[2023] KETAT 158 (KLR)

Gulf Energy Limited v Commissioner of Legal Services & Board Coordination (Appeal 839 of 2022) [2023] KETAT 158 (KLR) (Civ) (10 March 2023) (Judgment)

Neutral citation: [2023] KETAT 158 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 839 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

March 10, 2023

Between

Gulf Energy Limited

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

1. The Appellant is a limited liability company incorporated under the Companies Act, Cap 486 of the laws of Kenya and a registered taxpayer. Its principal business activity is in the supply of oil and oil related products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. The Authority is an agency of Government established for the purposes of assessing, collecting and accounting for tax revenues.

3. Following various correspondences between the parties, the Appellant vide a letter dated 21st February 2020 requested for a refund of the Withheld VAT amounting to Kshs. 719,156,405. 81 from the Respondent. The Respondent thereafter issued Credit Adjustment Vouchers totaling Kshs 212,858,534. 00 to which the Appellant objected vide a letter dated 1st October, 2020.

4. Vide an email dated 22nd July, 2021, the Respondent communicated to the Appellant rejecting the bulk of the Appellant’s refund claim and provided a revised analysis indicating that the available WHVAT credits was for Kshs 28,184,810. 65.

5. The Appellant Objected to the Respondent’s analysis vide letters dated 13th August, 2021 and 20th August 2021.

6. Following lengthy correspondences, meetings and exchange of documents, the Respondent issued its objection decision vide a letter dated 10th September, 2021 allowing the Appellant’s objection.

7. There were subsequent engagements between the parties including meetings, and vide an email dated 27th May 2022, the Respondent explained the process of treatment of WHVAT credits. The Appellant replied vide a letter dated 4th June 2022 disagreeing with the Respondent’s email explanation.

8. The Respondent subsequently issued an amended objection decision dated 14th July 2022.

9. Dissatisfied with the Respondent’s amended objection decision, the Appellant filed this Appeal on 15th August, 2022.

The Appeal 10. The Appeal is premised on the following grounds as presented in the Memorandum of Appeal dated 8th August 2022:i.That the Respondent erred in law and fact by issuing an amended objection decision on 14th July 2022, 11 months after issuing an objection decision dated 10th September, 2021 which was in favour of the Appellant.ii.That the Respondent erred in law and fact to appreciate that the subsequent decision dated 14th July 2022 was outside the 60 days’ time frame contemplated by Section 51 of the Tax Procedures Act, No. 29 of 2015. iii.That the Respondent erred in law and fact by failing to appreciate that where a decision is not made, and the statutory timelines lapse the objection is deemed to be accepted by the Respondent.iv.That the Respondent erred in law and fact by failing to appreciate that the TPA does not provide for amendments to an objection decision duly issued by themselves.v.That the Respondent erred in law and fact by misinterpreting and misapplying Section 17(5) of the VAT Act, 2013, particularly, by failing to appreciate that where after an input/output analysis places the taxpayer in a VAT payable position, the VAT credits accrued should be first utilized to offset the tax liability prior to utilization of Withholding VAT (WHVAT).vi.That the Respondent failed to interpret Section 17(5) correctly which provides for input tax to be deducted from output tax.vii.That the Respondent knowingly ignored the fact that the input tax brought forward becomes part of input tax of the subsequent month under Section 17(5). The input tax (input tax for the month and input tax brought forward) are to be offset against the output in determination of the tax payable for the month and before offsetting any tax payable with the Withholding VAT.viii.That the Respondent erred in law and fact by first utilizing WHVAT to offset VAT payable instead of utilizing the accrued VAT credits as intended by Section 17(5) of the VAT Act, 2013. The Appellant has all along objected to this as it contravenes the provisions of Section 17(5) of the VAT Act.ix.That the Respondent in application of the erroneous method to determine VAT refunds payable, has denied the Appellant accumulated withholding VAT amounting to Kshs. 481,863,256. 78. x.That the Respondent’s iTax system is similarly erroneously configured to offset the WHVAT first before considering the input tax brought forward. This is despite the law clearly stating that the input tax (input tax for the month and input tax brought forward) to be offset against the output in determination of the tax payable for the month. Understandably, this has made the Appellant’s refund for the WHVAT as per the objection decision and as provided under Section 17 of the VAT Act on the iTax extremely challenging and not possible.xi.That the Respondent in issuing a decision and then subsequently amending the same without regard to due process or the legality of the amendment, after the client had placed reliance on the earlier decision is a breach of the Appellant’s legitimate expectation.xii.That the Respondent erred in law and fact by seeking to continue relying on their erroneous method of determining refundable VAT despite the objection by the client and the same not being supported in law.xiii.That the Respondent erred in law and fact by issuing the decision dated 14th July 2022 despite being functus officio.

Appellant’s Case 11. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal;i.The Appellant’s Memorandum of Appeal and Statement of Facts dated 8th August, 2022 and filed on 15th August 2022 together with the documents attached thereto.ii.The Appellant’s written submissions dated 15th November, 2022 and filed on 17th November, 2022. 1.The Appellant stated that it applied for a refund of tax based on excess WHVAT amounting to Kshs. 626,707,802. 78. out of which figure, a sum of Kshs. 144,844,546 was refunded, leaving an outstanding amount of Kshs. 481,863,256. 78 yet to be paid by the Respondent.2. The Appellant submitted that it was incorporated with the aim of providing energy solutions. That its business model thus involves importation and supply of white fuel (diesel, premium and illuminating kerosene), heavy fuel oil (HFO) and jet A-1 fuel through the open tender system or company importations.3. It averred that owing to the nature of the business, a majority of the company’s customers are duly appointed withholding VAT agents by the Respondent. That manifestly, its customers thus retained withholding VAT at the rate of 6% prior to the amendment of the TPA which subsequently reduced the withholding VAT to a rate of 2% of the taxable supply. To support its argument, the Appellant relied on Section 42A of the TPA.4. The Appellant contended that its customers therefore deducted, retained, and remitted withholding VAT at the above captured rate. That for the period December 2016 to May 2019, the Appellant had utilized refundable withholding VAT on taxable supplies amounting to Kshs. 719,156,405. 81 which it evidenced by use of individual withholding VAT certificates.5. That vide a letter dated 21st February, 2020 the Appellant applied for the withheld VAT amounting to Kshs. 719,156,405. 81 from the Respondent. That this marked the start of what would be lengthy and frustrating back and forth with the Respondent culminating in the issuance of an objection decision dated 10th September 2021. 6.It averred that the Respondent rejected the VAT refund claim stating that the credit claimed for the respective period were caused by excess input VAT over output VAT and not withholding VAT.7. That prima facie, the rejection by the Respondent was in contravention of Section 17(5) of the VAT Act. That however, before broaching the same, Section 17(1) which the Appellant cited should similarly be appreciated.8. The Appellant submitted that the aforementioned Section provides that input tax incurred on taxable supplies by a registered taxpayer may be deducted from the tax payable by a person on supplies bought by him in that tax period. However, the operations of this provision are subject to exceptions, one such exception being refunds under Section 17(5).9. That the Appellant’s claim for refund of the WHVAT undoubtedly stems from Section 17(5) of the VAT Act.

21. That Section 17(5) unequivocally provides that the excess input tax from the previous tax period is added to the input tax incurred in the current period aggregating to a total input tax which is deducted from the current month’s tax payable.

22. The Appellant averred that the excess credits resulting from the output input analysis is therefore to be carried forward as input tax in the next tax period. That ideally, the use of the word “shall” in Section 17(5) highlights the mandatory nature of carrying forward the excess credits and utilizing them to offset the VAT payable in the current month.

23. That the crux of the dispute with the Respondents herein is the interpretation of the aforementioned provision. That it is trite law that VAT is calculated by subtracting output tax from input tax and the balance places the taxpayer in either a payable or credit position.

24. The Appellant further submitted that it is trite law that as per a reading of Section 17 of the VAT Act, credit position occurs where the input tax exceeds the output tax. Consequently, the excess credit balance is to be carried forward as input tax deductible in the next tax period.

25. The Appellant contended that this ideally meant that the VAT Act under Section 17 does not contemplate a situation where the excess credit will be refunded. That this is of course unless the excess tax was accrued from zero- rated sales or excess tax arose from tax withheld by appointed withholding agents.

