[2024] KETAT 1580 (KLR)

Gateway Marine Services Limited v Commissioner of Domestic Taxes (Tax Appeal E110 of 2024) [2024] KETAT 1580 (KLR) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1580 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E110 of 2024

Grace Mukuha, Chair, GA Kashindi, E Komolo & AM Diriye, Members

November 22, 2024

Between

Gateway Marine Services Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited company incorporated under the Companies Act whose principal activity is handling services to shipping line companies, repair of refrigerated containers, clearing and forwarding services and transportation services within the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the 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 functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appellant in August 2023 lodged applications for VAT refund. The Respondent conducted an audit on the applications and on the 23rd October 2023 issued audit findings disallowing the Appellant's claim of Kshs 3,740,930. 00 and reclassified zero rated supplies from the zero rate to the general rate resulting to a total incremental VAT tax liability of Kshs 23,373,231. 00 inclusive of penalty and interest.

4. The Appellant being dissatisfied with the audit findings objected to the Respondent’s findings and against the additional assessments on 22nd November 2023. The Respondent on the 11th December 2023 wrote to the Appellant informing it to appeal to the Tribunal with regards to the refund claim rejection of Kshs 3,740,930. 00

5. The Respondent issued an Objection Decision on the 20th December 2023 fully confirming the assessments of Kshs 23,373,231 as due and payable.

6. The Appellant being dissatisfied by the Respondent's Objection Decision, appealed to this Tribunal.

The Appeal 7. In the Memorandum of Appeal dated 30th January 2024, and filed on 31st January 2024, the Appellant raised the following grounds of appeal:a.That the rejection of VAT refund application for the period June 2018, October 2018, November 2018, and May 2019 and raising Additional Assessment for the same periods was on the basis that the Appellant failed to avail ETR generated invoices during the VAT refund audit resulting in rejection of the refund applications and thereafter reclassification of export sales which are zero rated to general rated sales of sixteen percent. KRA disallowed refund amounting to Kshs 3,740,930 and raised additional assessment of Kshs 23,373,231 inclusive of penalties and interest. The Appellant unequivocally states that it provided all documents that could be obtain within the period given by KRA after all documents burned when there was fire at its premises on 28 January 2023. b.That the Appellant in accordance with the laydown procedures and regulations reported a fire incident to the Respondent. The respondent upon receiving the news promptly dispatched a representative to inspect the site and prepared a detailed report on the fire. The purpose of the inspection was to assess the impact of the fire on the Appellant's business operations, assets, and financial records. The visit and report attest that fire happened and financial records were burned.c.That the Respondent erred in law and fact by reclassifying export sales from zero rated to general sale rate considering that all exports are through a custom system that it can access and diligently confirm exportation in the event of limitation of a taxpayer not been able to provide documents due to natural calamity like fire.d.That the Appellant's suppliers and service providers declared output VAT relating to invoices claimed as input that resulted to the excess VAT credits. The declaration by suppliers and service providers were filed in Respondent prescribed return form and filed in iTax which the Respondent has full access to and can confirm legitimacy of the invoices in the event the taxpayer cannot provide the documents due to matters beyond him/her.e.That the Appellant therefore persuades the Tribunal to intervene on this matter and consider the substance of the reconciliations, explanations and documents that were provided to substantiate that the sales were exported thus zero rated and refund application amount was legit. Considering that there is no loss of tax revenue, it would be unfair to tax the Appellant subjecting general VAT rate on export items.f.That the Appellant is entitled to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair as per Article 47 of the Constitution of Kenya, 2010. The Respondent failed to consider the material fact that the Appellant did not provide sufficient supporting documents due to natural calamity fire, ignoring all the reconciliations and explanations that the Appellant could provide. The Respondent's basis of the adverse Objection Decision is irrational and should not be condoned by the Tribunal.

The Appellant’s Case 8. To further elucidate the appeal, the Appellant relied on its Statement of Facts dated 30th January 2024, and filed on 31st January 2024. The Appellant also relied on its written submissions dated and filed on 22nd July 2024.

9. The Appellant stated that it applied for VAT Refund and WHT VAT refund amounting to Kshs 6,241,004. 00 and Kshs 1,216,630. 00 respectively. The Respondent conducted a WHT VAT refund audit then issued audit finding through a letter dated 29th October 2022. The Respondent had partly approved the refund of Kshs. 505,005. 32, while Kshs 711,624. 68 was disallowed. The Appellant through a letter dated 7th November 2022 objected to the WHT VAT refund audit report and requested the Respondent to fully approve the refund and only disallow Kshs 10,123. 68 which was understated. It alleged that on 8th February 2023 it did a reminder letter on the matter.

10. The Appellant stated that on 29th November 2022, the Respondent issued a decision requesting the Appellant to reapply for WHT VAT refund for consideration since it had 100% verified the invoices and it was satisfied.

11. During the review of the refunds and several meetings between the Appellant and the Respondent on 28th January 2024, the Appellant offices located in Mombasa was burned down and assets and financial documents were destroyed.

12. Through a letter dated 10th February, 2024, the Respondent requested for documents to review the VAT refunds application. According to the Appellant, its tax consultant wrote a letter on 10th February, 2024 informing the Respondent of the fire and the fact that the documents requested for might not be available due to the fire that occurred.

13. The Appellant added that on 8th March 2023 and 16th March 2023, it reapplied for WHT VAT refund. On 23rd March 2023, the Appellant through two letters informed the Respondent that WHT VAT refund reapplication for the periods January 2022 to December 2022 had been lodged. According to the Appellant, through the second letter, it informed the Respondent that part of the refund amounting to Kshs 590,543. 00 could not be lodged because they were time barred. Due to this, the Appellant could not fully reapply for WHT VAT refund as per the Respondent decision letter dated 29th November 2022.

14. According to the Appellant, on 12th May 2023, 16th May 2023 and several other emails, the Respondent requested for documents via email. The Appellant stated that it shared the documents via several emails shared on 30th May 2023.

15. Despite the Appellant's response via emails and physical meetings which clearly explained the fire plus providing all documents that could be retrieved, the Appellant stated that the Respondent went ahead and issued WHT VAT refund findings disallowing Kshs 523,485. 75 and allowing of Kshs 564,692. 00 on 8th June 2023. The Appellant also stated that the Respondent on 23rd October 2023 issued VAT refund findings disallowing Kshs 3,740,930. 00 and reclassified zero rated supplies from the zero rate to the general rate resulting to a total incremental VAT tax liability of Kshs 23,373,231. 00 inclusive of penalty and interest.

16. Dissatisfied with the Respondent's VAT refund findings and Additional Assessment, and pursuant to the provisions of Section 51 of the Tax Procedures Act, 2015 (TPA), the Appellant lodged the notice of objection on 2nd December 2023.

17. The Appellant stated that the parties exchanged various email correspondences and held several meetings at the Respondent’s office where various documents and reconciliations were provided in support of the objection to the Additional Assessment.

18. The Appellant argued that it exhaustively explained the purchases and export sales and provided reconciliations with all the relevant supporting documents that could be obtained to the Respondent. The Appellant referred to its Notice of Appeal dated 17th January 2023 and stated that it would have filed the notice much earlier than 17th January, 2023, but could not do so due to the automation of filing of appeal papers.

19. In further support of the appeal, the Appellant relied on its written submissions wherein it submitted that the parties engaged in ADR on 19th February 2024 where there was a partial agreement and a partial consent signed on 18th June 2024.

20. The Appellant also submitted that a refund application that the Respondent rejected be fully approved and paid to the Appellant. It submitted that it applied for refund on 25th January 2023, then the Respondent conducted a VAT refund audit. The Appellant reiterated that its premises were engulfed with fire on 28th January 2023 before VAT refund audit was completed. The Respondent requested for documents after the fire incident where the Appellant provided what could be provided since most were destroyed by the fire. The Appellant also argued that it provided what could be obtained from third parties to support the refund claimed since the ability to provide required supporting documents was severely affected by natural calamity.

Appellant’s Prayers 21. The Appellant urged this Tribunal to make the following orders:i.The Objection Decision dated 13th December 2023 and 20th December 2023 be annulled and set aside in its entirety;ii.The Appeal be allowed;iii.Refund application for periods that documents were destroyed by fire to be fully allowed; andiv.Any other remedies that the Honourable Tribunal deems just and reasonable.

The Respondent’s Case 22. In response to the appeal, the Respondent lodged a Statement of Facts dated 6th March 2023, and written submissions dated and filed on 24th July 2024.

23. The Respondent stated that it conducted an audit on the Appellant’s applications for refund and on the 23rd October 2023 issued audit findings disallowing the Appellant's claim of Kshs 3,740,930. 00, and reclassified zero rated supplies from the zero rate to the general rate resulting to a total incremental VAT tax liability of Kshs 23,373,231 inclusive of penalty and interest. The Appellant then objected against the finding on 22nd November 2023.

24. The Respondent on the 11th December 2023 wrote to the Appellant informing it that it may appeal in regards to the refund claim rejection of Kshs 3,740,930. 00 in accordance with Section 47 of the TPA. Regarding the objection to additional assessment amounting to Kshs 23,373,231, the Respondent alleged that it informed the Appellant that its objection was to be reviewed as per the provisions of Section 51 of the TPA.

25. The Respondent alleged that on the 14th December 2023, it wrote to the Appellant requesting for all the relevant supporting documents including sales invoices, ETR receipts and job execution confirmation by the 15th December, 2023, but the Appellant failed to provide the same. The Respondent stated that on the 16th December it wrote again to the Appellant requesting the Appellant to provide all the relevant supporting documents including sales invoices, ETR receipts and job execution confirmation by the 18th December,2023 but the Appellant failed to provide the same.

26. The Respondent on the 20th December 2023, issued an objection decision fully confirming the assessments of Kshs 23,373, 231. 00 as due and payable with the resulting interest and penalties. The Appellant was aggrieved then appealed to this Tribunal.

27. In response to ground 1 of the appeal, the Respondent averred that the Tribunal lacks jurisdiction to entertain the refund decision as the same has been brought to the Tribunal outside the statutorily required timelines of thirty days under Section 47 of the TPA without seeking leave to file the same out of time.

28. The Respondent averred that the Appellant failed to provide documentary evidence despite follow ups emails by the Respondent to prove that indeed they were entitled for a refund claim. The Respondent further averred that due to limitation of sufficient records to review, there was no concrete proof that the Appellant exported services in order to legitimately claim refund VAT.

29. The Respondent averred that even if the documents were destroyed by fire, the Appellant would be in a better position to get the said documents from their suppliers and with recent growth of cloud storage, the Appellant with its reputation should be able have the same documents retrieved.

30. The Respondent placed reliance on Section 56 of the TPA which places the onus of proof in tax objections on the taxpayer to avail evidence that would support a contrary assessment or that would have guided the Respondent in arriving at a different Objection Decision.

31. The Respondent relied on the case of Metcash Trading Limited -vs- Commissioner for the South Africa Revenue Services and another Case CCT 3/2000, where Justice Kriegler opined that: -“But the burden of proving that the Commissioner was wrong rests on the vendor, because VAT is inherently a system of self-assessment based on vendor's own record, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection decision."

32. The Respondent further averred that the objection decision dated 20th December 2023 was proper in law as the Appellant did not provide enough records to support the inputs claimed for the period under review.

33. The Respondent also relied on its written submissions wherein it reiterated the appeal is incompetent having been filed out of time without leave.

34. The Respondent relied on the case of Sino Hydro Corporation Limited -vs- Tunbo t/a Dominion Yards Auctioneers (Civil Appeal E105 of 2021) [2022] KEHC 15545 (KLR) (17 November 2022) (Ruling) where the Court held that: -“.... where proceedings are filed outside the timelines stipulated in law, the court is deprived of jurisdiction to determine such proceeding which is incompetent and a nonstarter. Accordingly, I find this appeal incompetent. It is hereby struck out for having been filed out of the stipulated statutory timelines without leave of court being sought to enlarge the time."

35. The Respondent asserted that the Appellant failed to provide documentary evidence to support its refund claim therefore, the same was rejected.

Respondent’s Prayers 36. The Respondent prayed to the Tribunal to make the following findings:a.That the Respondent's additional assessments were done in conformity with the relevant laws;b.The Respondent's Objection Decision dated 20th December 2023 was proper and the same be affirmed; andc.This Appeal be dismissed with costs to the Respondent.

Issues For Determination 37. Having examined the Memorandum of Appeal, the parties’ Statements of Facts, and submissions, and the partial consent dated 18th June 2024, the Tribunal determined the following issues for determination: -a.Whether there is a Proper Appeal before the Tribunalb.Whether the Respondent’s Objection Decision is Justified.

Analysis And Findings a. Whether there is a Proper Appeal before the Tribunal. 38. The Tribunal has noted from the record that the Respondent made audit findings on the Appellant’s applications for refund on the 23rd October, 2023 disallowing the Appellant's claim of Kshs 3,740,930. 00

39. The Respondent stated that the Appellant then objected to the findings on 22nd November, 2023, whereupon the Respondent replied to the objection vide its letter of 11th December, 2023 advising the Appellant that the law had changed and that the Appellant needed to have appealed to the Tribunal if dissatisfied with the said findings. The Respondent referred the Appellant to Section 47 (13) of the TPA which provides as follows: -‘A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.’’

40. The Tribunal has also noted from the record before us that there is another Objection Decision dated 20th December, 2023 relating to VAT assessment amounting to Kshs. 23,373,251. 00.

41. The Tribunal noted from the record that this additional VAT assessments was compromised by consent entered by the parties dated 18th June, 2024, as a result of which the VAT tax assessments were vacated, and the VAT refund claim of Kshs. 3,740,930. 00 was referred to the Tribunal for hearing and determination.

42. It then follows that the only pending matter in this dispute is that relating to the aforesaid VAT refund claim, and the relevant decision in issue is that made on the 23rd October, 2023, and objected to by the Appellant on 22nd November, 2023.

43. The Tribunal has reviewed the record including the Memorandum of Appeal and established that the Appellant does not challenge the decision of the Respondent issued on 23rd October, 2023. Instead, the Appellant has only specifically against the Objection Decision dated 13th December, 2023 (which is not on record) and the one dated 20th December, 2023. There is, therefore, no appealable decision before us.

44. In the circumstances, the Tribunal is of the considered that there is no proper appeal before us. The instant Appeal therefore fails. The Appellant will be at liberty to institute a proper appeal before the Tribunal.

Determination 45. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is incompetent and we proceed to issue the following orders: -a.The appeal be and is hereby struck out.b.The partial consent dated 18th June 2024 be and is hereby adopted as an order of this Tribunal.c.Each party to bear its own cost.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER 2024. .............................................GRACE MUKUHACHAIRPERSON……………..…………… ……………………………GEORGE KASHINDIMEMBER…..............……………DR. ERICK KOMOLOMEMBERABDULLAHI DIRIYEMEMBER