[2024] KETAT 494 (KLR)

George v Commissioner of Domestic Taxes & another (Tax Appeal 179 of 2023) [2024] KETAT 494 (KLR) (Commercial and Tax) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 494 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 179 of 2023

RM Mutuma, Chair, EN Njeru, M Makau, B Gitari & AM Diriye, Members

April 5, 2024

Between

Francisca Kathini George

Appellant

and

Commissioner of Domestic Taxes

1st Respondent

The National Bank of Kenya Limited

2nd Respondent

Judgment

Background 1. The Appellant is a private person working for gain at Safaricom as a Customer Service Agent within the Republic of Kenya.

2. The 1st 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. Further, under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 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 2nd Respondent is a financial services provider in Kenya

4. In a letter dated 4th April 2022, the Respondent served the Appellant with a demand notice for tax in arrears of Kshs. 19,451,794. 00 being VAT covering the period May 2016 to December 2017.

5. The Appellant objected to the assessment vide a letter dated 30th November 2020.

6. Following the Objection, the Respondent issued its objection decision on 27th January 2023.

7. Dissatisfied with the Respondent’s objection decision, the Appellant lodged this Appeal on 2nd March 2023.

The Appeal 8. The Appeal as contained in the Memorandum of Appeal dated 20th February 2023 and filed on 2nd March 2023 raised the following ground of appeal;i.That the 1st Respondent erred by issuing a demand notice to the Appellant without conducting any due diligence to ascertain as to whether the Appellant is involved in any business at all.ii.That the 1st Respondent erred in fact by issuing a demand for VAT to the Appellant without ascertaining as to whether she had a VAT obligation.iii.That the 1st Respondent failed in fact and in law in failing to give reasons for the refusal to allow the objection while knowing too well that the said assessment was alien to the Appellant who is not involved in any form of business.iv.That the 1st Respondent failed to consider the Appellant's assertion that the assessment issued to her belonged to someone else in that her PIN number does not have any VAT obligation, that she is not involved in any form of business, and that she has not and has never charged VAT on anything in her life.v.That the 2nd Respondent erred in its decision to restrict and/or clamp the Appellant's account without any notice and/or explanation and proceeded to starve the Appellant from her hard earned Cash that had been deposited to her account retained by the 2nd Respondent in form of salary by her employer.vi.That the 1st Respondent erred by demanding VAT from an innocent person not involved in any trade.

The Appellant’s Case 9. The Appellant has set out its case in its:-a.Statement of Facts dated 20th February 2023 and filed on 2nd March 2023. b.Written Submissions filed on 27th September 2023.

10. The Appellant stated that she is an employee of Safaricom and is registered for income tax and dutifully settles her income tax obligations.

11. The Appellant further stated that she is not involved in any business outside of her employment nor is she involved in any acts that can attract VAT as alleged by the 1st Respondent.

12. The Appellant submitted that on 4th April 2022 she was served by the 1st Respondent with a letter titled, "demand notice for tax in arrears of Kshs. 9,451,794. 00 being VAT covering the period of May 2016 to December 2017.

13. The Appellant stated that she visited the 1st Respondent's office and sought to know the circumstances under which she became indebted to the Respondent and was informed that she was involved in some business and had failed to remit VAT she had charged.

14. The Appellant averred that an existing policy within her employment prohibits engagement in any business activities, a rule she consistently adhered to.

15. The Appellant asserted that the allegation and the whole narration was not only strange to her but bizarre since at no given time was she involved in any business or activity that would have amounted to supply of goods or service to warrant remittance of VAT and that she has shared this information with the 1st Respondent.

16. Further, the Appellant stated that the 1st Respondent claims that she has a business but did not give details on the nature of business and/or the goods or services the business was involved in.

17. The Appellant further asserted that she was notified that her account at the National Bank of Kenya had been restricted and that she could not access any funds from her account.

18. The Appellant claimed that she walked to the said bank and demanded to be supplied with a copy of either the agency notice and/or the communication between the 1st respondent and the Bank that authorized it to clamp her account.

19. The Appellant emphasized that the bank communicated the private and restricted nature of interactions with the 1st Respondent, citing compliance without prior notification to her.

20. The Appellant stated that her inability to access her Bank account or receive any correspondence due to the Bank's inefficiency and the 1st respondent's dictatorial tendencies has put her in economic hardship.

21. It was asserted by the Appellant that she has effectively become a fixture at the 1st Respondent's offices, enduring bureaucratic obstacles without relief or assistance.

22. The Appellant insisted that the 1st Respondent, in pursuit of tax targets, colludes with a state bank to unlawfully demand non-existent taxes from innocent Kenyans, sidestepping judicial procedures unconstitutionally and illegally accessing personal accounts.