26. That pertinently, the aforementioned provision recognizes that there can be a refund where the Appellant has accumulated Withholding VAT, and the same can be claimed for when the registered taxpayer lodges the claim within 24 months from the commencement date.

27. That nevertheless, the law is clear in its wording that where the taxpayer is in a VAT refundable position, the credit is to be carried forward to the next tax period as input tax deductible. That notably, these carried forward credit cannot be refunded, and are simply to be utilized first to offset output VAT in the subsequent month.

28. That inspite of the aforementioned, the Respondent has adopted a system wherein the refundable withholding tax is first utilized to offset VAT payable, and once they have all been utilized, they then resort to using the accumulated VAT credits carried forward.

29. The Appellant stated that this has the net effect of denying the taxpayers a refund of their rightfully accruing and accumulated refunds. That the intention of the Respondent was thus very clear. Noting that the accumulated VAT credits cannot be refunded to the taxpayer, and will instead be simply carried forward to the next tax period, the Respondent chose to first utilize the WHVAT to offset output VAT or payable VAT contrary to the letter and spirit of the VAT Act2013.

30. The Appellant averred that this was the position the Appellant finds itself in, despite the constant and consistent objection by the Appellant to the utilization of its WHVAT to offset the payable VAT, the Respondent insisted on misapplying and misinterpreting the provisions of Section 17(5) of the VAT Act.

31. That it can be noted in the several correspondences between the Appellant and the Respondent that the Appellant had always maintained the position as captured by Section 17(5) of the VAT Act. To support this argument, the Appellant cited contents of its letter dated 21st February 2020, to the Respondent.

32. It averred that similar sentiments were shared in the Appellant’s letter dated 1st October 2020 written on its behalf by its agents. That again, in the said letter, the Appellant objected vehemently to the strange application and interpretation of Section 17(5) in their choosing to apply Withholding VAT first to offset the refundable VAT despite there being sufficient VAT credits carried forward.

33. That the Respondent’s responses have always been standard and can be summarized as per their email dated 22nd July 2022 where it stated as follows;“we have reviewed your workings and noted that credits carried forward have been given priority over WHVAT credit for the periods in utilization against payment returns. However, the correct position is for WHVAT credits for the period to be adjusted first against the return position prior to the credits carried forward being utilized”

34. That in their email dated 27th May 2022, the Respondent wrote to the Appellant and stated that in the determination of the WHVAT refund, “You consider sales for the month, purchases for the month which results in tax due. From the tax due, first adjustment to be affected is WHVAT credits received in the month, followed by credits brought forward from previous period (which is the logic in iTax system)”

35. That to the Appellant’s further distress, the Respondent’s iTax system is similarly programed to offset the WHVAT first before considering the input tax brought forward. That this is despite the law clearly stating that the input tax (input tax for the month and input tax brought forward) to be offset against the output in determination of the tax payable for the month.

36. That the Appellant in addition to restating its understanding of Section 17(5) of the VAT Act 2013, addressed in its and the agent’s letters dated 12th July 2021 and 13th August 2021 the challenges it was having with the Respondents iTax system.

37. The Appellant submitted that it informed the Respondent the iTax system had been set up, calibrated and programmed in such a way that even where the Appellant’s excess credit was attributable to Withholding VAT, the iTax system would show that the credit was arising from normal credit from input tax and would consequently reject the Appellants refund claim.

38. The Appellant averred that the dispute herein is one of interpretation and the issue on interpretation of tax statutes has been canvassed severally. To support its arguments, the Appellant relied on the case of Republic vs Commissioner of Domestic Taxes Large Taxpayer’s Office Ex-parte Barclays Bank of Kenya Ltd [2012] eKLR.

39. That indeed, the Respondent was aware of the correct interpretation of Section 17(5) of the VAT and had even concurred with the Appellant on how Section 17(5) should be interpreted. In their objection decision dated 10th September 2021, issued in response to the Appellant’s notice of objection dated 20th August 2021, the Respondent correctly adjudged the Appellant’s interpretation of Section 17(5) of the VAT Act as trite.

40. It averred that relying on the decision issued, the Appellant planned its affairs accordingly, only to be met with an amendment to the objection decision dated 14th July 2022, issued 11 months later.

