[2023] KETAT 575 (KLR)

Horizons Group Limited v Commissioner of Domestic Taxes (Appeal 700 of 2022) [2023] KETAT 575 (KLR) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 575 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 700 of 2022

RM Mutuma, Chair, EN Njeru, RO Oluoch & D.K Ngala, Members

June 29, 2023

Between

Horizons Group Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act, Cap. 486 Laws of Kenya. It’s a registered taxpayer with offices in Nairobi whose principal business is to rent out serviced office spaces.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority 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 the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 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. Following a Value Added Tax Automated Audit, the Respondent noted that there were inconsistencies detected between purchase invoices declared by various suppliers and sales invoices declared by the Appellant in the filed VAT returns on the Respondent’s iTax platform for the months of January, February, March, April and May 2018.

4. The Respondent sent the Appellant notices to amend the VAT returns and when the Appellant failed to amend, the Respondent raised an assessment against the Appellant of Ksh. 5,046,074. 51 on 15th November 2019 following an audit.

5. The Appellant filed an objection to the assessment on 4th February 2020.

6. The Respondent requested for additional documents from the Appellant and what followed was a correspondence, both physical and on email, between the Appellant and the Respondent.

7. On diverse dates after the Appellant’s objection, the Appellant supplied the Respondent with invoices, bank Statements and a summary schedule of supplier details such as PIN, name, invoice date, invoice number, description of goods/services and the sales value. These documentations don’t bare dates of delivery to the Respondent.

8. There is no other communication attached between the Respondent and the Appellant until the Respondent issued a Notice of Objection Invalidation on 20th May 2021.

9. In its email correspondence of 10th November 2021, the Respondent while specifying the actionable remarks on the documents from the Appellant, it reminds the Appellant to furnish reasons for filing late objections. The Appellant responded to the action list on 22nd November 2021 with a Michell Cotts invoice and payment document

10. On 12th January 2022, the Respondent sent the Appellant an updated action list of pending invoices requiring proof of payment while still requesting the Appellant to provide it with reasons for filing late objection as requested on 10th November 2021.

11. On 27th January 2022 the Appellant remind the Respondent that it had supplied it with a blue box file containing all requested documents; the Appellant offering to avail copies if need be. On the same date, the Respondent indicated that the Appellant’s documents to support its objection were insufficient and issued a final reminder that the Appellant avail the documents requested by 3rd February 2022 failure to which the Respondent was to reject the Appellant’s objection.

12. On 2nd February 2022, the Respondent requested the Appellant to physically visits its offices to discuss and finalize the outstanding matter because the Respondent was of the view that the Appellant appeared to hold a differing understanding of the matter from the Respondent. The Respondent requested the Appellant to provide reasons for filing late objection and actionable remarks on pending issues.

13. The correspondence between the Respondent and Appellant continued and the Respondent having reviewed the documentation provided by the Appellant consequently issued an objection decision for a revised sum of Ksh. 3,037,356. 91 on 25th May 2022.

14. The Respondent indicated that the Appellant’s documentation availed supported only Ksh 2,008,717. 60 of the original assessed amounts of Ksh. 5,046,074. 51.

15. The Appellant being dissatisfied with the Respondent’s Objection decision, lodged its Notice of Appeal dated 20th June 2022 and filed on even date.

The Appeal 16. The Appellant’s Appeal was premised on its Memorandum of Appeal and Statement of Facts both dated 1st July 2022 and filed on 5th July 2022. The Appellant avers that;a.That the Respondent erred in law by imposing VAT on an approach that contravenes the applicable Sections of the VAT Act and Kenyan Jurisprudence.b.That the Respondent erred in law and fact by disallowing input VAT incurred to make taxable supplies contrary to the stipulations of the Section 17 of the VAT Act.

17. That its 26 listed suppliers raised respective invoices to the Appellant who settled the payments via cheques that were processed through its bank accounts held in NCBA Bank, NIC Bank and Guaranty Trust Bank PLC.

18. That it declared its purchases from the said suppliers through filings done on Respondents iTax returns platform and concurrently claimed input VAT using the invoices from the mentioned suppliers for the months under dispute.

