[2024] KETAT 1273 (KLR)

H Young &.Co (East Africa) Limited v Commissioner of Domestic Taxes (Tax Appeal E479 of 2023) [2024] KETAT 1273 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1273 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E479 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

August 23, 2024

Between

H Young &.Co (East Africa) Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company duly incorporated in Kenya, dealing in civil mechanical and structural engineering.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. The Respondent conducted an audit of the Appellant’s tax affairs for the period 2013 to 2017 following a tax refund application by the Appellant. The audit covered Corporation tax, Withholding tax, VAT and PAYE for the entire period.

4. On 11th July 2019. the Respondent communicated its findings, confirming that the Appellant had tax credits of Ksh. 451,108,038. 00 with an outstanding liability of Kshs. 169,510,255. 00 inclusive of principal and interest.

5. On 15th July 2022, the Respondent confirmed that the refund allowed amounted to Kshs. 448,671,485. 00 excluding Kshs. 2,436,553. 00 opening tax credits.

6. The Appellant in a letter dated 7th July 2023 requested the Respondent that its PAYE liability for the month of June 2023, amounting to Kshs 16,514,540. 00, be offset against the tax refund due to it.

7. The Respondent replied on 13th July 2023, indicating that the Appellant’s claims were undergoing processing at the refunds Section and were yet to be approved hence the utilisation of the credits was not possible.

8. The Appellant being aggrieved by the Respondent's refund decision lodged this Appeal at the Tribunal on 15th August 2023.

9. On 15th February 2024, by consent of the parties, the Appellant was granted leave to file its Appeal out of time and thus its Notice of Appeal and the Appeal documents were thereby deemed properly filed and served.

The Appeal 10. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal filed on 15th August 2023:a.That the Commissioner erred and misdirected itself in fact and in law in declining to utilize overpaid taxes to offset the Appellant’s current and future tax liabilities.b.That the Commissioner erred and misdirected itself in law in failing to adhere to the provisions of Section 47 of the Tax Procedures Act. 2015. c.That in declining to utilize the Appellant's overpaid taxes to offset the Appellant's current and future tax liabilities, the Commissioner failed to take into account the fact that it had already undertaken an audit and consequently confirmed and ascertained the refunds due to the Appellant twice.d.That the Commissioner erred and misdirected itself in fact and law in declining to utilize the Appellant's overpaid taxes to offset the Appellant's tax liabilities based on reasons not founded on any lawe.That the Respondent's decision is unjust and in breach of Article 47 of the Constitution of Kenya and of the Appellant's legitimate expectation.

Appellant’s Case 11. The Appellant’s case is premised on the following documents before the Tribunal: -a.Its Statement of Facts filed on 15th August 2023. b.Its Written Submissions dated 26th March 2024 and filed on 28th March 2024

12. The Appellant averred that even after confirming the refund amount to which it was entitled, the Respondent failed to process payment since 2019, prompting the Appellant to follow up on the same in 2022 when the Respondent confirmed once again the amount due to the Appellant in its letter dated 15th July 2022

13. That on 25th August 2022, the Appellant applied for waiver on interest and penalties amounting to Kshs. 42,252,512. 00 indicated in the audit findings or 11th July 2019 and 15th July 2022 as the non-payment of taxes was neither deliberate nor by wilful omission or commission and that none of the penalties arose under Section 85 of the Tax Procedures Act. That its application did not elicit any response from the Respondent.

14. The Appellant averred that on 16th December 2022 it communicated with the Respondent confirming that it was in agreement with the Commissioner's findings on the tax refunds for the period 2013 to 2017 as communicated in the letter dated 15th July 2022.

15. The Appellant averred that it sought an offset of its refunds, which had already been ascertained and approved under Section 47 (l) (a) of the Tax Procedures Act. That the overpaid taxes were not in dispute as the same had been confirmed by the Respondent in its letter dated 11th July 2019.

16. The Appellant averred that it made its application for refund under Section 47 of the TPA, which provides;1. Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form—ato offset the overpaid tax against the taxpayer's outstanding tax debts and future tax liabilities; orbfor a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.2. The Commissioner shall ascertain and determine an application under subsection (1) within ninety days and where the Commissioner ascertains that there was an overpayment of tax—a.in the case of an application under subsection (1) (a), apply the overpaid tax to such outstanding tax debts or future tax liability; andb.in the case of an application under subsection (1)(b), refund the overpaid tax within a period of six months from the date of ascertainment and, if the Commissioner fails to refund, the overpaid tax shall be applied to offset the taxpayer’s outstanding tax debt or future tax liabilities.”