41. The Appellant stated that objections to tax decisions are provided for under Section 51 of the TPA and Section 51(11) of the TPA provides that The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.

42. That notably, the first objection decision was issued within the statutory timelines, however, the amendment to the objection decision was issued 11 months later, well outside what has been provided by the law, marring the entire decision dated 14th July 2022 in illegality.

43. The Appellant reiterated that any objection decision issued after the expiry of the statutory 60 days’ period under Section 51(11) of the TPA has no force in law as the Commissioner is already deemed to have accepted the objection at the time of expiry of 60 days from the date of objection. That even more, the Commissioner in this case had already issued an objection decision and confirmed his/her acceptance of the objection.

44. That more fundamental however is that the TPA does not envisage a situation where the Commissioner can make an amendment to an objection decision.

45. The Appellant submitted that the Commissioner’s amendment or withdrawal of the objection decision was an afterthought not in good faith to deny the Appellant payment of refunds lawfully due to it. The Appellant referred to its letter dated 13th January 2022 as evidence to its assertion. That it wrote the aforementioned letter after the objection decision dated 10th September 2021, and requested the Respondent to amend the iTax system to be in compliance with Section 17(5) of the VAT Act, 2013 and the Respondent’s objection decision dated 10th September 2021.

46. That the Respondent instead of reprogramming the iTax system, to enable claiming of the refund by the Appellant, instead unlawfully and without justifiable reasons amended their objection decision dated 10th September 2021. That this was quite concerning as it can be assumed that the amended decision was designed to confirm with the iTax system instead of the law.

47. The Appellant averred that the Respondent in their letter of amended objection decision in paragraph (ii) and (2) indicated that since they had earlier paid Kshs. 143,950,938. 00 and Kshs. 28,184,810. 65 the order of refund determination as described under finding (ii) has been confirmed for consistency.

48. The Appellant submitted that the manner in which the aforementioned payments were determined have been contested in several correspondences. That the Respondent however in their amended objection decision have indicated that they want to be consistent in their method of determination irrespective of their wrong interpretation and implementation of Section 17(5) in which both the input tax brought forward from previous month and the input tax in the current month were offset against output tax first before moving to offset any resultant tax liability with the WHVAT for the month.

49. That ideally, all actions and decisions founded on illegalities cannot be supported in law. To support its argument, the Appellant referred to the case of Macfoy vs United Africa Co. Ltd [1961] 3 All E.R 1169 as quoted in the case of Omega Enterprises (Kenya) Limited vs Kenya Tourist Development Corporation Limited & 2 others [1998] eKLR where Lord Denning delivering the opinion of the Privy Council at page 1172(1) said;“If an act is void, then it is in law a nullity. It is not only bad, but incurably bad. There is no need for an order of the court to set it aside. It is automatically null and void without more ado, though it is sometimes convenient to have the Court declare it to be so. And every proceeding which is founded on it is also bad and incurable bad. You cannot put something on nothing and expect it to stay there. It will collapse.”

50. That in their objection decision letter dated 10th September, 2021, the Respondent agreed with the Appellant about the correct interpretation of the law. That they have now amended their decision not because they believe their earlier understanding of the law was wrong but to retain consistency.

51. The Appellant contended that the Respondent has portrayed insincerity by demanding to retain the use of a wrong interpretation and implementation of the law for purposes of alleged ‘consistency’ despite knowing and understanding as evidenced in their first objection decision dated 10th September, 2021, that the WHVAT should not be utilized before the accumulated VAT credits from the previous months are exhausted.

52. That in any event, it should be noted that upon issuance of the decision dated 10th September 2021 the Respondent’s office was functus officio as the statute does not imbue the Respondent with the ability, responsibility or powers to make amendments or subsequent/follow up decisions. That ideally, upon discharging its statutory burden, the Respondent had no further obligation to reopen the dispute. That the aforementioned principle is critical in ensuring that there is a finality to disputes. Crucially, therefore, the doctrine exists to prevent from the same issue from being determined over and over again by the same body with no finality in mind.