23. The Appellant asserted that the 1st Respondent disregarded all legal provisions of tax procedures in issuing the assessment and tax decision, rendering the demand null and void.

24. The Appellant contended that the 1st Respondent's demand for taxes was unfounded, unreasonable, unjustified and unsupported by any material facts.

25. The Appellant submitted that the response filed by the 1st Respondent does not in any way controvert its Appeal save for the issue that the Appellant is registered for VAT which statement is misleading.

26. The Appellant submitted that Section 6 (1) of the VAT Act 2015 provides that a tax shall be charged on any supply of goods or services made or provided in Kenya where it is a taxable supply made by a taxable person in the course of or in furtherance of any business carried on by him.

27. The Appellant contended that on many occasions she visited the 1st Respondent and requested the 1st Respondent to conduct investigation to ascertain whether her PIN might have been used by unscrupulous persons, but failed, neglected and ignored to do so and instead proceeded to demand the said taxes from her.

28. It is the Appellant's contention that there was no self-assessment in this matter and during the ADR process, the same collapsed since the 1st Respondent was unable to provide any documents it claimed to have used in assessing and arriving at what it called additional assessment and kept on adjourning the proceedings claiming that it awaited reports from its investigations department.

29. The Appellant submitted that so far, not a single document has been availed either to the her, the Tribunal or the ADR in furtherance of the claims for tax by the 1st Respondent.

30. It is the Appellant's submissions that she had indeed discharged her burden of proof and it was the 1st Respondent who was conducting the investigations to follow up through the ledgers since it had the tools to investigate and authenticate her claims.

31. The Appellant further submitted that the 1st Respondent is duty bound to discharge all its duties and functions in accordance with the law and that its conduct should be beyond reproach and is expected to measure up to its policy and legislative prescripts and the correct application of the governing law.

32. The Appellant submitted that the decision was arrived at arbitrarily as a result of unwanted adherence to a fixed principle, considering irrelevant considerations while ignoring relevant ones and relied on the decision contained in Fleur Investment Limited vs. Commissioner of Comestic Taxes and another 2018 eKLR.

33. It was the Appellant’s submissions that the 1st Respondent’s reason to maliciously and out of the blues impose a tax that was not owed was solely based on the incorrect premise that the Appellant had failed to "manufacture" documents that the 1st Respondent kept on demanding and relied on the holding in Cimbria E.A limited vs. Kenya Revenue Authority Civil Appeal No, 610f 2011) where the Court opined:-“Whereas the Respondent is mandated by law to collect taxes where the same is lawfully owed, imposing taxes where none is owed and arbitrarily imposing sanctions to enforce payment is acting in excess of its jurisdiction".

34. The Appellant contended that it is not sufficient for the Respondent to merely request for information and then disregard it and then proceed to issue an assessment as it sees fit and that the reasons advanced in the Respondent's Statement of Facts that the "Appellant failed to provide documents" sounds attractive but failed to appreciate that indeed the Appellant's sole income was derived from her employment.

35. The Appellant in conclusion submitted that the 1st Respondent had a duty to properly conduct due diligence as to the activities of the Appellant, her source of income, her tax health and if need be consider conducting meetings with the Appellant to understand better and clear any doubts.

Appellant’s Prayers 36. The Appellant prayed that this Tribunal:-i.Finds that the Appellant does not owe the Respondent any monies inform of taxes and sets aside the Objection Decision.ii.Lifts any agency notice issued to the 2nd Respondent by the 1st Respondent against the Appellant's account.

The Respondent’s Case 37. The Respondent has set out its case on its;a.Statement of Facts dated 31st March 2023 and filed on an even date.b.Written Submission dated and filed on 4th October 2023.

38. The Respondent submitted a single issue for determination, whether the Objection Decision was proper in law.

39. The Respondent stated that the Appellant lodged a late Objection to the assessment on 30th November 202, it however accepted and asked the Appellant to file a valid Objection by providing the following documents; -i.Audited Financial statements for the period 2016 and 2017ii.Bank statements for the period 2016 and 2017iii.Sample invoices

40. The Respondent submitted that the assessments were correctly issued and conform to both the VAT Act and that the Appellant failed to provide the requested documents thereby contravening Section 59 (1) of the TPA hence confirming the assessment.

41. The Respondent averred that the Appellant had a business and was registered for VAT and further attached a Pin profile of the Appellant indicating a company named Geofetix that is registered under the Pin of the Appellant.

42. The Respondent stated that the assessments raised were premised on mis-match where invoices to the various customers of the Appellant were not accounted for in declaring their sales in their VAT returns for the period September 2016 to January 2017 tax period as summarized below:Tax Period Principal Interest Total

September 2016 11,195,520 0 11,195,520

October 2016 6,052,480 0 6,052,480

November 2016 5,425,280 0 5,425,280

January 2017 15,766,285 6,614,113 23,380,398

Total 38,439,565 6,614,113 45,053,678

43. The Respondent submitted that by virtue of Section 29 (1) of the Tax Procedures Act it was within its mandate to make the tax assessment against the Appellant. The Section states that:“Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment") of- (a) the amount of the deficit in the case of a deficit carried forward under the Income Tax Act (Cap. 470) for the period; (b) the amount of the excess in the case of an excess of input tax carried forward under the Value Added Tax Act, 2013 (No. 35 of 2013), for the period; or (c) the tax (including a nil amount) payable by the taxpayer for the period in any other case.”

44. The Respondent further submitted that Section 56 (1) of the Tax Procedure Act places the onus of proof in tax objections on the Taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided it in arriving at a different Objection Decision and relied on the judgment espoused in Kenya Revenue Authority us Man Diesel & Turbo Se, Kenya [2021] eKLR.

45. The Respondent further relied on several other decisions that support its position on burden of proof including Wiliam O'Dwyer and Sloan O'Dwyer v Commissioner of Internal Revenue among others.

The Respondent’s Prayers 46. The Respondent prayed that this Tribunal:-i.Upholds the objection decision of the Respondent dated 27th January,2023 as proper in law.ii.Finds that the assessment was proper in law and in conformity with the provisions of the Value Added Tax Act, 2013. iii.Dismisses the Appeal herein with costs to the Respondent as the same is without merit.

Issues For Determination 47. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts and submissions concludes that there is a single issue that calls its determination as followsWhether the Respondent’s tax assessment contained the letter dated 4th April 2022, is justified.

Analysis And Findings 48. The Tribunal notes that in a letter dated 4th April 2022, the Respondent issued the Appellant with a tax demand notice of Kshs. 19,451,794. 00 being VAT covering the period September 2016 to December 2017 to which the Appellant Objected in a letter dated 30th November 2020 leading to the Respondent subsequently issuing its Objection decision on 27th January 2023.

49. Whereas the Respondent has maintained the description of the Appellant as a limited Company, the Appellant has described herself as an individual taxpayer who is employed at Safaricom and is only registered for income tax liability.

50. The Appellant though did not place on record her Pin number, stated that the Respondent did not conduct any due diligence in ascertaining whether she was involved in any business. However, the Tribunal has reviewed the documents provided by the parties and notes that the Appellant's iTax profile demonstrates that the business name Geofetix is linked to the Appellant's PIN A002721023B.

51. The Tribunal further notes that the afore-stated assessment though made in her name is for a business called GEOFETIX which as per documents attached by the Respondent is a sole proprietor operating under the Appellant’s PIN A002721023B.

52. In any tax dispute, the taxpayer has the burden of proof and must demonstrate that the Respondent's assessment is incorrect. In this instant Appeal, it was incumbent upon the Appellant to demonstrate that the said income was not assessable under her PIN.

53. Section 56 (1) of the Tax Procedure Act places the burden of proving that the assessment was incorrect on the Appellant. The Section states; - 1. In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

54. Similarly, the burden of proof is on the Appellant as stipulated under Section 30 of the Tax Appeal Tribunal Act which provides as follows;“Burden of proofIn 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.”

55. It cannot lie on the lips of the Appellant that she was unaware of the business transactions that the Respondent has access and subjected the income thereof an assessment.

56. The Appellant has not adduced any supporting documents to indicate that this income is not hers or that the association of herself to the company Geofetix through her PIN as was demonstrated by the Respondent was erroneous or ought not to be. The Appellant did not also provide evidence from the Directorate of Criminal Investigations or any other investigative agency to demonstrate that the transactions were as a result of fraudulent use of her PIN.

57. The Tribunal finds that whatever the Appellant stated in her Memorandum of Appeal is a mere averment since she did not produce competent and relevant supporting documentary evidence to support her averments.

58. The Tribunal concludes that the Appellant failed to discharge its burden proof as required under Section 56 (1) of the Tax Procedure Act and indeed Section 30 of the Tax Appeal Tribunal act AT Act

59. In view of the above, The Tribunal finds that the Respondent was justified in assessing the Appellant for the period of income under review.

Final Decision 60. The Tribunal finds that the Appeal lacks merit and accordingly proceeds to make the following Orders:i.The Appeal be and is hereby dismissed.ii.The Respondent’s Objection decision dated 13th February 2023be and is hereby upheld.iii.Each party to bear its own costs.

61. It’s so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU MUTISO MAKAU - MEMBER MEMBERBERNADETTE M. GITARI MOHAMED A. DIRIYE - MEMBER MEMBER