[2023] KETAT 1015 (KLR)

Hubei Hongyuan Power Engineering Co. (K) v Commissioner of Domestic Taxes (Tax Appeal 818 of 2022) [2023] KETAT 1015 (KLR) (8 September 2023) (Judgment)

Neutral citation: [2023] KETAT 1015 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 818 of 2022

RM Mutuma, Chair, BK Terer, EN Njeru, M Makau & W Ongeti, Members

September 8, 2023

Between

Hubei Hongyuan Power Engineering Co. (K)

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated under the Companies Act and is a registered taxpayer. Its principal business is in the retail sale of construction materials in the form of a hardware shop.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act and the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent issued VAT Auto assessments on 15th November 2019 for a tax liability of Kshs. 2,784,274. 04, being Kshs 1,840,365. 04 and Kshs. 943,909. 00 for April and May 2018, respectively.

4. The Appellant objected to the assessments on 8th June 2020. The Respondent issued an objection decision on 14th June 2022 confirming the tax liability.

5. Aggrieved by the decision, the Appellant filed a Notice of Appeal dated and filed on 1st August 2022.

The Appeal 6. In its Memorandum of Appeal dated 3rd August 2022 and filed on 4th August 2022, the Appellant premised its Appeal on the following grounds; -a)The Respondent erred in law and fact by assessing VAT by disallowing genuinely earned input tax without any basis at all.b)The Respondent erred in law by disallowing the input from the supplies without even confirming from them whether they did supplies to the Appellant.c)The Respondent erred in law by disallowing the inputs without any proof of whether they were genuine or not.d)The Respondent erred in law by not confirming inputs on their iTax portal and whether they have been declared as output sales by the suppliers.e)The Respondent erred in law by not communicating its objection decision to the Appellant, this fact only became known to the Appellant upon visiting its TSO for other matters.

The Appellant’s Case 7. The Appellant set down its case in;a)The Appellant’s Statement of Facts filed on 4th August 2022 together with the documents attached thereto;

8. The Appellant stated that on 15th November 2019, the Respondent issued a VAT Auto Assessment for Kshs. 2,784,274. 04.

9. The Appellant reiterated that on 8th June 2020, it objected to the assessments.

10. The Appellant averred that on 14th June 2022, the Respondent made its objection decision confirming the assessment of Kshs. 2,784,274. 04 without any notification of the objection decision made to the Appellant from the Respondent. It added that this fact came to be known to the Appellant on visiting the TSO for other matters.

11. The Appellant asserted that it claimed the genuinely earned input tax from its suppliers.

The Appellant’s Prayers 12. The Appellant prayed for orders that the Tribunal to:a)Allow this Appeal.b)Annul the Respondent confirmed assessment based on the grounds as well as information contained in the Statement of Facts.c)Award cost of this appeal to the Appellant.

The Respondent’s Case 13. The Respondent’s case is premised on: -a)Respondent’s Statement of Facts dated and filed on 2nd September 2022. b)Respondent Preliminary Objection dated and filed on 2nd September 2022. c)Respondent’s written submissions dated and filed on 20th March 2023.

14. The Respondent stated that the decision to confirm the assessment was premised on the fact that there was no proper objection as the Appellant could not support its late objection. The Respondent further avers that the Appellant was reminded, vide email dated 5th March 2021 and 15th April 2021 to make proper application and support its late objection.

15. The Respondent averred that the decision to arrive at the assessment was justified and had a basis in law as required under the Tax Procedures Act, 2015. The assessment was confirmed and enforcement process initiated on 14th June 2022 as there was no objection on record.

16. The Respondent maintained that the assessments in question were raised through a VAA upon detection of a mismatch and discrepancy in the invoices used by the Appellant.

17. The Respondent asserts that it is not bound by the Appellant’s e-returns, information, or self-assessment and it is empowered to vary the assessments using any available information in its possession and cited Section 24 (2) of the Tax Procedures Act which provides that:-“The Commissioner shall not be bound by tax return or information provided by or on behalf of, a taxpayer and the Commissioner may assess a taxpayer’s tax liability using any information available to the Commissioner.”

18. The Respondent cited Section 17 of the VAT Act and averred that input tax claims are based on the production of the relevant documents. Section 17 (3) states that;“The documents for purpose of subsection (2) shall be; -(a)An original tax invoice issued for the supply or a certified copy;(b)A customs entry invoice issued for the supply or certified copy;(c)A customs receipt and a certificate by the proper officer stating the amount of tax paid, in the case of goods purchased from customs auction;(d)A credit note in the case of input tax deduction under section 16(2); or(e)A debit note in the case of input tax deducted under section 16(5).

19. The Respondent cited Section 56 (1) of the Tax Procedures Act stating that the burden of proof is on the Appellant to produce the evidence challenging the Respondent’s decision to reject the input VAT claim which was legally and procedurally rejected together with the issuance of the assessment.

20. The Respondent asserts that the Appellant did not provide any evidence contrary to the basis of the assessment or confirmation notice.

