[2024] KETAT 1080 (KLR)

Global Net Medical Limited v Commissioner of Domestic Taxes (Tax Appeal E109 of 2023) [2024] KETAT 1080 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 1080 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E109 of 2023

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

June 28, 2024

Between

Global Net Medical Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company carrying on procurement and supplies of pharmaceutical and other medical products in the Republic of Kenya.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent undertook an Income tax return review of the Appellant for the year 2013 to 2017 and issued a notice of assessment letter dated 5th September, 2018. Consequently, the Respondent issued assessments for the years 2013 to 2016 through assessment letter dated 29th October, 2018.

4. The Respondent also issued demand notices dated 16th November, 2018, 16th January, 2019 and 24th January, 2019. Subsequently, the Respondent issued agency notices to the bank dated 21st February 2019.

5. The Appellant lodged a notice of objection dated 20th February 2019 and conceded to assessments for the years 2014 and 2015 and paid Kshs 1,485,632. 00.

6. The Responded issued further default assessment dated 24th February 2019 for the year 2017 amounting to Kshs 19,080,315. 89.

7. The Appellant wrote to the Respondent through a letter dated 11th March 2019 stating that it had made losses in 2013 therefore, the 2013 assessments should be vacated. The Respondent vide a letter dated 23rd May 2019, agreed and vacated the assessment of Kshs. 19,080,312. 90.

8. The Appellant filed a late objection regarding the 2017 assessments on 14th June, 2019. Upon receipt of the said notice of objection, the Respondent issued an objection decision dated 27th February 2023.

9. The Appellant being dissatisfied with the Objection decision appealed to the Tribunal.

The Appeal 10. The Appellant filed its Memorandum of Appeal dated 24th March 2023 and filed on 31st March 2023. The Appeal is premised on the following grounds:-i.That the Respondent issued an Objection decision against the Appellant outside the mandatory 60 days timelines and therefore the decision is null and void.ii.That the Respondent erred in law and its assessment does not conform to any provision of the Income Tax Act and Tax Procedure Act.iii.That the Respondent issued default assessment for the year 2017 amounting to Kshs 19,080,3 15. 89 which was similar to the assessment of the year 2013 that had been vacated by the Respondent on 23rd May 2019. iv.That the Respondent sent an e-mail to the Appellant on 6th February 2023 acknowledging receipt of the objection application of 14th June 2019 asking the Appellant to provide additional documents to support its objection which was outside the mandatory 60 days’ timelines.iv.That the Appellant does not have any outstanding liability in the years that the Respondent issued the assessment orders as it had incurred losses in the same period, yet the Respondent is demanding money for the same.iv.That the objection decision dated 27th February 2023 duly received by the Appellant on 1st March 2023 does not include a statement of findings on the material facts as required by Sections 51 of the Tax Procedures Act thereby leaving the Appellant at a loss as to the reasons and evidence relied upon by the Respondent in raising the assessment.iv.That the Respondent erred in law and fact by claiming in its decision that “the reason for the decision is that you failed to provide sufficient relevant documentary evidence in support of your objection ground contrary to the Tax Procedures Act 2015 Section 51(3)” yet the Appellant had given relevant documentary evidence on 14th June 2019 and did not hear from the Respondent until 1st March 2023 when the Respondent issued an objection decision.iv.That the Appellant does not agree to the additional assessment as the assessment is excessive and estimated and the Appellant does not have any outstanding liability for that period. No basis has also been given for this assessment.

Appellant’s Case 11. The Appellant case is premised on its Statement of Facts dated 24th March 2023 and filed on 31st March 2024 and its written submissions dated 11th January 2023 and filed on 16th January 2023.

12. According to the Appellant, the Respondent issued an Income tax notice of assessment dated 29th October 2018 amounting to Kshs 19,080,312. 90 for the year 2013. The Appellant alleged that it did not receive the assessment as it could not access its e-mails.

13. The Appellant averred that the Respondent then issued a demand notice dated 24th January 2019 and sent the same via the post office.

14. That upon receipt of the demand letter, the Appellant averred that it realized that the Respondent had earlier sent a demand notice dated 16th January 2019, a demand notice dated 16th November 2018 and a notice of assessment dated 5th September 2019.