53. The Appellant stated that the functus officio principle was perhaps best stated in the Kenya Supreme Court case of Election Petition Nos. 3, 4 & 5 Raila Odinga & Others Vs IEBC & Others [2013] eKLR wherein it cited with approval an excerpt from an article by Daniel Malan Pretorious, in “The Origins of the functus afficio Doctrine, with specific reference to its Application in Administrative Law,” (2005) 122 SALJ 832.

54. The Appellant similarly relied on the Court of Appeal decision in Telkom Kenya Ltd vs John Ochanda (suing on his behalf and on behalf of 996 former employees of Telkom Kenya Ltd (supra) as cited in the case of John Gilbert Ouma vs Kenya Ferry Services Limited [2021] eKLR that elaborated on the doctrine.

55. The Appellant submitted that the subsequent decision of 14th July 2022 was therefore a breach of the Appellant’s legitimate expectation. The Appellant further relied on the English case of Council of Civil Service Unions vs Minister for Civil Service (1995) AC 374.

56. That similarly, in the case of Keroche Industries Limited vs Kenya Revenue Authority & 5 othersNairobi HCMA No. 743 of 2006 [2007] KLR 240 the court pronounced itself clearly on the issue of legitimate expectation.

57. That manifestly, after issuing the objection decision dated 10th September, 2021 the Appellant planned its affairs in line with the aforementioned decision. To support this the Appellant made reference to its letter dated 13th January 2021. That crucially, the Appellant relied on the promise of refund of the WHVAT by the Respondent to its detriment, after the Respondent issued the amendment to the decision.

58. The Appellant asserted that indeed the decision dated 14th July 2022 was therefore in utter contravention of the principle of legitimate expectation.

59. In summary, the Appellant submitted that it was clear that the Respondent had erred in fact and in law by;a.Misinterpreting Section 17(5) of the VAT Act, 2013 to utilize withholding VAT in the first instance instead of using the Appellant’s accrued and accumulated VAT credits.b.Failing to consider refund of WHVAT in line with Section 17(5) of the VAT Act, 2013. c.By issuing a subsequent decision dated 14th July 2022, amending its decision dated 10th September 2021 in contravention of Section 51 of the Tax Procedures Act.

60. The Appellant was of the view that the issues in dispute were:a.Whether the amended objection decision dated 14th July 2021 was lawfully issued.b.Whether the Respondent has correctly interpreted the provisions of Section 17(5) of the VAT Act, 2013. c.Whether the Respondent has the statutory power to amend objection decisions.d.Whether the Respondent has created ambiguity and uncertainty in law.

Appellant’s Prayers 61. The Appellant made the following prayers:i.That the Appeal be allowed.ii.That the Respondent be compelled to accept refund of the Appellant’s accumulated WHVAT of Kshs. 481,863,256. 78iii.That the Respondent’s amended objection decision dated 14th July 2022 be set aside.iv.That the objection decision dated 10th September 2021 be upheld and the Respondent be compelled to pay Kshs. 481,863,256. 78 as required by the decision.v.That the Appellant’s VAT refund claim be allowed in its entirety.

Respondent’s Case 62. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal;i.The Respondent’s Statement of Facts dated 15th September 2022 and filed on the same date together with the documents attached thereto.ii.The Respondent’s written submissions dated 2nd December, 2022 and filed on the same date.1. The Respondent averred that in April 2020, the Appellant applied for Kshs. 626,707,802 VAT refund covering the period January 2017 to December 2019 and the Respondent processed the claim and refunded Kshs. 144,844,546 to the Appellant in June 2020. 2.The Respondent submitted that the Appellant had initially applied for VAT refunds based on exports but upon failure to provide export confirmation and similarly on realizing that the apportionment formula as provided under Regulation 8 of the VAT Regulations would reduce claims significantly, insisted that the application be processed as Withholding VAT refunds.3. The Respondent averred that a second review of the claim was conducted upon the Appellant’s appeal and on the 22nd July, 2021 the Appellant was informed that additional Kshs. 28,184,810. 65 would be refunded.4. That the Appellant objected to the Respondent’s decision through letters dated 13th and 20th August 2021. It averred that the Respondent reviewed the Appellant’s objection and issued the objection decision dated 10th September, 2021. 5.The Respondent stated that in the objection decision, it stated that; “you are further advised to provide all relevant documents to support the claim as may be required by Refunds Processing Units. This will facilitate in determination of the net refundable amount.”

68. It averred that in order to facilitate determination of net refundable amount the representatives of the parties held a meeting on the 25th May, 2022. That in the said meeting, the Respondent demonstrated that the Appellant could not make a refund application in respect to WHVAT as the withheld VAT credits had been utilized as per the VAT returns.

69. It was the Respondent’s contention that the Appellant through its tax agent requested for another meeting to be held on the 30th May, 2022 but failed to attend the scheduled meeting.

70. The Respondent further submitted that on the 2nd June, 2022 another meeting was held between the parties wherein the Appellant was represented by a new tax agent. That the Respondent again provided a detailed explanation as to why the Appellant could not make a refund application in respect to WHVAT.

71. The Respondent averred that on 14th July, 2022 the Appellant was issued with an amended objection decision based on additional material facts that the Appellant had not disclosed at the review stage and on failure by the Appellant to provide supporting documents and information necessary to process the refund claim.

72. The Respondent reiterated the contents of the amendment to the objection decision dated 14th July, 2022.

73. The Respondent averred that Section 5(3) of the TPA empowers it to amend a decision issued. That the amendment to the objection decision dated 14th July, 2022 was amended in line with Section 5(3) of the TPA which empowers the Respondent to amend a decision issued.

74. The Respondent further averred that the amendments were due to material information that was not availed by the Appellant at the objection stage.

75. It was the Respondent’s submission that the Appellant’s contention that the amendment to the objection decision dated 14th July 2022 was issued out of time is erroneous as Section 5(3) of the TPA does not restrict the timelines within which an amendment to a decision can be made.

76. The Respondent averred that an objection decision is not excluded from the type of decisions that can be amended under Section 5(3) of the TPA.

77. The Respondent averred that in processing refunds application there were several issues to verify before approval of the net refundable amount and Section 17(5) of the VAT Act was just one of the considerations while the other issue were;a.Whether the refund application has been properly lodged in compliance with the procedures as set out by the Respondent and as stipulated in the law.b.The nature of refunds application. Is it a normal refund emanating from making zero rated supply as provided under Section 17(5) of the VAT Act or is it a refunds application arising from tax withheld by appointed tax withholding agents as provided under Section 17(5)(b) of the VAT Act.c.Whether the applicant has accurately declared input and output tax as required under the VAT Act.d.The Respondent has to verify the general tax compliance status of the applicant.

78. The Respondent further submitted that in refunds process taxpayers are required to avail various documents to support any refund application. Copies of exports documents, invoices, audited financial statements and bank statements are some of the supporting documents that may be requested.

79. The Respondent averred that in the objection decision dated 10th September, 2021 the Appellant was advised to provide all relevant documents to support the claim as may be required by refunds processing unit to facilitate in determination of the net refundable amount.

80. It stated that the provisions of Section 17(5) of the VAT Act were correctly applied even after the Appellant insisted that the application be processed as WHVAT refunds.

81. The Respondent further averred that the previous refund applications for WHVAT amounting to Kshs. 143,950,928. 00 were processed using the existing iTax system logic and that the Appellant did not dispute on the same.

82. The Respondent submitted that the logic that was used to process the payment of Kshs. 143,950,928. 00 was to analyze the output tax and input tax for each month separately and then utilizing withholding VAT in any month resulting to a payable position before any credit brought forward is considered.

83. The Respondent submitted that in order to maintain consistency and avoid duplication of credits and giving undue advantage to any taxpayer the same logic had been applied in processing any claim for WHVAT that is applied by any taxpayer.

84. It averred that the net refundable amount can only be determined after the Appellant has provided the necessary supporting documents and has complied with all procedural requirements relating to refunds application which the Appellant failed to do.

85. The Respondent stated that there was no legitimate expectation that arose from the objection decision dated 10th September, 2021 as there was no indication of the amount that would be refunded and the Appellant was further advised to provide documents in support of the claim to the refunds processing unit.

86. The Respondent further averred that legitimate expectation cannot arise where there are clear provisions of the law. It stated that the Appellant acknowledged receipt of VAT refund of Kshs. 143,950,928. 00 that was processed through the purportedly erroneous method.

87. The Respondent submitted that if the VAT refund of Kshs. 143,950,928. 00 was processed through an erroneous method as purported by the Appellant then the Appellant would have declined the amount before objecting and seeking to have the refund processed in a different method.

88. The Respondent averred that vide an email dated 22nd July, 2022 the Appellant was advised that the Kshs. 28,184,810. 65 WHVAT credits were available for processing based on the same method. That the Appellant opted to object and came up with an erroneous interpretation of Section 17(5) of the VAT Act.

89. The Respondent contended that any shift from the previously applied formula would result in giving the Appellant undue advantage over the other taxpayers and a revenue loss to the Government.

90. It was the Respondent’s submission that the contention by the Appellant that the Respondent was functus officio was erroneous as Section 17(5) of the VAT Act allows the Respondent to amend a decision it has issued.

91. The Respondent averred further that the objection decision dated 10th September, 2021 had clearly guided the Appellant to provide documents in support of the claim and did not in any way state the net refundable amount.

92. The Respondent was of the view that the Appeal evokes the following issues for determination;i.Whether the Respondent’s letter dated 14th July, 2022 was proper in law.ii.Whether the Appellant has discharged his burden of proof in the Appeal herein.

Respondent’s Prayers 93. The Respondent prayed that the Tribunal finds:i.That the amendment to objection decision dated 14th July, 2022 is proper in law and the same should be upheld.ii.That this Appeal be dismissed with costs to the Respondent as the same is without merit

Issues for Determination 94. After considering the pleadings and submissions of both parties, the Tribunal is of the view that the Appeal herein raises the following issues for its determination;i.Whether the Respondent’s amended objection decision dated 14th July 2022 was proper in law.ii.Whether the Respondent erred in the manner it applied Section 17(5)(b) of the Vat Act as regards to processing of the WHVAT refund claims of the Appellant.

V ANalysis and Determination a) Whether the Respondent’s letter dated 14th July 2022 amending the objection decision was proper in law. 95. The genesis of this dispute is the Respondent’s letter dated 14th July, 2022 titled “Amendment to objection Decision” wherein the Respondent amended its Objection Decision dated 10th September, 2021.

96. It was the Appellant’s contention that any objection decision issued after the expiry of the statutory 60 days’ period under Section 51(11) of the TPA has no force in law as the Commissioner is already deemed to have accepted the objection at the time of expiry of 60 days from the date of objection. That even more, the Commissioner in this case had already issued an objection decision and confirmed his acceptance of the objection.

97. That more fundamental however is that the TPA does not envisage a situation where the Commissioner can make an amendment to an objection decision. It stated that the Commissioner’s amendment or withdrawal of the objection decision was an afterthought not in good faith to deny the Appellant payment of refunds lawfully due to it.

98. The Respondent on its part submitted that on 14th July, 2022 the Appellant was issued with an amended objection decision based on additional material facts that the Appellant had not disclosed at the review stage and on failure by the Appellant to provide supporting documents and information necessary to process the refund claim.

99. The Respondent averred that Section 5(3) of the Tax Procedures Act (TPA) empowers it to amend a decision issued. That the amendment to the objection decision is in line with Section 5(3) of the TPA which empowers the Respondent to amend a decision issued.

100. The law provides under Section 51 of the TPA guidelines to be followed in an objection process. In particular, as regards objection decision Section 51(8), (9), (10) and (11) provides the actions the Respondent can take upon being served with a taxpayers’ objection. The Section provides as follows;“8. Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".9. The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.10. An objection decision shall include a statement of findings on the material facts and the reasons for the decision.11. The Commissioner shall make the objection decision within sixty days from the date of receipt of—a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”(Emphasis added)

101. From the above provisions of the law it is clear that the process leading to an objection decision is governed by strict timelines.

102. In the present case, the Appellant had made its objection vide a notice and indeed subsequently, the Respondent rendered its objection decision vide a letter dated 10th September 2021. However, the Respondent’s contention was that due to new information during the review of the refund claim it amended the objection decision

103. The TPA however under Section 52 thereof (Appeal of appealable decision to the Tribunal) which provides for what happens subsequent to the issuance of an objection decision only deals with appeal process.

