed on 14th July 2023. b.The Respondent’s Written Submissions dated and filed on 18th January 2024. c.The Respondent’s Preliminary Objection dated 15th January 2024 and filed on 18th January 2024

26. The Respondent averred that it raised the assessments on 28th February 2022 while the appellant objected on 24th February, 2023 and 28th February, 2023.

27. That the application for late objection was made on 30th March, 2023 and it was therefore not true that the respondent wrote to it two years later. That this was misleading and contrary to the appellant’s own documents.

28. That the appellant further indicated that there was engagement between the parties and the issue settled. The respondent averred that no documents to that extent has been attached as all documents indicate that the objection was not supported.

29. The respondent submitted that the following should be the issues for determination in this matter.a.Whether the respondent validly disallowed the late objection.b.Whether the respondent considered all the documents presented.c.Whether there is a valid Appeal for consideration by the Tribunal.

30. On whether the respondent validly disallowed the late objection the respondent submitted that the appellant alleged that the respondent erred in uploading the objection rejection on iTax on 18th May, 2023 on a matter which had already been settled. The respondent submitted that the appellant misled the Tribunal and no evidence of settlement was availed.

31. The respondent submitted that while the appellant had gone to great length to mislead the Tribunal as to the chronology of the events, the appellant’s own documents provide a different chronology which the respondent tabulated as follows:-a.That the respondent issued the VAT Assessment of Kshs. 6,402,085. 94 on 21st February, 2022. b.That the appellant only sought to object to the assessment on 24th February, 2023 and made application for late objection on 28th February, 2023. The Application for objection was not accompanied with any supporting documents.c.That the appellant provided the reason for the late objection to be "The Business had been closed" and after the decision was made, the appellant advanced the reason that Covid 19 which did not exist in 2023.

32. That Section 51(7) of the Tax Procedures Act states 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; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.”

33. That the reason given by the appellant did not explain the delay and no evidence was provided to support that indeed they were closed in 2022 due to Covid-19 pandemic.

34. That it follows that the respondent was right in disallowing the late objection application for lack of any supporting documents. The reason for Covid 19 cannot be sustained between 2022 to 2023 when there was normalcy in the country.

35. The respondent submitted that averments in pleadings are not evidence as was appreciated in the case of Francis Otile v Uganda Motors Kampala HCCS No. 210 of 1989 where it was held that the court cannot be guided by pleadings since pleadings are not evidence and nor can they be a substitute therefor.

36. The respondent submitted that in CMC Aviation Ltd. v Cruisair Ltd. (No. 1) [1978] KLR 103; [1976-80] 1 KLR 835, Madan, J (as he then was) expressed himself on the issue of pleadings as hereunder:-“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."

37. The respondent submitted that no information was availed at objection neither was it availed at the Appeal in the Tribunal.

38. On whether the respondent considered all the documents presented, the respondent submitted that the appellant claimed that the respondent did not consider the appellant's documents. The respondent submitted that the late objection rejection was as a result of the appellant failing to avail any document to support its case.

39. The respondent submitted that even in the current appeal, no documents to support such averments have been attached and the email correspondence attached by the appellant are all from the respondent requesting the appellant to avail documents to support the late objection.

40. The respondent submitted that the objection was not in compliance with section 51 (3) of the Tax Procedures Act which states as follows:-“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct- the decision, and the reasons for the amendments.b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.”

41. The respondent submitted that the appellant having failed to provide any of the necessary documents in support of its objection to defray the taxes, failed to discharge its burden of proof. That the respondent attached the schedule of the WHT certificates and purchases which were considered. That the appellant has not made any attempt to deny any of the outputs or the purchases.

42. The respondent submitted that the appellant in its Memorandum of Appeal claimed to have availed the documents, however it failed even at the Appeal to avail the supporting documents for the respondent's or the Tribunal's consideration.

43. The respondent submitted that the burden is on the appellant to demonstrate that it has discharged a tax liability as provided for under Section 56(1) of the TPA which provides that:-“In any proceedings under this Part, the burden shall be on the appellant to prove that a tax decision is incorrect."

44. The respondent further submitted that section 30 of the Tax Appeals Tribunal Act equally places the burden of proof on the taxpayer. That section 30 of the Tax Appeals Tribunal Act provides thus:“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."

45. The respondent submitted that this burden was never discharged as no documentary evidence was availed to the respondent to support the appellant’s notices of objection.

46. In support of its submissions that the burden of proof was not discharged, the respondent relied on the following cases:-a.Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLb.Leah Njeri Njiru v Commissioner of Investigations and Enforcement Kenya Revenue Authority & another [2021) eKLR.c.Tumaini Distributors Company (K) Limited v Commissioner of Domestic Taxes [2020) eKLR.d.Saima Khalid v The Commissioner for Her majesty's Revenue and Customs- Appeal No. TC/2017 /02292. e.Motex Knitwear Limited v Gopitex Knitwear Mills Limited Nairobi (Milimani) HCCC No. 834 of 2002. f.Trust Bank Limited v Paramount Universal Bank Limited & 2others Nairobi (Milimani) HCCS No. 1243 of 2001.

47. On whether there is a valid Appeal for consideration by the Tribunal, the respondent submitted that the Appeal that was filed out of time, without leave of the Tribunal. That the appellant filed the Appeal was against the decision made on March 30, 2023. The Appeal was filed on June 14, 2023. No leave to file an Appeal out of time was sought from the Tribunal.

48. The respondent submitted that for a notice of appeal to be deemed as competently lodged, the same ought to be made and/ or lodged within the prescribed timelines as set out under section 13(1)of the Tax Appeals Tribunal Act, which states as follows;-“A notice of appeal to the Tribunal shall-(a)……………..(b)be submitted to the tribunal within thirty days upon receipt of the decision of the Commissioner.”

49. That section 13(3) of the Tax Appeals Tribunal Act, provides the remedy to any party who wishes to lodge an appeal beyond the statutory timeframe, such party may seek leave of the Tribunal in writing as per the provisions of section 13 (3) which reads as follows:-“The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

50. The Tribunal in TAT No.780 of 2022 Omnispace Limited v Commissioner for Customs and Border Control affirmed the position that:“The tribunal finds that the appeal herein was lodged beyond the statutorily prescribed period and is therefore incompetent and untenable in law.”

Respondent’s Prayers 51. The respondent made the following prayers to the Tribunal:-a.That this Appeal be dismissed with costs to the respondent as the same is devoid of merit.b.The respondent's objection decision dated March 30, 2023 be deemed as proper and in conformity with the provisions of the law.

Issues For Determination 52. The Tribunal, having reviewed the Memorandum of Appeal, Statements of Facts filed by both parties, and the respondent’s written submissions, identified the following issues for determination:-a.Whether there is a valid Appeal before the Tribunal.b.Whether the respondent erred in rejecting the appellant’s application to file an objection late.

Analysis And Findings 53. Having determined the issues that fall for its determination, the Tribunal proceeded to analyze it as follows.a.Whether there is a valid Appeal before the Tribunal.

54. The genesis of this appeal is the verification exercise that the respondent carried out on the appellant for the period ending December 2016, December 2017, December 2018, December 2019 and December 2020.

55. As a result of the verification, the respondent assessed additional tax liability for VAT assessment of Kshs. 6,402,085. 94 on 21st February, 2022.

56. The assessment notice was uploaded on its iTax system.

57. The appellant indicated that it was not aware of the assessment until it applied for a Tax Clearance Certificate in February 2023.

58. On February 28, 2023, it filed an application for late objection on the iTax platform.

59. The respondent on March 3, 2023 informed the appellant via email that the two objections were not proper as the same did not contain any supporting documents and asked the appellant to validate the objection by providing the supporting documents.

60. On March 30, 2023 the respondent wrote to the appellant informing it that it was rejecting the application for late objection as the same was not made in line with section 51 (7) of the Tax Procedures Act, 2015.

61. Dissatisfied with the decision of the respondent, the appellant filed this Appeal.

62. The respondent filed a preliminary objection on the following grounds: -a.That the Notice of Appeal was lodged on May 30, 2023. This was contrary to section 51(12) of the Tax Procedures Act and section 13(1) of the Tax Appeals Tribunal Act.b.The application contravenes section 56(3) of the Tax Procedures Act as the Appeal is based on grounds not canvassed at the objection.

63. The respondent submitted that the Appeal was filed out of time, without leave of the Tribunal. That the appellant filed the Appeal herein as against the decision made on 30th March, 2023. The Appeal was filed on 14th June 2023. No leave to file the Appeal out of time was sought from the Tribunal.

64. The respondent submitted that for a Notice of Appeal to be deemed as competently lodged, the same ought to be made and/ or lodged within the prescribed timelines as set out under Section 13(1)(b) of the Tax Appeals Tribunal Act.

65. The respondent further submitted that Section 13(3) of the Tax Appeals Tribunal Act, provides the remedy to any party who wishes to lodge an Appeal beyond the statutory timeframe, such party may seek leave of the Tribunal in writing.

66. The Tribunal notes that the procedure for appeal as set out in section 13(1)(b) of the Tax Appeals Tribunal Act (TAT Act) requires that a notice of appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

67. The Tribunal observes that the appellant received the respondent’s decision on 30th March 2023 but filed its Notice of Appeal on 30th May 2023, exactly sixty days after receiving the decision.

68. The Tribunal further notes that the appellant failed to apply for leave to file its Notice of Appeal out of time as required in Section 13(3) of the TAT Act which provides: -“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

69. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set in the law, and all taxpayers are liable to comply with the timelines, save for when unavoidable circumstances prevent a taxpayer from fulfilling its obligations as envisioned in Section 13(4) of the TAT Act which states: -“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

70. The Tribunal is guided by the case of W.E.C. Lines Ltd v 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 v 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.”

71. Based on the foregoing, the Tribunal finds that there is no valid Appeal before it, therefore, the Tribunal does not have the jurisdiction to determine the matters in the Appeal.

72. Having determined that there is no valid Appeal before it, the Tribunal did not delve into the second issue for determination as it was rendered moot.

Final Decision 73. The upshot of the foregoing is that the appeal fails, and the Tribunal accordingly proceeds to make the following orders:a.The appeal be and is hereby struck out.b.Each party to bear its own costs.

74. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF APRIL, 2024GRACE MUKUHA - CHAIRPERSONDR. WALTER ONGETI - MEMBERJEPHTHAH NJAGI - MEMBERGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBER