[2024] KETAT 573 (KLR)

Hamwe Logistics And Suppliers Limited v Commissioner Of Domestic Taxes (Tax Appeal E104(NRB) of 2023) [2024] KETAT 573 (KLR) (22 March 2024) (Abridged Judgment)

Neutral citation: [2024] KETAT 573 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E104(NRB) of 2023

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

March 22, 2024

Between

Hamwe Logistics And Suppliers Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Abridged Judgment

Background 1. The Appellant is a private limited liability company registered under the Companies Act of the laws of Kenya and incorporated on 28th May 2015. The company undertakes the principal business of supply and retail of building materials.

2. The Respondent is a Principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of the laws of Kenya. Under Section 5(1) of the Act, the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further under Section 5(2)of the Act with respect to performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 1of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenue in accordance with those laws.

3. The Respondent issued additional VAT assessments for the December 2017 and December 2018 amounting to Kshs 5,260,241. 76 and Kshs 5,316,217. 43, respectively, vide assessment order dated 12th February 2021. The Appellant objected to the assessments on 6th June 2022.

4. Upon consideration of the objection, the Respondent issued an objection decision vide a letter dated 29th August 2022.

5. Being dissatisfied with the objection decision, the Appellant made an application to file the Appeal out of time and leave to do so was granted on 9th June, 2023.

The Appeal 6. The Appeal is premised on the grounds as set out in a Memorandum of Appeal dated 24th March 2023 and filed on 27th March 2023 as follows:a.That the objection decision was issued eighty-three (83) days after the Appellant's objection which in itself is out of the statutory timeline therefore has no effect and does not in any way invalidate theAppellant’s objection.b.Without prejudice to paragraph one above, the Respondent erred in fact and in law in refusing to give reasons for the refusal of the Appellant's objection and offered mere generalities.c.The Respondent failed to consider the Appellant’s accounts, invoices, audited financial statements, general ledgers, bank statements, reconciliations of the turnover and other related documents provided to it before demanding for additional income tax.d.That the Respondent erred in its decision by demanding VAT of Kshs 10,576,459. 00.

The Appellant’s Case 7. The Appellant set down its case in its Statement of Facts dated 24th March 2023 and filed on 27th March 2023. However, the Appellant never filed any written submissions as had been directed by the Tribunal on 21st November, 2023.

8. According to the Appellant’s Statement of Facts, the Respondent issued assessment to the Appellant amounting to Kshs 10,576,459. 00 and the Appellant objected to the assessment on 6th June, 2022.

9. According to the Appellant, the Respondent was required under the statute to either accept or refuse (giving reasons) within 60 days upon receipt of the objection. That on the lapse of the 60 days, the Appellant was convinced that the objection had been allowed under the operation of the law.

10. The Appellant averred that the Respondent issued an objection decision on 29th August, 2022 which is 83 days after the Appellant's objection and the same is not admissible under the law.

11. The Appellant also stated that prior to the issuance of the assessment, the Appellant held many working meetings with the Respondent's representatives and provided all the documents requested and the Respondent proceeded to issue an assessment.

12. It is the Appellant’s case that the Respondent did not comply with the provisions of the Tax Procedures Act when issuing the Objection decision which is statute barred and therefore null and void.

13. Finally, the Appellant stated that the Respondent's demand for the said taxes are unfounded, unreasonable, unjustified and not based on any material facts.

14. The Appellant prayed that the Tribunal do find that it is not liable to pay any additional taxes with regards to the months of income and tax periods under review.

The Respondent’s Case 15. The Respondent’s case is premised on its Statement of Facts dated 12th July 2023 and filed on 13th July 2023 together with written submissions dated 15th November 2023 and filed on 21st November 2023.

16. In response to the Appeal, the Respondent relied on Section 5 of the Value Added Tax Act No 35 of 2013 (hereinafter ‘VAT Act’) that provides for charge of tax and mandates the Respondent to charge the same.

17. The Respondent averred that the raised assessments were on undeclared sales and that the Appellant was requested to further justify the same and failed to do so.

18. The Respondent stated that the Appellant was requested to show proof that the supplies it had made should have been classified as zero rated or exempt goods. The Respondent further averred that the Appellant was requested to provide documents but failed to do the same.