19. That it availed invoices, bank statements and summary schedules containing supplier PIN and name.

20. That it incurred taxable supplies that attracted input taxes as per Section 17 of VAT Act which were evidenced by returns filed on the Respondents iTax platform, tax invoices and bank statements.

21. That there is no requirement that input VAT may only be claimed upon reconciliation with the supplier that they have declared the sale is not required. Further, there is no requirement in law that several invoices cannot be settled with the same cheque to the same suppliers.

22. That the Respondent is well equipped with a wide range of legal power to ensure compliance of the Appellant’s suppliers and that this is not shared with the Appellant as stipulated in the principle of non-transferability of statutory duty.

23. That the Respondent cannot be legally allowed to demand VAT from the Appellant as this amount to double taxation contrary to Section 2 and 5 of the VAT Act.

24. That it attached annexures of VAT returns and payment details that are proof that VAT on purchases was remitted by suppliers.

Appelant’s Case 25. The Appellant stated as follows in its Written Submissions dated 10th January 2023 and filed on 18th January 2023:a.That the Appellant claimed input VAT for the months of January, February, March, April and May 2018 in line with Section 17 of the VAT Act using invoices from the mentioned suppliers.b.That the Appellant provided sufficient proof to the Respondent inform of duly filed VAT3 returns, tax invoices and bank statements since the business the Appellant engaged in was subject to VAT.c.That the Respondent has neither suggested that any VAT which was due has not been remitted nor that VAT was not incurred in running the business of the Appellant.d.It is the responsibility of the Respondent to supervise the return preparation and submission by the Appellant’s suppliers and that this responsibility is not shared with the Appellant.e.That the Appellant followed the law and had legitimate expectation that the Respondent would allow its input VAT claims. To further buttress its claim of legitimate expectation, the Appellant went ahead to cite, “Judicial Review of Administrative Action, De Smith, Woolf & Jowell, 6TH Ed. Sweet & Maxwell”

26. In disputing the Respondents averments on input VAT claims by the Appellant, the Appellant relied on the following judgments and rulings in its Appeal;a.Axel Kittel vs Belgian State (C-439/04)b.Belgian State vs Recolta Recycling SPRL (C-440/04)c.Optiven [Taxation] (2006) EUECJ C-354/03 (12th January 2006)d.Shailesh Jagvigen Dattani vs Commissioner of Domestic Taxese.Karshan Limited vs Commissioner of Domestic Taxesf.Fleur Investments Limited vs Commissioner of Domestic Taxes & Another [2018] EKLRg.Commissioner of Income Tax vs Pan African Paper Mills (E.A.) Limited [2018]h.Ukwala Supermarkets Nakuru Limited vs Commissioner of Domestic Taxes

26. The Appellant relied on Section 17 of the VAT Act, Article 47 of the Constitution of Kenya and Section 4 of the Fair Administrative Act to further buttress its Appeal.

Appellant’s Prayer 26. Based on the above submissions, the Appellant’s prayer was for orders that:a.The Tribunal do allow the Appeal.

The Respondent’s Case 26. The Respondent responded to the Appellant’s Appeal through its Statement of Facts dated 4th August 2022 and filed on even date, together with its Written Submissions dated 20th January 2023 and filed on 23rd January 2023.

27. The Respondent submitted that its iTax System detected inconsistencies between the invoices declared by the Appellant for VAT sales and sales declared by some of the Appellant’s suppliers for the tax periods of January, February, March, April and May 2018.

28. The Respondent submitted that it requested the Appellant to rectify the inconsistencies noted and the Appellant failed to act leading to issuance of assessment of Ksh 5,046,074. 51 on 15th November 2019.

29. The Respondent averred that the Appellant lodged a late objection against the Respondent’s assessment on 4th February 2020. i.e. 81 days later.

30. The Respondent averred that the Appellant did not provide all the requested documentations to fully support its claim of input tax and in some cases, the Appellant over claimed the input tax. The Respondent reiterated that it disallowed invoices and annexed a schedule specifically stating reasons for disallowance of each claim.