104. It was not in dispute that the Appellant was rightfully under law to appeal to the Tribunal. The tax law however as cited above does not provide for any further action by the Commissioner upon issuance of the objection decision.

105. The Respondent had sought to rely on Section 5(3) of the TPA to amend its own objection decision. Section 5(3) of the TPA provides as follows;“A decision made, and a notice or communication issued or signed, by an authorised officer may be withdrawn or amended by the Commissioner or by that authorised officer, and shall, for the purposes of the tax law to which it relates and until it has been withdrawn, be deemed to have been made, issued or signed by the Commissioner.”

106. The Tribunal was however of the view that although the Respondent had relied on Section 5(3) of the TPA which relates to decisions made in exercise of delegated authority to purport to amend its own objection decision, the provisions of TPA regarding objection and appeal processes are provided under Sections 51 and 52 and more importantly are guided by strict timelines. The law in this case as provided under Section 51(11) of the TPA allows the Respondent 60 days from the date of receipt of an objection or the date it receives documents it may have requested from a taxpayer to satisfy itself before rendering the objection decision. The Respondent in this case amended its own objection decision 11 months subsequent to issuing the same.

107. Looking at the language used in Sections 51 and 52 of the TPA the Tribunal sees nothing that can suggest that the law confers upon the Respondent any powers to review and/or amend its objection decision subsequent to the issuance thereof. The Sections appear to have been calculated to provide finality to the objection proceedings.

108. The legislature in its wisdom made the process leading to objections and appeals under Sections 51 and 52 of the TPA to be governed by strict timelines. If its intention was to allow such leeway including a provision for amended objection decision at any time subsequent to issuing an objection decision as purported by the Respondent, nothing would have been easier than including the same in the law.

109. Regarding legitimate expectation, the Tribunal reiterates the decision in Communications Commission of Kenya & 5 others V. Royal Media Services Limited & 5 others [2014] eKLR, (Supra) where the Supreme Court, after acknowledging that a public body can create legitimate expectation, stated that:“for legitimate expectation to arise, there must be an express, clear and unambiguous promise given by a public authority; that the expectation itself must be reasonable; that the representation must be one that the decision maker was competent to make; and that there cannot be a legitimate expectation against clear provisions of the law or the Constitution.”

110. In this case, the Respondent’s objection decision dated of 10th July 2021 clearly allowed the Appellant’s objection and confirmed that the Appellant was entitled to the WHVAT refund when its stated in part;“We have reviewed the grounds of objection together with the documentation and explanations in support of the objection application and the Commissioner’s decision as provided under section 51 of the Tax Procedures Act is as follows;a.Having confirmed that your claim for VAT refunds for the period January 2017 to December 2019 was in line with the provisions of Section 17(5)(b) of the VAT Act 2013, the Commissioner accepts your grounds of objection and hereby vacates the decision to reject the claim as communicated to you on 22nd July 2021b.”

111. From the above extract of the objection decision it was clear to the Tribunal that even the issue of the documentation, the Respondent had satisfied itself that the Appellant was entitled to the WHVAT refund claim and therefore the least that was expected of the Respondent was to expeditiously process the Appellant’s refund claim. Consequently, the Tribunal found that the Respondent had offended the principle of legitimate expectation by issuing the letter dated 14th July 2022 amending its own objection decision.

112. Accordingly, the Tribunal determined that the amended objection decision dated 14th July, 2022 was not proper in law.

113. Having entered the above finding, the Tribunal did not delve into the second issue for determination namely; Whether the Respondent erred in the manner it applied Section 17(5)(b) as regards processing of the WHVAT refund claims of the Appellant as it had been rendered moot.

Final Decision 114. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is merited and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s amended objection decision dated 14th July 2022 be and is hereby revoked.c.The Respondent is directed to process the Appellant’s WHVAT refund claim as confirmed in the objection decision dated 10th September, 2021 within 90 days of the date of delivery of this Judgement.d.Each party to bear its own costs.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF MARCH, 2023. …………………………ERIC N. WAFULACHAIRMAN………………………………CYNTHIA B. MAYAKAMEMBER……………………GRACE MUKUHAMEMBER……………………ABRAHAM KIPROTICHMEMBER………………………………JEPHTHAH NJAGIMEMBER