19. It relied on Section 59 of the Tax Procedures Act No 29 of 2015 (hereinafter‘TPA’) which states as follows:“(1)For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to theb.furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; orc.attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.”

20. According to the Respondent, where the Appellant makes an objection to the assessments issued by the Respondent, the Appellant is obligated to provide all the relevant documentation it relies on in making the objection but the Appellant failed to do so, leading to the Respondent issuing the objection decision.

21. The Respondent argued that the Appellant failed to discharge its burden of proof contrary to Section 56 of the TPA which provides that:“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect.”

22. In its written submissions, the Respondent relied on the case of Mulherin v Commissioner of Taxation [2013] FCAFC 115, where the Federal Court of Australia held that in tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. The onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.

23. The Respondent further submitted that the Appellant has an obligation to ensure that the objection meets the legal requirements as provided for under Section 51(3) of the TPA but the Appellant failed to provide the specific relevant documents relating to the objection.

24. The Respondent also submitted that having established that no error in its additional assessment, the assessment and objection decision are both right in law.

Respondent’s Prayers 25. In view of the foregoing, the Respondent prayed that:a.The Tribunal finds in their favour and uphold assessment and objection decision dated 29th August 2022; andb.The Tribunal be pleased to dismiss the Appeal with costs to it.

Issues for Determination 26. The Tribunal has considered the parties pleadings, documentation and the Respondent’s submissions and is of the considered view that this Appeal distils into two issues for determination namely:a.Whether the Respondent issued the objection decision dated 29th August, 2022 within statutory timelines.b.Whether the Respondent’s Objection decision dated 29th August, 2022 is justified.

Analysis And Findings 27. The Tribunal wishes to analyse the issues as herein-under.

a. Whether the Respondent issued the objection decision within statutory timelines 28. The Appellant argued that the objection decision was issued eighty-three (83) days after the Appellant's objection which in itself is out of the statutory timeline, therefore has no effect and does not in any way invalidate the Appellant’s objection. The Respondent did not dispute this allegation.Therefore, the Tribunal seeks to establish whether the allegation is true.

29. The Tribunal has examined the pleadings as filed and notes that the Respondent issued assessment orders dated 12th February, 2021. The Respondent conceded that the Appellant objected to the raised assessments on 6th June 2022. The Tribunal has examined the objection application acknowledgement receipt and confirms that the Respondent acknowledged receipt of the objection on 6th June 2022.

30. The assessment orders were issued on 12th February, 2021. Accordingly, Section 51 (11) of the TPA provided as follows:‘‘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.’’

31. Pursuant to Section 51 (11) of the TPA, the Respondent ought to have issued an objection decision on or before 6th August 2022. Instead, the Respondent issued the decision on 29th August 2022. As pointed out above, the Respondent did not challenge the allegation that the objection decision is statutory time barred.

32. In Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR), the court stated as follows:‘‘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 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.’’

33. Apart from that, 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.

34. Similarly, In Vivo Energy Kenya Limited v Commissioner of Customs & Border Control, Kenya Revenue Authority & another [2020] it was held as follows:“The provisions of the TPA are clear that where the Commissioner fails to make a decision on an objection within sixty days, the objection shall be allowed. This means that the objection dated 8th November, 2016 in which the Applicant sought for the revision of the Commissioner’s decision to demand the excise duty amounting to Kshs 127,183,364/= was allowed by operation of the law by dint of Section 51(11) of the TPA. Therefore, the 1st Respondent should not have continued to demand the payment of the excise duty through the letters dated 23rd, November, 2016, 3rd, February, 2017, 3rd, October 2019, 24th October 2019, and 7th, November 2019. All those demands amounted to nothing in law.”

35. Based on the foregoing, the Tribunal finds and holds that the objection decision dated 29th August 2022 is statutorily time barred and the Appellant’s notice of objection is deemed allowed by operation of law.

b. Whether the Respondent’s objection decision dated 29th August, 2022 is justified. 36. Having established that the objection decision dated 29th August 2022 is statutory time barred, this second issue for determination is rendered moot.

Final Decision 37. The upshot to the foregoing is that the Appeal is meritorious. Consequently, the Tribunal makes the following Orders: -a.The Appeal is hereby allowed;b.The objection decision dated 29th August 2022 be and is hereby set aside; andc.Each party to bear its own costs.

38. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K NGALA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBER