[2024] KETAT 1066 (KLR)

Eliye Springs Resort v Commissioner of Domestic Taxes (Miscellaneous Application E031 of 2024) [2024] KETAT 1066 (KLR) (5 July 2024) (Ruling)

Neutral citation: [2024] KETAT 1066 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Miscellaneous Application E031 of 2024

E.N Wafula, Chair, E Ng'ang'a, M Makau, EN Njeru & AK Kiprotich, Members

July 5, 2024

Between

Eliye Springs Resort

Applicant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The application which was by way of a Notice of Motion dated 15th April 2024 and filed under a Certificate of urgency on 18th April 2024 and which is supported by an Affidavit sworn by the Respondent’s Managing Director, Rolf Gloor, on the 18th April, 2024, sought for the following Orders:-a.Spent.b.Pending the hearing and determination of this Application, this Honourable Tribunal be pleased to issue an order staying execution of the Agency Notice dated 13th December 2023 issued to Kenya Commercial Bank.c.The Agency Notice dated 13th December 2023 be set asided.The cost of this Application be provided for.

2. The application is premised on the grounds that:-a.On 16th April 2021, the Respondent issued an additional assessment for Kshs 2,940,000. 00 purportedly for VAT covering the period 1st December 2020 to 31st December 2020. b.The Applicant objected to the additional assessment through an Objection letter dated 14th May 2021 issued by its tax agent Labchey Consulting in accordance with the provisions of the Tax Procedures Act.c.The Applicant did not receive an Objection decision in writing contrary to Section 51(9) of the Tax Procedures Act.d.On 13th December 2023, the Respondent issued the Agency Notice to Kenya Commercial Bank for the recovery of Kshs. 3,920,000. 00 being VAT due which amount is disputed by the Applicant.e.The Respondent failed to issue an Objection decision before it issued the Agency Notice. The Agency Notice issued was therefore defective, illegal, and void and the court should set aside the Agency Notice.f.The Applicant is a small business in the hospitality industry which has greatly been affected by the state of insecurity in the region it operates, its revenues are nowhere near the amounts being claimed as VAT arrears and the Applicant has demonstrated this through its Objection.g.The Applicant is apprehensive that in the absence of an order for a stay of execution of the illegal Agency Notice pending the hearing and determination of this application, the Respondent will commence execution of the Agency Notice rendering this application nugatory.h.The Applicant will also suffer a substantial loss of Kshs. 3,920,000. 00 plus interest if it succeeds on the application should the Agency Notice not be stayed.i.This application has been made without unreasonable delay.j.Section 18 of the Tax Appeals Tribunal Act grants the Tribunal the power to make an order staying or affecting the operation or implementation of a decision under review.k.If the orders sought are not granted the Applicant will suffer irreparable harm as it will be unable to access funds to carry out its day-to-day operations and cease to be a going concern. This will lead to the loss of employment for many of the residents in the marginal community in Turkana.l.It is fair and just for this application to be allowed

3. The Applicant in its written submissions dated 30th April, 2024 and filed on the even date addressed the various legal issues as hereunder:-

a. On whether the Objection Decision was issued in compliance with Section 51(10) of the Tax Procedures Act 4. The Applicant submitted that on 15th April 2024, the Respondent issued an additional assessment of Kshs. 2,940,000. 00 which the Applicant disagreed with through the Objection dated 14th May 2021 that was received vide an Objection Application Acknowledgement Receipt Number KRA202108635773 and a Confirmation Assessment Notice issued by the Respondent on 31st August 2021 which became the basis for which the Respondent issued the Agency Notice of 13th December 2023.

5. It further submitted that no Objection decision was issued by the Respondent and should the Respondent consider that the Confirmation Assessment Notice dated 31st August 2021 was an Objection decision, the said Confirmation Assessment Notice was not a valid Objection decision in compliance with Section 51 (9), (10), and (11) of the Tax Procedures Act.

6. It cited Section 51 (9), (10), and (11) of the Tax Procedures Act and argued that the Confirmation Assessment Notice dated 31st August 2021 is an iTax-generated document which for all intents and purposes only indicated the status of the Objection as “fully rejected” and the name and designation of the authorizing Signatory as Wesley Kipkemoi Tanui.

7. It reiterated that the alleged Objection decision lacked the statement of findings on the material facts and the reason for the decision and the Confirmation Assessment Notice was therefore not a valid Objection decision.

8. It relied on the case of Ndirangu t/a Ndirangu Hardware v Commissioner of Domestic Taxes (Tax Appeal E070 of 2021) [2023] KEHC 19357 (KLR) and submitted that the alleged Objection decision is invalid and illegal.

9. It argued that the Objection decision was also issued well over the 60 days period contrary to Section 51 (11) of the Tax Procedures Act as the period lapsed on 14th July 2021 therefore the Objection dated 14th May 2021 was deemed to be allowed with no tax due to the Respondent.

10. It relied on the cases of Vivo Energy Kenya Ltd v Commissioner of Customs and Border Control and the case of Republic v Commissioner of Domestic Taxes ex parte Fleur Investments Limited [2020] eKLR and asserted that the alleged Objection decision is invalid and illegal.

b. On whether the Tribunal should set aside the Agency Notice dated 13th December 2023 11. The Applicant submitted that having determined that there was no Objection decision issued by the Respondent, the Tribunal should find the Agency Notice subsequently issued to be illegal and set it aside.

12. It cited the case of Samura Engineering Limited and Others v Kenya Revenue Authority Nairobi Petition No. 54 of 2011 and reiterated that the Respondent cannot demand the collection on a foundation of an illegal Objection decision as the values of Article 10 of the Constitution of Kenya must at all times permeate its functions and activities.

13. It relied on the case of Keroche Industries Limited v Kenya Revenue Authority to assert that the actions of the Respondent to knowingly issue an Agency Notice to the Kenya Commercial Bank is an abuse of power for which the courts and the Tribunal have and continue to put a stop to.

14. It contended that the Agency Notice intends to attach the amount of Kshs. 3,920,000. 00 which is a considerable amount that if the Tribunal does not set aside, the result will be that the Applicant will cease to be a going concern since the Applicant is a small business in the hospitality industry greatly affected by insecurity in Turkana where it operates and its revenues are not near the amounts claimed as VAT arrears.

15. The Applicant further relied on the case of Keroche Industries Limited v Kenya Revenue Authority (supra) and urged the Tribunal to protect its right to property envisaged in Article 40 of the Constitution of Kenya 2010 and set aside the Agency Notice.

c. On whether the Affidavit of James Oiriga Nyareki sworn on 23rd April 2024 bares any evidential weight 16. The Applicant submitted that the Affidavit filed by the Respondent sworn by James Oiriga Nyareki on 23rd April 2024 is not supported by any annexure as no evidence has been tabled by the Respondent to support its averments that the Applicant has not established a prima facie case warranting the granting of the orders sought.

17. It relied on the case of Kenya Commercial Bank v Stagecoach Management Ltd [2014] eKLR and argued that the averments of James Oiriga Nyareki are mere averments and not credible facts and the Tribunal ought not to be persuaded.

Response to the Application 18. The Respondent filed a Replying Affidavit sworn by James Oiriga Nyareki, an officer of the Respondent, on the 23rd April 2024 and filed on the even date citing the following as the grounds for opposition:-a.That the Applicant has concealed material facts before this Honourable Tribunal.b.That the claimant has not established a prima facie case warranting the granting of the orders sought.c.That contrary to the allegations in the application the Applicant was issued with an Objection decision but opted not to Appeal.

19. The Respondent did not file any written submissions as directed by the Tribunal.

Analysis and Findings 20. Before the Tribunal is an application seeking the Tribunal’s orders to stay the execution of an Agency Notice dated 13th December 2023.

21. The Applicant contended that Respondent issued an Agency Notice to its banker, Kenya Commercial Bank, demanding VAT tax due of Kshs. 3,920,000. 00 without having issued any Objection decision first.

22. It further contended that even if the Confirmation Assessment Notice issued to it qualifies as an Objection decision, the same should be vacated as invalid and illegal for not meeting the threshold imposed by the law of what entails a valid Objection decision.

23. It also submitted that the alleged Objection decision is further invalidated by dint of it being issued outside the statutory timelines for issuing an Objection decision.

24. Section 51(8) of the Tax Procedures Act provides as hereunder with regard to issuance of Objection decisions:-“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".” (Emphasis added)

25. This Section of the law is clear on what an Objection decision entails. The Tribunal has perused the Confirmation Assessment Notice dated 31st August, 2021 annexed in the Applicant’s application and notes that since it confirms the Respondent’s assessment, it has the resultant effect of fully rejecting the Applicant’s objection and therefore qualifies as an Objection decision as per Section 51(8) of the Tax Procedures Act.

26. As to whether the decision is valid is a substantive issue to be gleaned at the full hearing of any appeal filed against the decision determined on its proper merits and not at this preliminary point. Any remarks by this Tribunal on the validity of the Respondent’s Objection decision would amount to premature comments on issues that ought to be adjudicated at the substantive appeal as doing so would have the effect of deciding on the merits of the appeal without allowing the parties ample opportunity to present merits of their cases.

27. The Applicant averred that the Tribunal is clothed with the jurisdiction to stay decisions made by the Respondent under Section 18 of the Tax Appeals Tribunal Act. The Section dictates as follows:“Order to stay or affect the implementation of the decision under review where an appeal against a tax decision has been filed under this Act, the Tribunal may make an order staying or otherwise affecting the operation or implementation of the decision under review as it considers appropriate for the purposes of securing the effectiveness of the proceeding and determination of the appeal.” (Emphasis added)

28. This foregoing Section provides for the stay of any implementation of the Respondent’s Decision only when an appeal has been filed with the Tribunal.

29. Section 52 (1) of the Tax Procedures Act states as follows with regard to filing of appeals before the Tribunal:-“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, (Cap. 469A).”

30. This means that a taxpayer can file an appeal with the Tribunal only when there is an appealable decision. The question is what then constitutes an appealable decision?

31. Section 3(1) of the Tax Procedures Act provides as follows with regard to an appealable decision:-“appealable decision” means an objection decision and any other decision made under a tax law other than –a.tax decision; orb.a decision made in the cause of making a tax decision;”

32. Section 3 of the Tax Procedure Act defines Appealable Decision as““appealable decision” means an objection decision and any other decision made under a tax law other than—(a)a tax decision; or(b)a decision made in the course of making a tax decision;”

33. From the foregoing, the appealable decision the Applicant has is the Confirmation Assessment Notice that it was issued with by the Respondent and as such the Applicant ought to prefer an appeal against the decision before requesting the stay of execution of the Agency Notice issued to its bank, as an enforcement of the decision.

34. The Tribunal therefore finds that the Applicant did not approach it in the appropriate manner that could afford the Applicant the reliefs sought.

35. The Applicant upon learning of the fact that the Respondent had issued a confirmation of the tax assessment subsequent to the receipt of the notice of objection and with the timeline for pursuing any appeal process having lapsed it ought to have proceeded to seek leave of the Tribunal to lodge an appeal out of time to challenge the decision for confirmation of the tax assessment.

36. Section 13(3) and (4) of the Tax Appeals Tribunal states as follows with regard to enlargement of time to file a late appeal:-“(3)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).(4)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.”

37. It is therefore the Tribunal’s position that the only preliminary issue it could have addressed itself on before any appeal is filed is the issue of an extension of time to file an appeal under Section 13 of the Tax Appeals Tribunal Act. The Applicant did not pursue this avenue in this Appeal.

38. The Tribunal thus finds that any other interlocutory matter can only be appropriately entertained after an appeal has been filed with the Tribunal.

Disposition 39. The upshot to the foregoing analysis is that the application lacks merit and as such the Tribunal accordingly proceeds to make the following Orders:-a.The application be and is hereby dismissed;b.No orders as to costs

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF JULY, 2024. ERIC NYONGESA WAFULA - CHAIRMANEUNICE N. NG’ANG’A - MEMBERMUTISO MAKAU - MEMBERELISHA N. NJERU - MEMBERBRAHAM K. KIPROTICH - MEMBER