[2023] KETAT 282 (KLR)

Francis Matiru Kamande t/a Mbachuma Enterprises v Commissioner of Legal Services & Board Coordination (Tax Appeal 461 of 2022) [2023] KETAT 282 (KLR) (Civ) (19 May 2023) (Judgment)

Neutral citation: [2023] KETAT 282 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 461 of 2022

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

May 19, 2023

Between

Francis Matiru Kamande t/a Mbachuma Enterprises

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The appellant is an individual who operates as a sole proprietor under the business name Mbachuma Enterprises, and deals in general supplies.

2. The respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. Under section 5(1) of the Act, Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further under section 5(2) of the Act with respect to the performance of its function under subsection (1), it 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 revenue in accordance with those laws.

3. The respondent conducted VAT and Income tax return reviews on the appellant for the periods 2017, 2018, 2019 and 2020 and vide a letter dated July 7, 2021 issued preliminary review findings. The respondent gave 7 working days for the appellant to review the findings and where necessary provide supporting documents, explanations and reconciliation to facilitate conclusions of the review.

4. The respondent subsequently issued various assessment orders on July 26, 2021 demanding tax for Kshs 4,067,330. 21.

5. The appellant lodged an online objection on January 31, 2022.

6. The respondent engaged the appellant through various correspondence asking for provision of documentation and reasons for the late objection.

7. Vide its letter dated March 23, 2022, the respondent issued an invalidation decision and demanded payment of tax for Kshs 4,067,330. 21 being VAT and Income tax.

8. Being aggrieved by the respondent’s decision, the appellant filed his notice of appeal dated April 22, 2022.

The Appeal 9. The appeal is premised on the following grounds as set out in the memorandum of appeal filed on May 19, 2022:-a.That the respondent erred in law and fact by increasing the sales figure in the appellant’s VAT returns and erroneously assessing additional VAT.b.That the respondent erred in law and fact by disregarding all the explanations and documentation provided by the appellant and proceeded to confirm the VAT assessment.c.That the respondent erred in law and fact by assessing additional VAT on the appellant based on arbitrary and unreasonable estimations while disregarding the actual sales and purchases incurred by the appellant during the period under review.d.That the respondent erred in law and fact by disallowing the input VAT incurred and claimed by the appellant in making taxable supplies, in spite of the appellant fully supporting the claim and furnishing the respondent with valid tax invoices and other supporting documentation.e.That the respondent erred in law and fact by assessing additional VAT on the appellant based on erroneously disallowed invoices.f.That the respondent erred in law and in fact by disregarding all the explanations and documentation provided by the appellant and proceeding to disallow input VAT borne and claimed by the appellant.

10. The appellant prays that the tribunal: -a.Allows the appeal;b.Annuls the respondent’s confirmed assessment based on the grounds above, as well as the information contained in the statement of facts; andc.Award costs of this appeal to the appellant.

The Respondent’s Case 11. The respondent’s case is premised on its statement of facts dated June 7, 2022 and filed on even date in which it averred:-a.That the respondent issued assessment orders on July 27, 2021 and July 28, 2021 wherein the Appellant was required to object within 30 days. The appellant however lodged a late objection on January 31, 2022. b.That the respondent, vide an email dated February 4, 2022 and a reminder email dated March 3, 2022 requested the appellant to provide supporting documents to warrant the late objection and support grounds for the objection. However, the appellant did not provide the supporting documents.c.That vide an email dated March 15, 2022 the appellant was again reminded to provide supporting documents that had been previously requested and asked to respond by March 16, 2022. Once again the appellant failed to provide the supporting documents.d.That the burden of proof on tax matters is on the appellant who alleges that the respondent made an incorrect decision. The respondent has relied on section 51(1) of Tax Procedures Act (TPA) to argue the burden of proof and section 51 (3) of TPA to argue on what constitutes a valid notice of objection and the provision of documents.e.That section 51 (7) provides remedy to the appellant to seek extension of time to file a notice of objection with valid reasons. However the appellant has not provided adequate evidence, either during the return review validation period, objection review process or before the tribunal to satisfy the requirement for late objection as per section 51 of the TPA.f.That the above is consistent with burden and standard of proof required under the Tax Procedures Act and Tax Appeals Tribunal Act and therefore it is the responsibility of the appellant to provide adequate support for the costs expensed.g.That the appellant failed to provide the following information requested to support the input VAT.i.Objection letter stating precisely the grounds for objection, amendments required.ii.Bank statements for the year 2017 to 2020. iii.Schedule showing respective withholding VAT certificates for the period March 2017 to February 2020 were declared for VAT.iv.Schedule for the sales declared for the period March 2017 to February 2020 showing the following; invoice date, invoice number, description of services /project, VAT amount declared.v.Copies of local purchase orders, local service orders, letters of awards, contract agreements for the period under review.vi.Certified copies of the sales invoices/certificates for work done for the period March 2017 to February 2020. vii.Payment vouchers for the period March 2017 to February 2020. viii.Reasons for late objection and supporting documents.ix.Any other relevant documents to support the objection.h.That with insufficient evidence, the Respondent rejected the objection on the basis that the appellant had failed to provide documents and to discharge his burden of proof.

12. The respondent prays that this tribunal; -a.Upholds the respondent’s objection decision as proper and in conformity with the provisions of the law.b.That this appeal be dismissed with costs to the respondent as the same is devoid of any merit.

Submissions of the Parties 13. As at the date of hearing of this appeal on February 15, 2023, the appellant had not filed his written submissions. The tribunal will therefore only review the respondent’s written submissions dated and filed on December 20, 2022. In the said submissions, the respondent has raised a singular issue for determination.

Whether the Respondent’s Decision dated March 23, 2022 is valid. 14. The Respondent submitted that its decision dated March 23, 2022 was an invalidation to the Appellant’s objection dated January 31, 2022 and was made pursuant to section 51 (4) of TPA where a taxpayer fails to lodge a valid objection as required under section 51 (3) of TPA.

15. The respondent contended that where the decision is made pursuant to section 51(4) of TPA as a result of taxpayers’ non-compliance with section 51(3) of TPA, any appeal therefore can only be limited to the basis of the decision. The appeal cannot thereof extend to interrogating the substantive taxes as issued in the assessment. Further that where the tribunal makes a finding that there was a valid objection, then it can only refer the dispute back to the respondent to review the same and consequently make an objection decision.

16. The respondent submitted that where the tribunal determines that the objection was invalid, then the natural consequence is that there was no objection at all and the taxes arising from the assessment are deemed due and payable.

17. The respondent contended that this appeal is misconceived to the extent that it purports to invite the tribunal to interrogate the substantive issues in the assessment, which can only be done where there was an objection decision proper. On this basis alone it submitted that the appellant’s appeal is invalid and ought to be dismissed.

18. The respondent submitted that the appellant’s failure to provide documents and to state his grounds of objection precipitated the respondent’s Invalidation decision dated March 23, 2022. Further that the appellant has not provided the documents requested even before the tribunal. That the appellant’s only states that the assessments were erroneous and excessive. The Respondent relied on the High Court case of National Social Security Fund Board of Trustees v Commissioner of Domestic Taxes, Kenya Revenue Authority (2016) eKLR where it was affirmed at paragraph 36 as follows:-“there is a world of difference between assertion and proof. That which a party puts to be his case is an assertion. The party needs to adduce evidence to support his said assertion with a view to supporting his case”

19. To buttress its argument on the importance of an appellant availing relevant documents and the consequences of not doing so, the respondent relied on the following cases.a.CMC Aviation Ltd v Respondent of Taxation (2012) FCA 638. b.Kenya Revenue Authority v Man Diesel Turbo Se. Kenya (2021) eKLR .c.Mulherin v Commissioner of Taxation (2013) FCAFC 115.

20. On the issue of the appellant’s failure to discharge his burden of proof, the respondent relied on the holding in the following cases:a.Ngurumani Traders limited v Commissioner of Investigation and Enforcement (TAT No.125 of 2017).b.Primarosa Flowers Ltd v Commissioner of Domestic Taxes (2019) eKLR.

21. The respondent concluded its submission by praying for dismissal of the appeal with costs to it.

Issues for Determination 22. Having considered the pleadings and submissions of the parties and documentation availed, the Tribunal is of the considered view that this appeal distils into two issues for determination.a.Whether the respondent erred in issuing the invalidation notice dated March 23, 2022. b.Whether the respondent’s tax assessment through its assessment orders dated July 26, 2021 is due and payable.

Analysis and Findings 23. Having established the two issues for determination, the Tribunal will proceed to analyse them as hereinunder.

a.Whether the respondent erred in issuing the Invalidation Notice dated March 23, 2022 24. The tribunal has noted that the respondent issued Assessment orders on July 26, 2021 demanding tax for Kshs 4,067,330. 21. The appellant then issued his notice of objection on January 31, 2022.

25. Section 51 (1) (2) (3) of the Tax Procedures Act provides for the Appellant’s obligation and timelines to respond once in receipt of a tax decision. It provides as follows: -(1)A taxpayer who wishes to dispute a tax decision shall lodge an objection against that tax decision under this section before proceeding under any other written law.(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.(3)A notice of objection shall be treated as validity lodged by a taxpayer under subsection (2) if -a.the notice of objection states precisely the grounds of objection, the amendment 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 document s relating to the objection have been submitted.”

26. From the chronology of events, the respondent’s tax demand was done through i-Tax on July 26, 2021. However, the appellant filed his notice of objection through i-Tax on January 31, 2022, more than six months contrary to the provisions of Section 51(2) of TPA. Further, the appellant failed to write to the respondent to state his grounds of objection, or the reasons for the late objection.

27. The Tribunal makes reference to the case of TAT No. 55 of 2019 Boleyn International Limited v Commissioner of Domestic Taxes, where it was held that: -“...on March 8, 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”.

28. The Tribunal notes that even though the appellant filed his notice of objection late on January 31, 2022, the respondent made efforts to communicate to the appellant to provide various documents and to validate his notice of objection. This the Respondent did through email correspondence of 4th February, 3rd March and March 15, 2022. However, the appellant failed to respond to these email communications.

29. The tribunal reiterates the decision in the case of TAT No.70 of 2017 Afya X-RAY Centre limited v Commissioner of Domestic Taxes where it 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 consider the Respondent’s finding 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….”

30. The tribunal has observed the appellant’s lack of interest in prosecuting his case even after the respondent’s indulgence. From failing to provide the documents to failing to appear during the hearing of his appeal on February 15, 2023. In the circumstances the respondent cannot be faulted for acting the way it did.

31. In view of the foregoing, the tribunal finds and holds that the respondent did not err in issuing the Invalidation notice dated March 23, 2022.

b.Whether the respondent’s assessment through its assessment orders dated July 26, 2021 is due and payable. 32. Having established that the Respondent’s Invalidation notice was proper, it follows therefore that the respondent’s assessment dated July 26, 2021 demanding tax of Kshs 4,067, 330. 21 is due and payable.

Final Decision 33. The upshot of the above is that this appeal lacks merit and therefore fails. The tribunal accordingly proceeds to make the following ordersa.The appeal be and is hereby dismissed;b.The respondent’s invalidation decision dated the March 23, 2022 be and is hereby upheld; andc.Each party to bear its own cost.

34. Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF MAY, 2023. ROBERT M. MUTUMA..............CHAIRPERSONDELILAH K. NGALA..............................MEMBERELISHA N. NJERU...................................MEMBEREDWIN K. CHELUGET...........................MEMBERRODNEY O. OLUOCH...........................MEMBER