21. In its Preliminary Objection of 2nd September 2022, the Respondent provided the following grounds:-a)The Appellant’s Appeal is out of time and is in contradiction to Section 52 (1) of the Tax Procedures Act 2015 as read together with Section 13 (1) (b) and (3) of the Tax Appeals Tribunal Act 2013, and Rule 3 (1) (b) of theTax Appeals Tribunal (Procedure) Rules 2015 thus is defective.b)The Appeal is therefore an abuse of the process of the Tribunal and a waste of resources.c)The Appeal lacks merit and must fail.

22. The Respondent submitted that the Appellant had filed an Appeal without adhering to the mandatory rules of the Tribunal on filing an Appeal.

23. The Respondent further submitted that the Appellant is appealing against the Respondent’s decision dated 14th June 2022 wherein it confirmed the assessment issued on 15th November 2019 and the Objection to the assessment was lodged on 8th June 2020.

24. The Respondent argued that in challenging the Respondent’s decision, the Appellant lodged a Notice of Appeal on 1st August 2022 and subsequently filed its Appeal on 4th August 2022.

25. The Respondent relied on Section 13 (3) and (4) of the Tax Appeals Tribunal Act and submitted that when a party fails to lodge the Appeal within the timelines, there are procedures for allowing the party to make an application for an Appeal to be admitted out of time and the Tribunal may proceed to admit the late Appeal if conditions for granting the same are met.

26. The Respondent maintained that since the decision challenged was issued on 14th June 2022, a Notice of Appeal ought to have been filed by 13th July 2022 and subsequent Memorandum of Appeal and Statement of Facts on 27th July 2022 adding that the Appellant has failed to adhere to these provisions without disclosing any reason for the inordinate delay in lodging its Notice of Appeal and Memorandum of Appeal.

27. The Respondent submitted that despite the lateness, the Appellant did not find it necessary and proper to make an application so that the Appeal is admitted out of time or be allowed more time to put in its Appeal.

28. The Respondent cited the case of Nairobi H.C. Misc. Civil Application No 81 of 2011; Republic v Commissioner of Customs Services, Ex-Parte: SDV Transami where the court held that:“It is therefore my view that the decision envisaged under Section 229 (1) was made on 17th August 2010. The demand letter dated 30th December 2010 was a follow-up to the previous demand made upon the Applicant and the Interested Party. Once the Respondent had communicated in August 2010 that tax was due, it was incumbent upon the Applicant to lodge an Appeal within the stipulated or specified period under Section 229. That was not done. Therefore, it was not open or available to the Applicant to lodge an Appeal 5 months after the offensive decision was made. It was not within the jurisdiction and powers of the Respondent to entertain an Appeal outside the time allowed.”

29. Further the Respondent cited the case of Pearson v Belcher CH.M Inspector of Tax Cases Volume 38 which was referred to be Justice Majanja in PZ Cussons East Africa Limited v Kenya Revenue Authority (2013) eKLR when he stated as follows:-“...there is an assessment made by the Additional Commissioners upon the Appellant; it is perfectly clearly settled by cases such as Norman v Golder, 26 T.C. 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect; and of course, he has completely failed to do so. That is sufficient to dispose of the appeal, which I accordingly dismiss with costs.”

30. The Respondent further relied on the holding in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6others [2013] eKLR where it was held that:-“This Court, indeed all courts, must never provide succour and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain, and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goalposts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty, and clarity where issues of rules and their application are concerned..”

31. The Respondent further cited the case of Civil Appeal No. 142 of 2013: Diplack Kenya Ltd v William Muthama Kitonyi (2018) where the court approvingly quoted the case of Daphne Parry v Murray Alexander Carson [1963] EA 546 where it was stated that:-“Though the provision for extension of time requiring “sufficient reason” should receive a liberal construction, so as to advance substantial justice, when no negligence, nor inaction, nor want of bona fides, is imputed to the Appellant, its interpretation must be in accordance with judicial principles. If the Appellant had a good case on the merits but is out of time and has no valid excuse for the delay, the court must guard itself against the danger of being led away by sympathy, and the Appeal should be dismissed as time-barred, even at the risk of injustice and hardship to the Appellant.”

32. To this effect, the Respondent concluded that the Appellant failed to lodge its Notice of Appeal within 30 days and adhere to the timelines provided nor did it make any application to be allowed to lodge an appeal out of time. It added that the Appellant failed to proffer a reason for lodging an appeal out of time as per Section 13 of the Tax Appeals Tribunal Act.

33. The Respondent submitted that an assessment was issued to the Appellant on 15th November 2019 and an objection was lodged on 8th June 2020. It reiterated that the Appellant neither adhered to the timelines of lodging objection nor did it make any application to be allowed to lodge an objection out of time. It added that the Appellant also did not present any reason for its delay.

34. The Respondent argued that after various correspondences with the Appellant asking the Appellant to present reasons for the late objection, it concluded that there was no proper objection and confirmed the assessment in accordance with the law and there are no reasons to fault the decision.

35. That the holding in the case of TAT Appeal No. 250 of 2021 (Lakeside Tourist Lodge v Commissioner of Domestic Taxeswhere the court stated:“From the foregoing, it is apparent that the Appellant’s Objection Notice was filed out of time and contrary to Section 51 (2) of the TPA. The said Objection Decision is thus invalid and not proper in law.The Appellant upon defaulting in timeously lodging its Notice on Objection had a remedy to sanitize the late Notice of Objection through seeking for leave of the Respondent to enlarge time for lodging the Objection in pursuant to the provisions of Section 51 (6) of the Tax Procedures Act, this Section reads as follows:-“A Taxpayer may apply in writing to the Commissioner for an extension of time to lodge a Notice of Objection.”The Appellant having failed to avail to itself the remedial provision for the enlargement of time, the Notice of Objection lodged on its part is to that extent invalid, incompetent and unsustainable in law.Having found that the Notice of Objection was incompetent the Tribunal does not need to deal with the other issue that fell for its determination as it has been rendered moot. In any event, with the invalidation of the Notice of Objection, it follows that the tax assessment is unaffected.”

The Respondent’s Prayers 36. The Respondent, therefore, prayed for the Tribunal to:a)Uphold the decision as proper and in conformity with the provisions of the law.b)Dismisses the Appeal with costs to the Respondent as the same is devoid of any merit.

Issues For Determination 37. Gleaning through the Memorandum of Appeal, the parties’ Statement of Facts, and submissions, the Tribunal puts forth the following issues for determination:a.Whether the Objection Decision dated 14th June 2022 was proper in law.b.Whether the Notice of Appeal dated 1st August 2022 is proper in law.c.Whether the Appellant is liable for the tax demanded for by the Respondent.

Analysis And Findings 38. The Tribunal wishes to analyse the issues identified herein under.

a. Whether the Objection Decision dated 14th June 2022 was proper in law. 39. The Respondent submitted that an assessment was issued to the Appellant on 15th November 2019 and an Objection was lodged on 8th June 2020. It reiterated that the Appellant neither adhered to the timelines of lodging objection nor did it make any application to be allowed to lodge an objection out of time. It added that the Appellant also did not present any reason for its delay.

40. The Appellant argued that on 14th June 2022, the Respondent made its objection decision confirming the assessment of Kshs. 2,784,274. 04 without any notification of the objection decision made to the Appellant from the Respondent. It added that this fact came to be known to the Appellant on visiting the TSO for other matters.

41. Section 51 (4) of the Tax Procedures Act, No. 29 of 2015 provides that: -“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.”

42. Perusing through the documents in the matter herein, the Tribunal notes that the Respondent issued an assessment on 15th November 2019. The Appellant lodged an objection via iTax on 8th June 2020. The Respondent then informed the Appellant of its late objection on 3rd May 2021 subsequently confirming the assessment on 14th June 2022.

43. It is, however, not lost on the Tribunal that the provision of Section 51 (4) of the Tax Procedures Act was amended after the occurrence of the current dispute. The former Act provided the following before the amendment: -“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged.”

44. The Tribunal observes that whereas the Appellant was late in lodging its objection to the assessment issued by the Respondent, the Respondent acknowledged receipt of the notice of objection and issued a notification of the lateness of the objection to the Appellant on 5th March 2021 and on 15th April 2021, almost 11 months later contrary to the provisions of Section 51 (4) of the Tax Procedures Act.

45. It is the Tribunal’s position that 11 months after the lodging of the notice of objection is inordinately long for the Respondent to inform the Appellant of the same. The provision of Section 51 (4) of theTPAis framed in mandatory terms and calls for strict adherence by the Respondent.

46. Accordingly, the Respondent having failed to notify the Appellant of the invalidity of its objection within the stipulated time is deemed to have allowed the same and was obligated to issue an objection decision with sixty (60) days thereof in accordance with Section 51 (11) of TPA.

47. The Respondent however, issued an objection decision on 14th June 2022 fully rejecting the objection dated 8th June 2020 which was 676 days beyond the date when the objection decision ought to have been issued and by which time the Appellant’s objection was deemed to have been allowed by operation of the law pursuant to the provisions of Section 51 (11) of the TPA.

48. The Tribunal, therefore, finds that the decision dated 14th June 2022 was not proper in law.

49. Having established that the objection decision of 14th June 2022 was not proper in law, the Tribunal shall not delve into the other issues for determination as the same have been rendered moot.

Final Decision 50. The upshot to the foregoing is that the Appeal is merited and the Tribunal consequently, makes the following orders; -a)The Appeal be and is hereby allowed.b)The Respondent’s objection decision confirming the assessment be and is hereby set aside.c)Each party to bear its own costs.

51. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF SEPTEMBER, 2023ROBERT M. MUTUMA................CHAIRPERSONBONIFACE K. TERER.......................MEMBERELISHAH N. NJERU.........................MEMBERMUTISO MAKAU..........................MEMEBERDR. WALTER ONGETI....................MEMBER