[2024] KETAT 1314 (KLR)

Greif East Africa Limited v Commissioner of Domestic Taxes (Appeal 435 of 2023) [2024] KETAT 1314 (KLR) (26 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1314 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 435 of 2023

CA Muga, Chair, BK Terer, D.K Ngala & SS Ololchike, Members

July 26, 2024

Between

Greif East Africa Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited company incorporated in Kenya. Its principal activity is offering packaging solutions to a variety of clients.

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), the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5(2) with respect to the performance of its functions under subsection (1), it 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 Respondent issued the Appellant with an Agency Notice seeking to recover Kshs 12,229,278. 00 being penalty and interest on PAYE and VAT.

4. The Appellant then lodged a Notice of Appeal under an Application to the Tribunal on 11th July, 2023 where the Tribunal issued orders on 18th August, 2023 lifted the enforcement of the agency notice and further granted the Appellant leave to proceed with the filing of its substantive appeal. The Appellant thereafter filed its Notice of Appeal dated 11th July, 2023 on 25th August 2023.

The Appeal 5. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 25th August, 2023 and filed on even date:a.That the Respondent erred in law and fact by breaching the Appellant’s legitimate expectation by levying penalties and interest on purported PAYE and VAT amounts which had been deducted and duly remitted by the Appellant.b.That the Respondent misapplied the levying of penalties and interest where there was no tax due.c.That the Respondent erred in law and in fact by unlawfully issuing an agency notice against the Appellant in excess of the boundaries set forth in Section 42 of the Tax Procedures Act CAP 469B of Kenya’s Laws (hereinafter “TPA”) and without any regard to the conditions stipulated therein.d.That by issuing the flawed agency notice, the Respondent unjustifiably denied the Appellant the opportunity to contest the tax demand as allowed under Section 51 of the TPA.e.That the Respondent erred in law and in fact by contravening the basic principles of fair administrative justice espoused under Article 47 of the Constitution of Kenya, 2010 (hereinafter “the Constitution”) and Section 4 of Fair Administrative Action Act, CAP 7L of the Laws of Kenya (hereinafter “FAAA”).

Appellant’s Case 6. The Appellant contested the PAYE and VAT liabilities amounting to Kshs 12,229,278. 00 for the period between 2014 and 2018 arguing that the demand was based on a mistaken assumption that the Appellant failed to deduct and/or remit PAYE and VAT during the period under review. It averred that it had remitted all taxes due and owed to the Respondent within the statutory timelines, specifically relating to the PAYE and VAT penalty and interest amounting to Kshs 12,229,278. 00 on its i-Tax ledger.

7. The Appellant averred that it has ensured it maintained compliance and fulfilled its PAYE obligations in accordance with the provisions outlined in the Income Tax Act on a monthly basis. It therefore argued that the PAYE penalties and interest reflecting on its i-Tax ledger was erroneous and did not accurately represent the state of the Appellants tax affairs.

8. The Appellant contended that the VAT liabilities reflected on the i-Tax portal were inaccurate as it had made timely payments of VAT during the period under review. It was the Appellant’s assertion that it engaged the Respondent on several occasions through electronic mail to address the technical errors and hindrance it received when attempting to file its returns, a fact the Respondent acknowledged.

9. The Appellant further contended that the Respondent neglected to address the system issues highlighted. It argued therefore that the Respondent could not use the i-Tax system challenges, for which it had been aware at all material times and failed to address, to penalize the Appellant. This was especially in the face of clear and undisputed tax payment by the Appellant.

10. The Appellant stated that the Respondent’s unjust imposition of penalties and interest on tax amounts that have already been remitted and for which proper returns had been filed, not only was against the Appellant’s legitimate expectations but continues to cause undue prejudice to the Appellant.

11. The Appellant reiterated that it had consistently contacted the Respondent to investigate the discrepancies in its i-Tax ledger without much success or actions on the Respondent and further that the Respondent had been aware of the i-Tax discrepancies and had even acknowledged the same vide the various email correspondences.

12. The Appellant therefore averred that the Respondent’s demand for the alleged PAYE and VAT arrears is attributable to errors in its i-Tax ledgers for which the Appellant had provided all necessary documentation to the Respondent. It argued that the Respondent could not impose tax where there was no tax due held in the case of Scott vs Russel (Inspector of Taxes) TC 394 page 424 where Lord Simonds made the following observation:“That the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him.”

13. The Appellant submitted that the Respondent’s imposition of tax liabilities on it was flawed and should be vacated as it is the Respondent’s duty to act fairly in carrying out its mandate. The Appellant cited the following holding in the case of Doody vs the Home Secretaries of State (1993)/ALL ER151:“Where an Act of parliament confers administrative power, there is a presumption that it will be exercised in a manner which is fair.”

14. The Appellant asserted that the Respondent subjected it to unfair administrative action by unjustifiably denying it the opportunity to contest the tax demand as per Section 51 of the TPA and Article 47(1) and (2) of the Constitution and Section 4 of the FAAA.

15. The Appellant also stated that despite its efforts to address the erroneous liabilities, the Respondent continued to maintain the penalties and interest liabilities on its i-Tax ledgers. It therefore urged the Tribunal to consider the evidence it had presented and determine that there was no tax due to the Respondent and resultantly, the imposed penalties and interest were erroneous.

16. The Appellant made the following prayers to the Tribunal:a.That the liabilities of PAYE and VAT amounting to Kshs 12,229,278. 59 be set aside in their entirety;b.The Appeal be allowed with costs to it; andc.The Tribunal be pleased to issue any other remedies that it deems just and reasonable.

Respondent’s Case 17. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 25th September 2023 and filed on 26th September 2023.

18. It averred that the tax liabilities arose due to Appellant’s ledger reconciliation issue and that the Agency notices which were issued in line with the law under Section 32 of the TPA were not issued for additional assessments but for self-assessment return liabilities. It stated that the Appellant had not tabled any evidence before the Tribunal confirming that it indeed deducted and remitted the disputed taxes herein.

19. The Respondent averred that contrary to the allegation that the delays were occasioned by the errors in its i-Tax ledgers, it argued that the Appellant ought to have raised any challenges at the earliest opportunity since it knew the strict timelines imposed by the taxing statutes. Further, that the Appellant was aware of its obligations under the Income Tax Act, CAP 470 of Kenya’s Laws (hereinafter “ITA”) and the Value Added Tax Act, CAP 476 of Kenya’s Laws (hereinafter “VAT Act”) and the penalties and interest were imposed as a result of non-compliance. It averred however that it had since lifted the agency notices and was not seeking to recover the outstanding amounts until a full reconciliation is done.

20. The Respondent stated that the Finance Act 2023 grants it powers to give Amnesty to all penalties and interest accrued for all taxes up to 31st December 2022 and that the Appellant could apply for amnesty as provided for in Section 37E of the TPA.

21. The Respondent further averred that the law is very clear under section 56(1) of the TPA on the burden of proof and the Appellant had not produced any evidence to support its averments contained in its statement of facts.

22. The Respondent prayed that the matter be referred back to it to enable reconciliation.

Partie’s Submissions 23. The Respondent’s Written Submission were expunged from the records due to late filing. The Tribunal will therefore, only consider the Appellant’s Written Submissions dated 28th February 2024 and filed on even date, wherein it raised two issues for determination.a.Whether the Respondent’s tax demand communicated by issuance of an agency notice against the Appellant is in excess of the boundaries set forth in Section 42 and 51 of the TPA.

24. The Appellant submitted that Section 42(14) of the TPA provides that the Respondent shall not issue an agency notice unless under the following circumstances:a.Where the taxpayer has defaulted on instalment under a payment plan agreement with the Respondent.b.Where the taxpayer has failed to object to the Respondent’s assessment within the statutory timelines.c.Where the taxpayer has not appealed against the Respondent’s objection decision within the prescribed timelines.d.Where the taxpayer has made a self-assessment and submitted a return but has not paid the taxes due before the due date or;e.The taxpayer has not appealed against an assessment specified in a decision of the Tribunal or court.

25. It was the Appellant’s submission that the language of the Act clearly outlines the conditions under which the Respondent is authorized to issue an agency notice. It therefore submitted further that the Respondent disregarded these provisions of the law and the conditions specified by the TPA to issue the impugned agency notice to serve as both a tax demand and an objection decision against the Appellant. The Respondent’s actions therefore unjustly denied it the opportunity to contest the demand through an objection as stipulated by Section 51 of the TPA.

26. The Appellant argued that by attempting to issue a tax demand via an agency notice to a third party against the Appellant and without any prior notice or providing the Appellant with an opportunity to respond, the Respondent contravened tax procedure, basic principles of fair administrative justice as well as the Appellant’s right to fair administrative action. Further that the Respondents failure to follow due process not only amounted to abuse of power but was also a clear violation of the Appellant’s rights under Article 47(1) and (2) for the Constitution which guarantees administrative action that is expeditious, efficient, reasonable and procedurally fair.

27. It was the Appellant’s further submission that the Respondent also violated Section 4 of the FAAA which outlines the expectations for reasonable actions to be taken by an authority or public institution when delivering administrative actions. It therefore argued that the Respondent’s tax demand on i-Tax was erroneous and unjustified on the basis of the blatant procedural unfairness on the part of the Respondent.b.Without prejudice to the above arguments, whether the Respondent’s demand for PAYE and VAT relates to amounts which had been deducted and duly remitted by the Appellant.

28. The Appellant submitted that the Respondent’s demand was based on an erroneous assumption that it had failed to deduct and/or remit PAYE and VAT during the period under review when in fact it had remitted all taxes due and owned by the Respondent within the statutory timelines in relation to the PAYE and VAT penalty and interest the sum total of which was Kshs 12, 229,278. 59 as alleged.