31. The Respondent submitted that it continued engaging the Appellant to support its claim as indicated in its email trail. Further, the Respondent notes that the Appellant reproduced and attached a schedule at pages XI to XV that were never adduced during objection stage.

32. The Respondent submitted that its decision to partially disallow the Appellant’s objection was in accordance with the provision of the law. The Respondent further submitted that during objection, it requested the Appellant to provide proof of input VAT claim, which the Appellant was unable to fully support; this left the Respondent no option but to issue a revised objection decision on 25th May 2022 of Ksh. 3,037,356. 91

33. To buttress its position, the Respondent has relied on Section 24(2) and 31(1) of the TPA as well as Section 17 (1),(2) and (3) of the VAT Act. The Respondent has also quoted Section 51(3) and 56(1) of TPA to the effect that:- “The burden shall be on the taxpayer that a tax decision is incorrect.”

34. In its Written Submissions, the Respondent submitted that the issues for determination before the Tribunal are;a.Whether the Appellant has discharged the burden of proofb.Whether the its Objection decision is valid

35. The Respondent averred that the Appellant has not discharged its burden of proof because it did not provide all the required documents to support its input tax claim, that the Appellant has introduced new evidence at the appeals stage and that the Appellant has over claimed input tax claims of some of its suppliers.

36. The Respondent relied on the following precedents to support its position that the Appellant did not support its input tax claim;a.Afya Xray Centre Limited vs Commissioner of Domestic Taxes TAT Appeal No. 70 of 2017b.Family Signature Limited vs Commissioner Investigations & Enforcement Nairobi TAT Tax Appeal No. 25 of 2016c.Commissioner of Domestic Taxes vs Structural International Kenya Ltd (Income Tax Appeal No. E089 OF 2020) [2021] KEHC 152(KLR)

37. On the claim that the Appellant introduced new evidence (documents and schedule) at the appeal stage; the Respondent relied on the case of Rahima Traders Limited vs Commissioner of Investigations and Enforcement (Income Tax Appeal E042 of 2021) [2021] KEHC 440 to quash the attempt.

38. In establishing the validity of its Objection decision, the Respondent relied on Section 24(2)- of TPA, 2015 as well as the precedence that was set in Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR.

Respondent’s prayers 39. That the Appellant’s appeal dated 1st July 2022 be dismissed with costs to the Respondent.

Issues For Determination 40. The Tribunal having carefully considered the parties’ pleadings, documentation and Submissions notes that the issues that call for its determination is as follows:-Whether the Respondent erred in confirming the Additional Assessment.

Analysis And Determination Whether the Respondent erred in confirming the Additional Assessment. 41. The Respondent has stated that the Appellant lodged a late objection against the assessment on 4th February 2020 and that despite being requested, did not provide all the requested documentation to fully support the objection disputing the assessment.

42. On its part, the Appellant argued that it provided sufficient proof to the Respondent in form of duly filed VAT3 returns, tax invoices and bank statements. To which the Respondent stated that these were only good in part and amended the assessment in part.

43. The Tribunal has gleaned through the Appellant’s bundle of documents and noted that no further documents were provided before the Tribunal in support of its claim against the confirmed assessment and is therefore persuaded by the Respondent’s argument that the Appellant has failed to discharge its burden of proof as was held in Afya Xray Limited vs Commissioner of Domestic Taxes TAT Appeal No. 70 of 2017 as thus:-“….the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent’s finding after the preliminary finding and after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent’s assessment after all the Appellant by law bears the burden of proof”.

44. To this end, the Tribunal finds that the Respondent did not err in confirming the part of the assessment that remained unsupported by the Appellant by providing documents in support of its Objection.

Final Decision 45. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly issues the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated the 25th May, 2022 is hereby upheldc.Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 29TH DAY OF JUNE, 2023…………..……………….ROBERT M. MUTUMACHAIRPERSON………………………. …………….……………..ELISHAH N. NJERUMEMBER…………………………RODNEY O. OLUOCHMEMBER…………………………DELILAH K. NGALAMEMBER