17. The Appellant averred that in an email dated 7th March 2023. the Respondent indicated that the confirmation of the refund amount was pending approval of the refund on the iTax system through the issuance of a system-generated receipt.

18. The Appellant averred that the Respondent blatantly disregarded the fact that it had ascertained and approved the refund amounts in 2019 close to four (4) years before the email of 7th March 2023 which indicated that the same was still pending approval.

19. The Appellant submitted that there was no cogent or justifiable reason for declining to offset the ascertained amounts against the Appellant's tax liabilities.

20. The Appellant relied on the case of Tata Chemicals Magadi Limited v Commissioner of Domestic Taxes (large Taxpayers) [2014] eKLR where the court stated:“....The taxpayer who carries on his business in accordance with the law and applies for a refund is entitled to the refund as a matter of rights. The process of verification and processing the claim must, in the words of Article 47 (1) of the Constitution, be efficient and expeditious.”

21. The Appellant further relied on the case of Kenya Data Networks Limited v Kenya Revenue Authority [2013) eKLR; where the Court stated the following:“43. The respondent had a duty to act on the Petitioner’s VAT refunds timeously. While recognising that it is mandated by statute to collect taxes. and while appreciating the pivotal role that collection of taxes plays in a country's economic development and provision of services for citizens. KRA must also always be cognizant of the possible ramifications of illegal action or omissions In dealing with taxpayers, and the impact on investment. revenue collection and the general welfare of the country. While there is no statutory period within which KRA ought to make good tax refund claims. it cannot have any basis for failing to process tax refund claims for several months and, in some cases, several years after they were made. There is no answer to the petitioner's claim for a tax refund for the respondent to demand, in turn, that the petitioner pays arrears of tax. Further. the petitioner is correct when it argues that it is unreasonable for the respondent to withhold tax refunds which are much higher than the amount allegedly due for tax arrears and erroneous tax refunds. I therefore find and hold that the failure by the respondent to consider the petitioner’s application for a refund is a breach of the petitioner’s right to fair administrative action under Article 47(1).”

22. The Appellant averred that the letters by the Respondent dated 11th July 2019 and 15th July 2022 confirmed that the refund amounts were due to the Appellant and that the Respondent ought to have processed the same expeditiously and timeously.

23. The Appellant submitted that its applications for tax refund were made contemporaneously with filing its returns from 2015 to 2019 based on its tax credits at the time.

24. The Appellant averred that the objection acknowledgment receipt was dated 22nd December 2021, which means that by virtue of Section 51 of the Tax Procedures Act, the objection process ought to have been concluded with the issuance of an objection decision within sixty days, that is, by 20th February 2022. That, therefore, the Respondent cannot purport to use the objection as a reason for failing to apply the Appellant's refunds ascertained in 2019 to offset its liabilities.

25. The Appellant submitted that the Respondent produced a refund rejection order issued on 25th May 2023, yet the order related to a refund application made on 29th September 2017, being part of the refund applications that were subjected to audit, and the amount due to the Appellant ascertained.

26. The Appellant submitted that Article 47 of the Constitution provides that:“every person has the right to fair administrative action that is expeditious. efficient. lawful. reasonable. and procedurally fair.”

27. The Appellant relied on the case of Republic v Kenya Revenue Authority Ex-parte L.A.B. International Kenya Limited [2011] eKLR wherein the High Court stated the following:-“In relation to KRA's obligation when dealing with applications for tax refunds: The common law. in its evolution. has defined the rules of conduct for a public authority making a public decision. entrusting the overall control jurisdiction to the hands of the courts of law but for Kenya. such a general competence of the Courts is now no longer confined to the terms of statute law and subsidiary legislation. but has a fresh underwriting in the Constitution of Kenya. 2010. Article 47. imposes a duty of fair administrative action. and [Art. 10(2) (c)j demands ''good governance. integrity. transparency and accountability".

From the facts of the instant case. it is dear to this Court that the respondent failed to deal with the applicant's claim for a VAT refund in the context of (fairness and transparency. accountability or good governance".

28. The Appellant submitted that it had a legitimate expectation that the Respondent having ascertained and approved its refund claims would proceed to offset them in accordance with Section 47 of the Tax Procedures Act.

Appellant’s Prayers 29. The Appellant prayed that the Tribunal finds:i.That the Appeal be and is hereby allowed.ii.That the Respondent's decision dated 13th July 2023 be and is hereby set aside.iii.That the Respondent be and is hereby directed to utilize the Appellant's confirmed and ascertained tax overpayments to offset the Appellant's current and future tax liabilities.iv.That the Respondent be and is hereby restrained from demanding any taxes from the Appellant for as long as the Appellant has not exhausted its ascertained and confirmed tax overpayments, which can be utilized to offset its current and future tax liabilities.v.That the costs of the Appeal be awarded to the Appellant.vi.Any other or further remedies that the Tribunal deems just and reasonable.

Respondent’s Case 30. The Respondent’s case is premised on the hereunder filed documents: -i.The Respondent’s Statement of Facts dated 28th September 2023 and filed on even date.ii.The Respondent’s Written Submissions dated 3rd April 2024 and filed on 4th April 2024.

31. The Respondent raised a preliminary objection to the Appeal on the ground that the Appellant had filed two matters relating to the same issues, that is TAT No. 492 of 2023 and TAT No. 479 of 2023. The Respondent posited that as a result the instant Notice of Appeal dated 14th August 2023 was fatally defective as it was contrary to the Res judicata rule.

32. The Respondent relied on the case of Mohamed Dado Hatu Vs. Dhadho Gaodae Godhana 2 Others [2017] eKLR where the High Court observed as follows concerning the doctrine of res judicata:-“…. The doctrine of res judicata has well been upheld to bar parties from ligating in bits running from one forum litigating and seeking the same remedy while giving their disputes a cosmetic uplifting. This position was acknowledged by the court in the case of HENRY WANYAMA KHAEMBA Vs STANDARD CHARTERED BANK OF KENYA LIMITES, Civil case 560 of 2006, where it stated thus; The doctrine of re judicata prohibits parties by suing in bits and pieces or giving a subsequent case legal fees lifting by removing parties who are part of the earlier and/or filed and determined… I accept the submissions by counsel for the defendants that the doctrine of res judicata would only apply to situations where a specific matter between the same persons litigating in the same capacity has previously been determined by a court of competent jurisdiction but also to situations where either matters could have been brought in were not brought in or parties who could have been enjoined were not enjoined. Parties cannot evade the doctrine of res judicata by merely adding other parties or causes of action in a subsequent suit. They are bound into bring all their cases at once. They are forbidden from litigation in instalments.”

33. The Respondent submitted further that the Appeal herein was premature since the Appellant was clearly informed that the two claims were being processed at the refunds section and were yet to be approved and that utilisation would be done once the claims are processed and approved through the I-Tax system.

34. The Respondent submitted that the delay was occasioned by material disclosures by the Appellant, which necessitated further audit. That thus, lodging an objection by the Appellant led to the reopening of the audit process.

35. Relying on Section 47 of the Tax Procedures Act, the Respondent averred that some of the refunds sought fell outside the stipulated five years.

36. The Respondent averred that it was acting in good faith and that it had undertaken to complete the authentication process in the shortest time possible and inform the Appellant of the ascertained refunds, which the Appellant would thereafter utilise as provided in law.

Respondent’s Prayers 37. The Respondent prayed that the Tribunal finds:a.Upholds the Respondent's Preliminary Objection.b.Dismisses this Appeal with costs to the Respondent as the same is devoid of merit.

Issues And Determination 38. The Tribunal having considered the parties pleadings and submissions was of the view that the issues that fall for its determination are:i.Whether there is a valid Appeal before the Tribunalii.Whether the Respondent erred by failing to offset tax credits against the Appellant’s tax liabilities

Analysis And Findings 39. Having identified the issues that fell for its determination, the Tribunal proceeded to analyse them as here under.a.Whether there is a valid Appeal before the Tribunal

40. The Respondent raised a Preliminary Objection on the grounds that;i.The Appeal was filed out of time without leave of the Tribunalii.That the Appeal herein offends the principle of Res judicata since there was another Appeal before the Tribunal for a similar period filed as TAT No. E492 of 2023.

41. On whether the Appeal was filed out of time without leave of the Tribunal, the Tribunal notes that on 15th February 2024, by consent of the parties the Appellant was granted leave to file its Appeal out of time thereby its Notice of Appeal and the Appeal documents were deemed as properly filed and served.

42. On the Respondent’s contention that there were two matters before the Tribunal on the same issues, the Appellant countered that Appeal No TAT E479 of 2023 was an Appeal against the refund decision dated 13th July 2023 relating to an offset of PAYE liability for the month of June 2023 while Appeal No. E492 of 2023 was an Appeal against the Respondent’s refund decision dated 21st July 2023 relating to an offset of VAT liability for the month of June 2023.

43. The Tribunal’s evaluation of the Notices of Appeal filed by the Appellant in TAT No E479 of 2023 and TAT No E492 of 2023 ascertained that Appeals are founded on two different decisions of the Commissioner each concerning a different tax head. Appeal No E479 of 2023 is an Appeal against the refund decision dated 13th July 2023 relating to P.A.Y.E offset claim for the month of June 2023 while Appeal No E492 of 2023 is an Appeal against the refund decision dated 21st July 2023 relating to VAT offset claim for the month of June 2023.

44. The Respondent’s submission that this Appeal offends the doctrine of res judicata is therefore unfounded as the matter in dispute in this Appeal has not been determined by the Tribunal. As it were, the two Appeals being distinct causes of action merit for separate determination.

45. Having dispensed of with the Respondent’s grounds for preliminary objection, the Tribunal undertook to ascertain the nature of the dispute that was before it for determination.

46. Section 3 of the TPA defines an Appealable decision as:“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;

47. The Tribunal observed that the Appellant’s Notice of Appeal was founded on the Respondent’s letter of 13th July 2023 wherein the Respondent responded to the Appellant’s application for utilisation of overpaid taxes to offset tax liabilities, the response read in part that:“Kindly note that the two claims are currently undergoing processing at refunds section and are yet to be approved. Two cases are pending at LTO Audit Section. Utilisation will be done once the claims are processed and approved through the iTax system.”

48. It is the Tribunal’s considered view that the Respondent’s letter of 13th July 2023 was an administrative correspondence informing the Appellant of the status of its application for tax offset. As such, the impugned letter does not fall within the definition of an appealable decision.

49. Whereas the Tribunal notes the Appellant’s frustration with the Respondent’s delay in determining its various applications for utilisation of overpaid taxes as provided for under Section 47 (2)(1) (a)(b) of the TPA, the Tribunal’s jurisdiction is limited to determination of appealable decisions. Relief for a taxpayer who is aggrieved by the Respondent’s administrative processes is to be found elsewhere.

50. The Tribunal is guided by its decision in Atta Kenya LimitedVs Commissioner of Domestic Taxes Tat Misc. Appl. No. 6 Of 2018 Ruling [2020] eKLR wherein it stated that:“We therefore note that there are clear provisions of law in the TPA that provide for mechanisms to be exhausted before a matter is moved to the Tribunal. The Applicant failed to file an objection to the Respondent's demands and instead approached this Honorable Tribunal for an extension of time to appeal out of time when there was no appealable decision. Under the TPA an "Appealable Decision means an objection decision and any other decision made under a tax law other than (a) a tax decision: or (b) a decision in the course of making a tax decision”.Having made a determination that the Application before us is premature on the basis that the Applicant has not exhausted the internal mechanisms set down by the law before making an application to file an appeal out of time we will not belabour as to whether the Applicant has satisfied us as to the reasons for not filing the appeal on time.Consequently. we find that the application is unmerited and make the following orders: -The Notice of Motion dated 17th May 2019 and filed on even date is hereby dismissed.”

51. The Tribunal therefore finds that the Appeal herein is invalid as the same is not founded on an appealable decision.b.Whether the Respondent erred by failing to offset tax credits against the Appellant’s tax liabilities

52. The Tribunal having found that this Appeal is invalid did not delve into this issue for determination as it had been rendered moot.

Final Decision 53. The upshot of the foregoing analysis is that the Appeal is incompetent 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.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY O. OLUOCHMEMBER MEMBERABRAHAM K. KIPROTICH DR. TIMOTHY B. VIKIRU MEMBER MEMBER