29. The Appellant contended that the Respondent’s demand was on the basis of its own system data capturing error and not payment default on the part of the Appellant and that therefore the purported tax liabilities as displayed an i-Tax were inaccurate. It argued that the Respondent could not use i-Tax system challenges, for which it had been aware of at all material times and had failed to address; to penalize it especially in the face of its clear and undisputed tax payments.

30. The Appellant submitted that it proactively made payments on the taxes due for the period under review despite the unresolved system challenges. Therefore, the Respondents unjust imposition of penalties and interest on tax amounts that had already been remitted or where there was an error on the i-Tax system that hindered timely filing, not only perpetuated unjust treatment but also continued to cause undue prejudice it as these purported liabilities are still showing as outstanding on the i-Tax portal. It argued therefore that it cannot be penalized when the disputed tax has evidently been paid, highlighting that the issue lies in the Respondents failure to reconcile the proof of payments with the liabilities on i-Tax.

31. It was the Appellant’s submission that the Respondent’s assertion of the Appellant’s non-compliance lacked a clear basis and therefore the Respondent cannot levy tax under the pretext of non-compliance when no tax is actually owed. It submitted further that the Respondent’s claim that the penalties and interest resulted from non-compliance indicated that the Respondent did not act on the information it provided and that this raised concerns that the outstanding liabilities on i-Tax may not be reconciled as the Respondent will continue to treat its own system challenges as an issue of non –compliance for which the Appellant is held unfairly culpable and double taxed upon .It therefore concluded by maintaining that the Respondent’s assessment was gravely erroneous and was based on a misinterpretation of the law and fails.

Issues For Determination 32. The Tribunal has considered the Parties pleadings, documentation and the Appellant’s Written Submission and is of the view that this Appeal distils into two issues for determination as follows:i.Whether the Appeal is properly before the Tribunal.ii.Whether the Respondent was justified in demanding Kshs.12,229,278. 59.

Analysis And Findings 33. Having identified the two issues for determination the Tribunal will proceed to analyse the same as follows:i.Whether the Appeal is properly before the Tribunal.

34. The genesis of this Appeal was that the Appellant’s tax liabilities arose due to a ledger reconciliation issue and the Respondent’s issuance of Agency notices in line with the law under Section 32 of the TPA. The issue was not additional assessment but an application in regard to self-assessment return liabilities pursuant to section 31 of the TPA. The Respondent placed an Agency Notice on the Appellant’s bank account arising from penalties and interest that was reflecting on the Appellant’s i-Tax ledger. Through an application to the Tribunal, the Agency Notice was suspended and the Appellant was granted leave to file a substantive appeal.

35. The Tribunal notes that it did not sight, on the record of Appeal filed by the Appellant, an objection decision. It is a requirement that the ‘tax decision’ is submitted as part of the record of Appeal pursuant to the following provisions of section 13 (2) of the Tax Appeals Tribunal Act, CAP 469A of Kenya’s Laws, (hereinafter “TATA”):“(2) The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—a.a memorandum of appeal;b.statements of facts; andc.the tax decision.”

36. The Tribunal notes that the Appellant herein appealed against self-assessment return liabilities. The decision by the Respondent regarding the Appellant’s self-assessment return liabilities was not an appealable decision pursuant to the following provisions of Section 3 of the TPA:“appealable decision” means an objection decision and any other decision made under a tax law other than—a.a tax decision; orb.a decision made in the course of making a tax decision;“tax decision” means—a.an assessment [emphasis ours];b.a determination under section 17(2) of the amount of tax payable or that will become payable by a taxpayer;c.a determination of the amount that a tax representative, appointed person, director or controlling member is liable for under section 15, section 17 and section 18d.a decision on an application by a self-assessment taxpayer under section 31(2) [emphasis ours];e.a refund decision;f.a decision under section 48 requiring repayment of a refund; org.a demand for a penalty; [emphasis ours]”

37. The Tribunal’s finding is that the tax decision which was the basis of this Appeal was not an appealable decision. The Tribunal finds that accordingly, it has no jurisdiction to hear this matter and will therefore down its tools as recommended in the case Owners of the Motor Vessel “Lillian S” vs. Caltex Oil (Kenya) Limited (Civil Appeal No. 50 of 1989) where it was held as follows:‘……Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction. …..’

38. The Tribunal’s finding is that this Appeal is improperly before it and it will not therefore delve into the second issue for determination as the same has been rendered moot.

Final Decision 39. The upshot of the foregoing is that the Appeal fails and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

40. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JULY, 2024. …………..……………….CHRISTINE A. MUGACHAIRPERSON…………………….. …………….……………..BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER…………….……………….OLOLCHIKE S. SPENCERMEMBER