15. That upon realization the Appellant discovered that the Respondent had issued four assessments on 29th October 2018 for the years 2013, 2014, 2015 and 2016 amounting to Kshs 251,743. 20, Kshs 528,032. 70, Kshs 19,080,312. 90 and Kshs 119,513. 70, respectively.

16. The Appellant averred that the Respondent further sent agency notices to all the Appellant’s banks accounts. Consequently, the Appellant visited the Respondent for further clarification and it was agreed that the Appellant makes an immediate payment of Kshs 1,485,632. 00 and a further installment of Kshs 250,000. 00. The Appellant also stated that it was agreed by the parties that the Appellant would make an online objection as the assessment had been raised in the system.

17. The Appellant averred that it made a late online objection on 20th February 2019 for the year 2013 assessments while it conceded the assessments for the years 2014 and 2015 and the same was settled through the payment of Kshs 1,485,632. 00 without objection.

18. The Appellant, wrote to the Respondent in a letter dated 11th March 2019 which was received by the Respondent on 14th March 2019 notifying the Respondent that in the year 2013 the Appellant was in a loss position therefore, the 2013 assessment was invalid and needed to be vacated. Consequently, the Respondent issued a vacated assessment notice dated 23rd May 2019 fully accepting the objected amount of Kshs 19,080,312. 90 for the year 2013.

19. The Appellant stated that during all these engagements and negotiations the Respondent did not notify the Appellant that the Respondent had raised yet another assessment for the year 2017 for exactly the same amount as for the year 2013 of Kshs 19,080,315. 89. Consequently, the Appellant argued that it did not understand how two years can elicit an assessment of exactly the same amount without any basis of the assessment.

20. According to the Appellant, the Respondent issued an Income tax assessment dated 24th February 2019 amounting to Kshs 19,080,315. 89 for the year 2017 which the Appellant was not aware of as it did not receive the same on email. The Appellant also averred that in all its engagements with the Respondent, it was not notified to settle the liabilities for the years 2013,2014,2015 and 2016.

21. The Appellant averred that it was during the application for tax compliance certificate that it got an error message prompting the Appellant to check its ledger leading to discovery of a default assessment for the year 2017. Consequently, the Appellant made a late online objection on 14th June 2019.

22. The Appellant averred that it did not receive any email, or letter requesting for information or demanding the tax from the period of 14th June 2019 until 6th February 2023 amounting to lapse of 43 months. The Appellant argued that the Respondent sent an e-mail on 6th February 2023 asking the Appellant to provide additional documents to support its objection which had been put in place in the year 2019, within seven days an email which the Appellant did not receive as it went to its spam mail.

23. The Appellant averred that the Respondent has expanded timelines of 43 months to request for additional information or to issue an objection decision immediately after the 6th of February 2023.

24. The Appellant averred that the amounts payable as per the assessment were excessive and that the Respondent erred in law by issuing an objection decision after the 60 days contrary to Tax Procedures Act.

25. With regards to whether the objection was validly lodged and complied with the provision of Section 51(3)(c ) of the TPA, the Appellant submitted that the objection was validly lodged and complied with the provisions of Section 51 (3) contrary to the Respondent’s allegations.

26. The Appellant argued that the tax assessment was dated 24th February 2019 and the late objection notice was lodged on 14th June, 2019. The Appellant submitted that at the time of the issuance of the assessment and the Objection, Section 51(3)(c) had not been enacted. The Appellant submitted that Section 51(3)(c) was only enacted through the 2019 Finance Act and which came after the filing of the notice of objection.

27. The Appellant submitted that if the Respondent needed to be supplied with additional documents, the Appellant would have complied but the Respondent delayed to request for documents. Further the Appellant submitted that the law as it were at the time of the assessment the objection did not require the Appellant to provide any documents because it was assumed that the documents were inspected by the Respondent during assessment.

28. The Appellant submitted that tax statutes must be strictly interpreted. The Appellant relied on the case of Republic v Kenya Revenue Authority & another Ex-Parte Kenya Nut Company Limited [2014] eKLR where the court observe at paragraph 40 as follows: -“the rules of interpreting tax statutes bars the Tax Authority or the tax payer from seeking to establish the intention of Parliament as such statutes should be interpreted strictly. In support of this submission the Respondents relied on Cape Brandy Syndicate vs. Inland Revenue Commissioner [1921] 1 KB 64. In that case it was held:“In a taxing Act one has to look merely at what is clearly stated. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only lock fairly at the language used.”

29. The Appellant relied on Keroche Industries Limited vs. Kenya Revenue Authority & 5 Others [2007] 2 KLR 240 to submit that courts have affirmed that the law may not be applied retroactively unless expressly stated.

30. On whether the objection decision as delivered was valid and complied with Sections 51(11) of the Tax Procedures Act, the Appellant submitted that where an objection notice has been validly lodged, as the one in this matter, the Respondent must issue an objection decision within 60 days from the date of lodging the notice of objection.

31. The Appellant submitted that the Respondent issued an assessment on 24th February 2019 to which the Appellant objected on 14th June, 2019. the Appellant submitted that the Respondent ought to have delivered its decision by 14th August, 2019. Instead, the Respondent went into slumber for 43 months, woke up in February, 2023 purporting to request for documents.

32. The Appellant relied on Rongai Tiles and sanitary Limited vs Commissioner of Domestic Taxes (2023) eKLR in which Justice Majanja held that:“The Commissioner has argued that it is not bound by this time if an objection is invalidly lodged. I reject this argument and agree with the Tribunal that going by the wording of section 51(11) of the TPA above, the Objection Decision ought to have been made within 60 days regardless of whether the objection was valid. I therefore find that the Objection Decision was outside the statutory timelines provided by section 51(11) of the TPA.”“The Commissioner’s delay in delivering the Objection Decision within sixty days of receiving the objection meant that the objection was allowed by operation of law. Failure to render the Objection Decision in time was fatal and the Commissioner could not demand any taxes therein.”

33. On whether the assessment was speculative, punitive and legally unjustifiable, the Appellant submitted that the Respondent did not state how it arrived at the figures it did, which documents it inspected to arrive at the said assessments or which formula or law it relied on. The Appellant further submitted that the 2013 assessment vacated by the Respondent is exactly the same as the assessment raised for the year 2017 which according to the Appellant, confirms that the assessment was speculative, arbitrary and without any legal basis.

Appellant’s Prayers 34. The Appellant's prayers to this Tribunal are for the following orders:a.That the assessment be vacated.b.That the objection decision dated 27th February, 2023 be set aside.

Respondent’s Case 35. The Respondent’s case is premised on its:a.Statement of Facts dated and filed on 28th April 2023 andb.Written submissions dated 20th November 2023 and filed on 21st November 2023.

36. The Respondent stated that whereas Section 24 of the Tax Procedure Act 2015 allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information and to the best of the Commissioner’s judgement.

37. The Respondent argued that the assessment was in accordance with Section 31 of the Tax Procedures Act which gives the Respondent leeway to issue additional assessments based on the available information and best of judgement.

38. The Respondent stated that pursuant to Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies on the Appellant to demonstrate that it has discharged its tax liability. The Respondent stated that this burden was never discharged as no documentary evidence was availed to the Respondent to enable it render a different decision.

39. The Respondent relied on the provisions of Section 109 of the Evidence Act which provides that:-“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.”

40. The Respondent averred that the Appellant was duly bound to support its objection with documents to demonstrate that the assessment for 2017 was the same one which was vacated in 2013 but failed to do so despite request.

41. The Respondent stated that due to the fact that the objection was not supported by requisite documents, it was within the law to confirm the assessment based on Section 51(3) of the Tax Procedures Act.

42. The Respondent submitted that it had the power to assess any taxpayer's tax liability by virtue of Section 24(2) of the Tax Procedures Act and that when making the assessment, the Respondent can make alterations or additions, from the available information and to the best of the Commissioner's judgement as provided for under Section. 31(1) of the Tax Procedures Act.

43. On the issue of the Commissioner's judgement as provided under Section 31 of TPA, the Respondent relied on the case of The Commissioner for Her Majesty’s Revenue and Customs Tc/2017/02292 Saima Khalid Appellant Vs the Commissioners for Her Majesty’s Respondents Revenue & Customs where the Tribunal held as follows:“the very use of the word ‘judgment’ makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them...Secondly, clearly there must be some material before the commissioners on which they can base their judgment. If there is no material at all it would be impossible to form a judgment as to what tax is due.Thirdly, it should be recognised, particularly bearing in mind the primary obligation, to which | have made reference, of the taxpayer to make a return himself, that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgment, is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the 6 commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words ‘best of their judgment' does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the words ‘best of their judgment’ envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them.”

44. The Respondent also placed reliance on TAT Appeal No. 538 Of 2021 Greenroad Kenya Limited vs Commissioner of Domestic Taxes, where the Tribunal held that: -“The Tribunal’s considered view is that the failure by the Appellant to avail the documents requested granted the Respondent the power to use its best judgement as provided for under Section 31(1) of Tax Procedures Act.”

45. Finally, the Respondent relied on Nick Kikalos and Helen Kikalos v. United States of America, No. 2:98 CV 618. 313 F. supp. 2d 876 (2003) and Digital Box Ltd Vs Commissioner of Investigation & Enforcement (2019) EKLR and argued that the Respondent is allowed to use any information that is available to it and use the best of his or her judgment in making the assessment.

Respondent’s prayers 46. The Respondent prayed that the Tribunal:a.Upholds the Respondent's Objection decision dated 27th February, 2023; andb.Dismisses the Appeal with costs to the Respondent since the same is devoid of merit.

Issues for Determination 47. The Tribunal having considered the pleadings and submissions of the parties, puts forth the following issues falling for its determination:i.Whether the Objection decision was time barred and not properly lodged as provided under Section 51 (11) of the TPAii.Whether the objection decision was justified

Analysis and Findings 48. The Tribunal having determined the issues falling for its determination proceeds to analyse the same as hereunder.

i. Whether the Objection decision was time barred and not properly lodged as provided under Section 51 (11) of the TPA 49. The Appellant submitted that it lodged a late objection regarding the 2017 assessments on 14th June 2019. On the other hand, the Respondent submitted that it issued an objection decision through a letter dated 27th February 2023. The dispute in this matter relates to assessments for the year 2017 which default assessment was issued on 24th February 2019 amounting to Kshs 19,080,315. 89.

50. The Respondent averred that the Appellant was duly bound to support its objection with documents to demonstrate that the assessment for 2017 was the same one which was vacated in 2013 but failed to do so despite request.

51. The Respondent also stated that due to the fact that the objection was not supported by the requisite documents, it was within the law to confirm the assessment based on Section 51(3) of the Tax Procedures Act.

52. The Tribunal is guided by the applicable law in this instant case which was Section 51(11) of the Tax Procedures Act before its amendment by Section 32 of the Finance Act, 2019. Section 51(11) of the Tax Procedures Act before its amendment provided as follows:‘‘Where the Commissioner has not made an objection decision within sixty days from the date that the taxpayer lodged a notice of the objection, the objection shall be allowed.’

53. Courts have interpreted Section 51(11) of the Tax Procedures Act in a strict manner. In Equity Group Holdings Limited v Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) [2021], the court observed that:-“Section 51 (11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d). First, there was no decision at all. The decision had ceased to exist by operation of the law. Second, the provisions of section 51 (11) (b) had kicked in. The Objection had by dint of the said provision been deemed as allowed…’’

54. In Republic V Commissioner of Customs Services Ex-Parte Unilever Kenya Limited [2012] eKLR, the court held that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law.

55. In Eastleigh Mall Limited V Commissioner of Investigations & Enforcement Income Tax Appeal No E068 of 2020, the Court held as follows with regard to compliance with Section 51(11) of the TPA:-“It is clear from the forgoing that the provisions of section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

56. Consequently the Tribunal finds that the Respondent’s objection decision was null and void for having been issued beyond the statutory 60 days and to that extent, the notice of objection stood as allowed by operation of law.

57. The Tribunal having found that the notice of objection lodged by the Appellant was deemed allowed by the operation of the law the second issue has been accordingly rendered moot.

Final Decision 58. The upshot to the foregoing analysis is that the Tribunal finds and holds that the Appeal is meritorious and consequently makes the following Orders; -a.The Appeal be and is hereby allowed;b.The Respondent’s Objection decision dated 27th February 2023 be and is hereby set aside; andc.Each party to bear its own costs.

59. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF JUNE, 2024. ERIC NYONGESA WAFULA - CHAIRMANEUNICE N. NG’ANG’A - MEMBERELISHAH NJERU - MEMBERMUTISO MAKAU - MEMBERABRAHAM K. KIPROTICH - MEMBER